Argentina - Agricultural Sector Review (Vol. 2 of 2) : Technical Annexes

Document of The World Bank FOR OFFICIAL USE ONLY CONFIDENTIAL Report No. 7733-AR N ARGENTINA AGRICULTURAL SECTOR REVIEW Volume II: Technical Annexes June 30, 1985 Agricultural Operations Division IV Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of FOR OFFICIAL USE ONLY CONFIDENTIAL ARGENTINA AGRICULTURAL SECTOR REVIEW Volume II: Technical Annexes Table of Contents Annex 1: Cereals and Oilseeds Subsector Annex 2: Grain Marketing Annex 3: Livestock Annex 4: Horticulture Annex 5s Forestry Annex 6: Fisheries Annex 7: Agricultural Pricing and Trade Policy Annex 8: Stazistical Annex ANNEX 1 ANNEX 1 ARGENTINA AGRICULTURAL SECTOR REVIEW CEREALS AND OILSEEDS Table of Contents Page No. I. BACKGROUND ............................................ 1 A. Importance of the Subsector ........................ 1 B. Yields and Inputs .................................. 1 C. Resource Base ...................................... 2 D. Production Trends .................................. 3 II. TECHNICAL SERVICES .................................... 5 A. General Effects of Technology ...................... 5 B. Technology Transfer ................................ 6 Mechanization .................................... 6 Seeds ........................................... 7 C. Institutional Development .......................... 8 Public Sector .................................... 8 Private Sector ................................... 9 Producer Cooperatives ............................ 10 PrIvate Advisory Services ........................ 10 Regional Agricultural Experimentation Groups (CREA) ................... 10 D. Use of Environmental Technologies .................. 11 E. Recommendations .................................... 13 Institutional Development ........................ 13 New Crop Research ................................ 13 Improving Coordination Between Private and Public Sectors ................................. 13 Future Strategy .................................. 14 List of Tables 1. Area Harvested of Major Grains and Oilseeds, 1970-1988 15 2. Production of Major Grains and Oilseeds, 1970-1988 .... 16 3. Relative Yields Among Major Exporters ................. 17 4. Cost Comparisons Among Major Exporters ................ 18 5. Land Use Classification ............................... 19 6. Yields of Major Grains and Oilseeds, 1970-1988 ........ 20 7. Estimated Gross Revenue per Hectare ................... 21 8. Input Use ............................................. 22 9. Estimated Tractors in Service and Horsepower .......... 22 10. Tractor and Farm Machinery Sales ...................... 23 11. Professionals Involved in Technology Difussion ........ 24 List of Figures 1. INTA's Organization, 1986 2. Total Institutional Resources Available to INTA, 1958-1986 3. Centros Regionales ANNEX 1 Page 1 of 27 ARGENTINA AGRICULTURAL SECTOR REVIEW CEREALS AND OILSEEDS I. BACKGROUND A. Importance of the Subsector 1. Argentina is the world's second largest exporter of coarse grains and soybeans and the fifth largest wheat exporter. Cereal and oilseed production represents the most prevalent farming activity. This subsector now comprises almost 80Z of the planted area and produces over 60Z of value-added from crop production. More than one-half of all output is traded, with export revenues providing 50-60Z of the value of all merchandise exports. .?. Cereals and oilseeds production virtually stagnated between 1940-60. However, from the early 1960s through the mid-1980s output increased by 3.8Z per year, grain exports by 5.5Z per year, and oilseed and product exports by 7.7% per year. This trend accelerated in the early 1970s, with an annual increase in output of almost 62 during 197C-85 (Table 1). Since the record harvest of 41 million tons in 1985, production has slowly declined to 33 million tons by 1988 (June through July crop year) due to reduced plantings and lower yields (Table 2). The value of subsector exports accordingly dropped from US$4.5 billion in 1985 to US$2.5 billion in 1987 while tonnage fell from 24 million to 12 million. Output increased in the crop year 1988189, but early projections of almost 40 million tons were significantly reduced by drought, and the crop out-turn is likely not to have exceeded 30 million tons. 3. Yields and Inputs 3. Among major world exporters of cereals and oilseeds, Argentina achieves comparable yields des'ite its land-extensive form of production. * This is due to the favorable soils and climatic conditions found in the Pampa. Among the major wheat exporters excepting France, Argentine yields in recent years have ranked second to the US and ahead of Canada and Australia; soybean yields are at levels achieved in the US and considerably better than those of Brazil (Table 3). 4. However, corn yields rank far behind competitors due to rainfall patterns in the Pampa, which result in inadequate moisture during critical growing stages and produce drought conditions every three years. Levels of use of modern inputs remain far below those of its competitors. For example, Argentina has been able to fertilize only about one-quarter of Its wheat for the last few crops, while US farmers for a number of years have fertilized more than 80% of their wheat. 5. Nevertheless, comparatively high yields and extensive farming practices make Argentine farmers the lowest-cost produce-.s in the major ANNEX 1 Page 2 of 27 wheat, corn, and soybeans are quite substantial.1 On-farm production cost per ton of whert and corn is about 40-45Z of that of the highest-cost producer and about 50-60% of its nearest competitor. This advantage stems from low input use and the low cost of labor and land. For example, soybean costs are 70% those of Brazil, Argentina's nearest competitor, and production costs per ton are one-half of those of the US, which has production costs higher than either Argentina or Brazil due to its higher labor and land costs (Table 4). C. Resource Base 6. The main producing area is the Pampa region where 90% of cereals and oilseeds are grown. The Pampa covers some 45 million ha in the eastern and central part of the country where deep, fertile, soils, relatively flat topography, and climatic conditions favor cereals and oilseeds, as well as the cultivation of pastures.2 Ou. of approximately 29 million ha of agricultural land in the region's core provinces of Buenos Aires, Santa F6, and C6rdoba, 5.4 million ha have been classified as suitable for continuous annual cropping, 10.1 million ha can be cropped seven years out of ten, and 13.5 mil.ion half of the time (see Table 2). The region is broadly homogeneous permitting a relatively high degree of substitutability. Five crops--wheat, corn, grain sorghum, soybeans, and sunflower--comprise over 80? of the cereal and oilseed area and are grcwn throughout the region. Farming enterprises ger -ally are family-owned and operated and are commercially-oriented, aithough they are relatively small compared to cereal and oilseed farms in otaer major exporting countries. Cropping is frequently mixed with extensive livestock activities, typically cattle and sheep raising; moreover, semi-permanent pastures are important aspects of crop rotation, especially on large farms in the less humid areas. 7. The Pampa can be divided into six agroclimatic zones with fairly distinct cropping patterns and levels of livestock activity. Of the six, the corn zone (zona maicera) is the most heavily cropped. It is located in northern Buenos Aires, southern Santa F6, and C6rdoba provinces. Of almost 6 million ha of arable land, some 4.8 million ha can be cropped each year. The traditional crop is corn followed by wheat; however, soybean production has risen sharply since the 1970's and is now the primary crop. The central zone zona centro), located to the west and north )f the corn zone, in the Province of C6rdoba, is the second most cropped area averaging 1/ Cross-country comparisons present many problems, including the representativeness of crop models, compatibility of cost methodologies, variations in yields, and exchange rates. All of the available studies, however, show a decided cost advantage for Argentine production; see, for example, F. Cirio and M. Regunaga, "La Producci6n de Granos Argentina frente a los Condicionamientos del Mercado Mundial" published in Los Paises 'roductores de Cereales ante la Crisis Agricola Internacional, SAGyP-IICA, 1987; G. Flichman, "Costos Comparativos de Producci6n de Trigo y Maiz," SAGyP-IICA, 1987; and G. Ortmann el al., "International Trade and Economic Development: Examples of Comparative Costs in Agricultural Commodities," Ohio State University, presented at the Global Development Conference, University of Maryland, September 1986. 2/ No other types of crops are grown in the Pampa except for some potato production in the southeast and horticultural crops grown around the ANNEX 1 Page 3 of 27 2 million ha during the 1981-85 period. In fact, the area planted has expanded since the early 1970s. Less humid than the corn zone, grain sorghum has an important place in the cropping mix along with corn and wheat. The area known as the sea and mountain zone (zona mar y sierra) is located in southeastern Buenos Aires Province. Two-thirds of the 3.3 million ha of agricultural land can be croppea yearly. Wheat is t e mainstay of three districts, which are referred to as the wheat zone (zona triguera). Recently, sunflower also has become a major crop. To the west lies the southern part of Buenos Aires Province where soil and climate are much less favorable for annual cropping; here pastures are an important part of crop rotations, which mainly include wheat and sunflower. 8. The two remaining zones--zona cria and zona invernadera--are oriented more to livestock activities, although mixed farming is traditionally practised and grain and oilseed production has gained in importance. The breeding zone (zona cria) lies in the central and eastern part of Buenos Aires Province. Dairy farming occurs mostly around the city of Buenos Aires. Despite favorable climatic conditions, annual cropping is limited by irregular topography and poor drainage. The principal crops are corn, wheat, and sunflower. The winter-pasture zone (zona invernada), where beef fattening takes place, is in the less humid western reaches of the Pampa. Coarse grain is grown in the northern part of this zone, and wheat in the south. D. Production Trends 9. General trends show highly variable or static production for cereala but strongly rising production of soybeans and sunflower during the past ten years (Table 1). The total value of Argentina's agricultural exports almost doubled from 1976 to 1982, but declined by US$857 million between 1982 and 1986 (see Table 3). 10. Grain Crops. The three major cereal crops are wheat, corn and sorghum. Young wheat sovings are often grazed before allowing them to grow out for grain harvest. Oats, barley, and rye also are used for this purpose, although oats and rye are normally grazed. Production and yields for wheat range from 9-15 million tons at 1.6-2.2 tons per ha; corn 9-12 million tons at 3.0-3.5 tons per ha; and sorghum 3-7 million tons at 2.9-3.3 tons per ha. Yields of these crops generally have remained .the same since 1977-78. On average, about half of the wheat, one-third of the corn, and 12-15Z of sorghum are exported. Low international prices depressed total cereal production in the mid-1980s, which dropped from a high of 33.0 million tons in 1982-83 to 24.3 million tons in 1986-87. 11. Oilseeds Crops. Emergence of the two most important oilseed crops--soybeans and sunflower--occurred only recently in Argentina. Soybeans were a very minor crop until 1976, and proved an excellent one for the humid Pampas, where they have increased rapidly in area since the late 1970s (Figures 1 and 2). By 1988, soybean production was estimated to exceed 9 million tons, the export portion (90Z +) of which will return close to US$1.8 billion to producers-- about 35Z of the entire agricultural sector. This spectacular rise is attributed to recent favorable prices, development of a marketing infrastructure, and on-farm adoption of technology, most of which was available by the mid-1970s. Moreover, the yield curve for soybeans continues strongly upward, increasing from about 1.5 tons per ha in the early 1970s to about 2.0 tons per ha by the mid- 1^ % it fLP, ..r 2 ANNEX 1 Page 4 of 27 12. Sever,-l advantages accrue to the soybean in Argentina: it has relatively few pests; requires little or no fertilization; is less prone to drought than corn; fits well into the rotation (either as an early-or late- season crop); is readily mechanized; and provides the highest gross return per ha (US$78.9) of all field crops. Moreover, the excellent technology developed over some six decades in the northern hemisphere fits Argentina's conditiors almost perfectly--even better than in North America judging by current yields (2,048 kg per ha during 1981-85 versus 2,018 kg per ha in the US over the same period). Under favorable conditions like those of 1988, good farmers often can average 3.0-3.5 tons per ha over extensive areas. 13. The market forces driving sunflower production are similar to soybeans, namely the worldwide demand for vegetable oil and proteinaeous meals. However, sunflower is more widely adapted throughout the Pampa (northern and southern Buenos Aires). including contiguous areas of the drier Pampa, and northward into Santa Fd and Chaco. Although yields are lower than for soybeans (about 1 ton per ha versus 2 tons per ha), sunflower has a wider adaptive range, particularly in drier and cooler regions under less favorable soil conditions. The recent spread of hybrid "sunseeds" in the early to mid-1980s adds another dimension to the use of this crop. The new hybrids, grown under favorable conditions, easily exceed 2.0-2.5 tons per ha and possess greater tolerance to moisture stress. 14. Linseed or flax (for seed) is grown widely in roughly the same areas as sunflower, but is somewhat more concentrated in Parand. Production shows a decline from a high of 954,000 tons in 1977-78 to only 434,000 tons in 1985-86. Yields are also low, averaging only 0.8-0.9 tons per ha. Future production is unlikely to increase significantly unless world demand for special drying oils rises dramatically. 15. Groundnut (peanut) is an important crop in the sandy belt of Central C6rdoba. Although well-adapted to this area, groundnut is unlikely to expand much beyond its present zone. Relatively little of the nut crop is crushed, since it is mainly used as a condiment. 16. Special and :ndustrial Crops. These crops were not studied in detail since they are grown only to a limited extent and only in a few areas, primarily for import-substitution. Tobacco, produced mainly in Salta and, to a lesser degree, in Corrientes and Misiones provinces, appears to have reasonably secure internal and export markets (generally equal). It is sold to Masseline Particular (Phillip Morris) and Noblessa Company (BAT). Sugarcane production is confined to areas in north-central Salta and adjacent Jujuy and Tucumin provinces. Production is currently depressed by low world prices. Cotton is grown in the northeastern half of Formosa, much of Chaco, eastern Santiago del Estero, and northern Santa F4 provinces. The outlook for cotton will depend on both domestic and international markets. ANNEX 1 Page 5 of 27 II. TECHNICAL SERVICES A. General Effects of Technology 17. The 802 increase in grain and oilseed production in Argentina over the last 25 years can be traced directly to the widespread adoption of technological innovation, including the use of new seed varieties, pesticides, and mechanized farm equipment. Also contributing to productivity gains were improved farm management practices and new crop rotations, but fertilizer usage is still low. Argentine farmers are generally open to innovation, and actively seek and adopt technologies. In the more crop-intensive areas, information spreads quickly and technology gaps between farmers are relatively short-lived. 18. The impact of these technological advances in the subsector can be measured by physical output per ha harvested between 1970 and 1985. Productivity increases were led by sunflower at 4.5Z per year, followed by soybeans and grain sorghum at 3.72, wheat at 3.5%, and maize at 3% (see Table 8). Improved technology' and the greater emphasis given to crop production is even more vividly portrayed by output per ha planted: a 6.6Z annual increase for sorghum, 4.72 for wheat, 4.52 for both soybeans and sunflower, and 3.82 for maize. 19. These productivity gains helped offset falling real prices for grains and oilseeds in world markets during the 1980s. For example, real prices of cereals and fats and oils have continued to fall since 1981 and for the last three years stood at one-half the average for 1979-81 (see Table 10). Despite the sharply downward price movements, Argentine farmers on average were able to sustain and even increase gross value per ha throughout most of 1980s, showing Ligh physical output per ha (Table 16). 20. Effect in Planted Area. In stark contrast to productivity gains, the net area planted to cereals and oilseeds has increased by only 0.7% per year. Since technical advances and product prices favored cropping over livestock activities, in some areas crop rotations shifted away from semi- permanent pastures. In Pergamino, the heart of the maize zone, the cattle herd declined by 60% between 1969 and the early 1980s. Not only did herd liquidation take place in response :o more lucrative cropping alternatives, but in some areas the soil's ability to support mixed farming was undermined. For example, in southern Santa F6 Province, fencing was pulled up or allowed to deteriorate along with other livestock facilities. This indifference to maintaining livestock infrastructure is widespread, with investment in wire fences alone declining from an average of 11,000 tons per year during the early 1970s to 6,000 per year by the mid-1980s (Table 6). 21. Dramatic changes also took place in the allocation of land between competing crops, both in response to the availability of new technologies and to relative crop price movements. The planted area devoted to oilseeds expanded from 152 to 452 of the total from the early 1970s to the present, while wheat suffered a modest decline from about 35% to 302; however, the share of coarse grains fell sharply from 50 to 252. Soybeans represents most of the expansion in oilseeds. Introduced on a large scale in the early 1970s, soybeans expanded to an estimated 4.8 million ha by 1988, now representing 252 of the total area. Much of this area represents double- cropped land (Table 2). ANNEX 1 Page 6 of 27 22. The expansion of soybeans was abetted by the adoption of improved technology. For example, the use of herbicides helped farmers control weed infestation without the traditional recourse to pastures, while the use of early-maturing Mexican wheat varieties and the greater availability of tractors enabled farmers to double-crop soybeans after wheat, which now is common practice--over 70Z of soybeans are grown as a second crop. Including soybeans in the rotation gives an even greater flexibility to the subsector, enabling producers to diversify to offset major declines in coarse grain prices, which by 1987 had fallen to 35-40% of their 1970 real levels. B. Technology Transfer 23. Technology generation, validation and diffusion is carried out by both public and private sectors. In the public sector, the National Institute for Agricultural Technology (INTA) and the u4iversities (particularly the University of Buenos Aires) are involved in providing agricultural technical services. Several private sector agencies also participate in technology development, applied research, validation, and diffusion efforts. These include the seed companies (both national and multinational), agrochemical and fertilizer companies, farmer cooperatives, subscription organizations (CREA), and a host of independent advisors. In addition, a considerable number of retail input suppliers (seeds, agrochemicals, and fertilizers) employ agricultural experts (ingenieros agr6nomos) to assist their customers. The influence of both sectors in the key areas of mechanization, seed development, and inputs is explained below. Mechanization 24. Faced with growing international competition, by the 1950s GOA policies encouraged domestic production of farm equipment. Four foreign tractor manufacturers were licensed to form branches, and by the late 1960s the use of tractors was generalized throughout the Pampean region. The domestic manufacture of harvesters preceded the use of tractors but their use was not widespread until the 1960s. Mechanization was induced by: (a) the need to address the labor supply problem: (b) the favorable impact of tax incentives and negative interest rates; (c) credit availability; and (d) high crop prices. 25. Investment in tractors and farm machinery has been fundamental to increasing productivity. The intensification in cropping demanded greater availability of traction for more timely farming practices, and new technologies required more specialized equipment, such as seed drills and pesticide sprayers. Investment in farm machinery continued its rapid growth through the mid-1970s. Although sales began to taper off by the end of the decade, more powerful tractors were purchased, averaging close to 100 hp per unit. For example, tractor purchases in 1984 were equal to those of 1974 when measured in terms of total horsepower but were only 62Z of the earlier unit level (Table 8). Despite the use of more powerful tractors, since 1978 horsepower per hectare has declined. In contrast, sales of farm machinery, especially seeders and sprayers, continued at a healthy pace until 1985; however, purchases have declined considerably since then. 26. Offsetting the decline in machinery purchases has been the greater efficiency in the use of available tractors and other farm machinery ANNEX 1 Page 7 of 27 through the development of contracted machinery services. Custom harvesting of grains and oilseeds has long been standard practice in the Pampa, and contract farming is significant in the major growing areas. In some parts of the maize zone, up to 502 is reportedly farmed by contractors; moreover, much of the rapid diffusion of technology can be attributed to these contractors, who have also helped the subsector overcome small-farm constraints that normally inhibit capital investments in tractors and other machinery. Seeds 27. Initially, the public sector was the sole participant in hybrid seed development, when the first corn hybrids were produced in the 1940s. During the 1950s and 1960s, policies favoring private-sector participation were implemented and both sectors contributed to research efforts. Recently, the public sector's role in technical innovation has diminished considerably. This change was encouraged by deliberate policies to: (a) transfer genetic and human resources to the private sector; (b) release hybrid seed research results generated by the public sector into the private domain; and (c) enable private researchers to profit from innovations. 28. It is difficult to determine the effect of private-sector participation in hybrid seed development because of overlapping research and production. Initially, wheat varieties containing Mexican germplasm were developed by INTA, with two private enterprises later joining the effort. However, applied research into soybean cultivation resulted from a joint effort by INTA and the University of Buenos Aires. In 1970, the Permanent Commission for Developing Soybean Cultivation was created. It included technical personnel from the public sector, with representatives from private industry and marketing as a coordinating group. Interests and needs of the different participants were reconciled, after which practically all activity related to soybeans devolved to the private sector. INTA still participates in soybean research programs. Currently, genetic research programs are managed jointly through agreements with the private sector. 29. Hybrid seed and improved varieties have been readily adopted by Argentine cereal and oilseed farmers. The use of maize and sorghum hybrids, introduced in the 1950s and expanded during the 1960s, now accounts for almost 1002 of the planted area. More recently-introduced sunflower hybrids have been adopted at a more accelerated pace, increasing from 15% of the area planted in 1970 to 60% by the early 1980s. Early- maturing Mexican wheat varieties, first made available in 1973, accelerated in proportion from less than 1Z of the wheat area to 602 in 10 years--with heavy use in the major wheat-producing areas, 902 in the maize zone, and 752 in the sea and mountain zone. The application of agricultural chemicals, particularly herbicides, expanded at over 32 annually, as the need for weed control measures increased with new tillage practices and rotations.3 Public sector activities were mainly in the areas of setting tariff policies which encouraged herbicide imports that began in 1976. 3/ Time series data on agricultural chemical use are not available. The growth rate is for imports, which constitute the bulk of supply (Table "WrJ,A I. Pave 8 of '7 Agrochemical use has increased slightly. but is limited by production costs that are higher than in most countries. Also, there is a lack of adequate research on application rates and methods.. However, in 1984 the public sector initiated the National Fertilizer Program, wherein the GOA imported fertilizers, distributed them through cooperatives, and received payment- in-kind from the farmers. This effectively lowered the price/cost ratio, and a payment-in-kind program was set up to finance fertilizer purchases. 30. Fertilizer is a major technological innovation that so far has contributed little to gains in productivity because of its high cost. Argentine grain and oilseed farmers have traditionally shunned the use of more technically advanced seed/fertilizer input packages. Experimental trials suggest that under current growing conditions in the Pampa, wheat would benefit from fertilizer applications; however, despite intensified use of more responsive wheat varieties, unfavorable fertilizer/crop price relationships still impede increased use of fertilizers. Only in the lasc three years, under the ongoing government Plan Canie program to promote its use, has fertilizer reportedly been applied to as much as 25Z of the crop. C. INSTITUTIONAL DEVELOPMENT Public Sector 31. INTA was established in 1956 to: (a) improve farm management techniques; (b) continue on-going research projects and expand their scope; and (c) concentrate on the development of effective extension services. Primary innovations include fostering improved agro-economic techniques, encouraging the domestic manufacture of farm machinery, and improving seeds and agrochemical products. Prior to INTA's establishment, Argentina was slow to adopt new technology because of its rich natural resources in the Pampean region. INTA was reorganized in 1984, but proposed changes were not fully implemented until 1988. The administrative structure for SAGyP and INTA are shown in Figures 4 and 5. INTA's principal administrative offices are located in Buenos Aires, with 15 regional offices each covering from one-half to two provinces, and a national center at Castelar (25 km west of Buenos Aires). Each region has at least one major station plus secondary sites where experiments are carried out. There are 37 experimental stations plus the national center for more basic and supporting studies. In addition, there are 17 INTA-maintained testing sites throughout the 15 regions. The regional organization, including INTA headquarters, testing sites, and the 242 extension offices, are shown in Figure 6. A total of 1,818 professionals equivalent to agricultural engineer or higher (about 20% either M.Sc.s and Ph.D.s) are employed in the system. Of these, 1,363 are engaged in research and 455 are assigned to extension. Supporting staff include 3,579 technicians, administrators, clerical and field or laboratory workers, of whom 410 are classified as tempcrary. 32. Financial Support. Financial support for INTA comes from a 1.5Z levy on primary agricultural exports (excluding horticultural crops, potatoes, rice, cotton, tobacco, honey, sugarcane, and forestry products). This was increased to 1.75Z in 1973 and then to 2.OZ between 1974 and 1980. From 1981 to 1983, the levy was removed and INTA survived precariously on prior savings and minimal GOA budgetary support. In 1984, the 1.5Z levy was reinstated, which theoretically is supplemented from GOA budgetary sources. The year-to-year fluctuation in available operating funds has ANNEX 1 Page 9 of 27 been extreme, ranging from $157.6 million in 1979 to about $30 million in 1982-83 and $42 million in 1984 (constant US dollars), as shown in Figure 7. During the low years (also 1971-72 and 1975) the budget was grossly distorted to pay the salaries of the permanent employees and fixed costs, which resulted in a virtual shutdown of services. Facilities, maintenance, equipment replacements, and training were also deferred. The disruptive effects were devastating for the technology transfer process. It was also disastrous for morale of INTA staff, and many of the more talented professionals left for more promising career opportunities. 33. Institutional Weaknesses. Major institutional weaknesses at INTA relate primarily to the uncertainty of budgetary resources. Aside from the attrition of capable staff, low morale, and program disruption, INTA has other problems. Some regional research stations appear unresponsive to the perceived needs of their constituents, occasionally resulting in little contact between researchers and farmers. The inconsistency in funding has also meant that even annual reports could not be printed. Urgent needs include replacing equipment, vehicles and instruments; maintiining and refurbishing facilities; expanding the information base: projecting long- term training needs; and identifying poteatial funding sources. 34. The highest priority is to establish the new Economic Social Research Center at Castelar. Also a priority is the need for a national germplasm bank to serve both the private and public sectors, and as a measure of national resource and food security. A third critical area should be strengthening the soil and water conservation program by developing and demonstrating appropriate technology and by conducting a public awareness campaign about the need to preserve the natural resource base. Private Sector 35. The privat. sector is represented by: (a) commercial seed companies; (b) input suppliers (mainly seeds, agrochemicals and fertilizers); (c) rural cooperatives and societies; and (d) private advisory enterprises. Of these, the commercial seed companies are a vital part of technology generation, validation and diffusion. The other three groups are concerned mainly with technology diffusion. The commercial seed companies and input dealers are expected to promote their own products. although the dealers may offer a choice of competing brands. The cooperatives and private advisors, however, are expected to provide unbiased advice to clients. 36. Commercial Seed Companies. There are about 30 private seed companies operating in Argentina, of which eight are multinationals. At least 6 local firms can be considered as major enterprises likely to have research units capable of creating new hybrids and varieties. Commercial enterprises dominate the production and distribution of hybrid seeds (maize, sorghum, and sunflower), and contribute one-half or more of the major self-pollinated species (wheat, soybeans, and forage crops). However, INTA sustains strong varietal improvement activities in wheat and soybeans coordinated at Marco JuArez, potatoes at Balcarce, and industrial crops like tobacco (Salta) and cotton (Chaco-Formosa). The INTA programs for maize, sorghum and sunflower are mainly focused on the commercial use of hybrids. ANNEX 1 Page 10 of 27 37. The commercial seed industry was established wittin the last 10-15 years, although some firms began producing and selling seeds in the late 1950s. The seed iadustry (especially hybrids) was quite profitable until the early 1980s, when depressed commodity prices combined with rising costs to affect the input suppliers. During the past 3-4 years there has been an excess of seeds, and farmers planted their own varieties, including the F- 2's or hybrids. This resulted in reduced prices, selling of old seeds, personnel cutbacks and a general depression in the industry. Several seed representatives admit to significant losses, and the present period seems to be one of consolidation for some and closure of weaker firms. Nevertheless, some members of the seed industry appear confident about the future, in view of currently-rising commodity prices and removal of government controls on retail seed prices. Producer Cooperatives 38. There is a strong cooperative movement in Argentina with approximately 1,278 individual cooperatives organized under 15 national associations. Estimates indicate some 459,000 producers, or about 85Z of the nation's 538,000 farms, are members of cooperatives. Nationally, the 15 umbrella associations are integrated into a "super-association*, the Intercooperative Agricultural Confederation (CONINAGRO). 39. The individual cooperatives are involved mainly in the purchase, storage, and transport of commodities; giving technical advice; disseminating market information; bulk purchasing and retail sales of farm inputs; and amplifying the social and the political interests of their members. They employ at least 500 professional advisors (Ingenieros Agr6nomos or equivalent). Private Advisory Services 40. Advisory services are nuierous and scattered throughout the major producing regions. Although their exact number is difficult to determine, there are more than 1,000 throughout the country. For the most part, these private advisors are more highly specialized and provide a wider range of services than INTA extension services. They are mainly employed by medium to large farms, to assist in solving specific problems. Their impact is judged to be both substantial and highly effective. Regional Agricultural Experimentation Groups (CREA) 41. CREA is a variant on the private advisory service and functions like a cooperative; it is a highly-structured advisory service modelled after a French organization developed several years earlier. It functions as a contractual subscription service comprised of three tiers: the regional and national tiers that perform organizational, training, and information- disseminating functions; and an exclusively national tier that often commissions special studies by other groups or agencies on behalf of its members. 42. The regional tier consists of twelve-member (farmer) groups that meet monthly, convened by a part-time agricultural expert who averages 8-12 days per month in support of the group. The expert visits each member farm at least once a month. Each monthly meeting involves a careful evaluation and critique of a member's enterprise and its problems which is followed by formulating a set of conclusions and recommendations. The individual ANNEX 1 Page 11 of 27 subscription costs the equivalent of one farm laborer for a month (US$60), of which 80% covers the professional's fee and 20Z goes to the regional and national tiers. 43. The CREA system is organized into 15 regions, has 176 groups, and includes 2,012 members. It began functioning in about 1960; membership grew rapidly from 1964 to 1977, then leveled off until 1985, after which membership again took an upward path. This service is mainly attractive to medium and larger farms (100 to 2,000 ha). D. Use of Environmental Technologies 44. The environmental consequences of the rapid chLnge in Pampean land use is of growing concern to Argentine authorities. The practice of continuous cropping using extensive, low-input technologies and traditional tillage methods has created high levels of erosion, soil degredation, and weed infestation. In the prime producing area, the maize zone, where this practice has been in effect since the early 1970s, 36% of the cultivable area is affected by some degree of hydraulic erosion. Soil degredation, including loss of organic material content (up to 50% in some areas), and loss of nutrients and soil structure are widespread. Also, perennial weed infestation occurs in almost 80? of the area. 45. In 1986, INTA launched a soil conservation program targeted to the maize zone. INTA's Permanent Agriculture Project sought to develop and spread the use of soil- conserving technologies in areas of continuous cropping. However, several factors confound implementation: an unfavorable input-crop price relationship; the scarcity and high cost of credit for inputs and investment; limited farm size; and contract farming. Underscoring these obstacles is the uncertain financial environment which gives little weight to medium- and long-term environmental considerations. 46. Under the traditional farming system in the Pampa, semi-permanent pastures played a major role in the rotation by restoring fertility, controlling weed infestation, and reducing soil erosion. Initially, the introduction of soybeans was seen as a panacea, allowing farmers to increase cropping intensities. Although soybeans were promoted as contributing to the nitrogen content of the soils, in practice they provide inadequate cover and add little organic matter to the soil. Furthermore, the full technological package (with fertilizers to restore fertility and herbicides to control weeds) was not adopted by Argentine farmers, mainly due its high cost. 47. As noted, INTA is developing improved packages but the scarcity and high cost of production credit for farm inputs is a constraint, since market rates for credit (when available) are currently 30-40% per year in real terms. Under present circumstances, farmers increasingly resort to barter arrangements with input suppliers, whereby a designated amount of output is promised at harvest in return for various inputs. Effective interests rates under this system are high and increasing. For the 1986-87 crop year, on an annual basis these rates ranged between 178% and 628? in nominal terms depending on the input and crop. This compares with a market credit rate of 155Z.4 Input:crop price ratios being offered by suppliers ' I n- r.:- ' -an - _J* PH- Mn A7 TVw I .. 1 n 1 -7 ANN-A 1 Page 12 of 27 for the 1987/88 crop-year are even higher. Farmers can also use future- payment schemes offered by export trading compan--'es that provide collateral for loans. Few farmers have other options to finance inputs, which may be expensive given the uncertainty about world market prices and GOA's taxation and exchange rate policies. 48. The high cost of inputs and credit helps to explain the growing popularit, of double-cropping wheat and soybeans in the maize zone and wheat anL sunflower in the wheat zone. Wheat, the least profitable crop, is grown using few inputs, with the harvest bringing the cash needed to plant more input-intensive oilseeds as summer crops. This cash-flow function was previously provided by livestock activities. 49. Farm size in the major producing area and contract farming also represent obstacles in implementing soil conservation measures. Average farm size in the maize zone is only 75 ha, and small farmers have limited ability to finance the required investments or to diversify into other farm-based, income-generating activities. INTA is trying to develop financial alternatives, such as small animal raising and intensive horticultural production. Forage seed production also appears promising for generating income and restoring soil fertility. 50. Many contractors are themselves small farmers, who contract farmland up to four times the size of their own holdings. Contractors have played an increasingly important role in the sector, since government- regulated tenant farming was abolished in the early 1970s. Contractors generally operate on large farms, where the primary activity is livestock and the owner is unwilling to make the investments required to crop, but also on small farms where economies-of-scale limit investment in machinery. While the approach varies according to input supplier, usually in return for services the contractor takes a portion of the harvest. No formal contract exists and arrangements rarely exceed more than one year, often including only one crcp, such as soybeans following wheat. Such a system, which can account for a large area in major cropping zones, emphasizes short-term financial gains and precludes the likelihood of investment in long-term land improvements, the cse of soil-conserving tillage practices, or proper use of farm inputs. In addition to asking contractors to help disseminate information on soil corservation techniques, the GOA could regulate contracts to encourage lont-er-term agreements. This could enhance the use of conservation practices. 51. Finally, experimental trials being conducted in Argentina indicate that soil conservation techniques only improve yields in the medium-term, and that yields may actually decline dtring the first few years of implementation. In some cases, farmers would need to invest in farm machinery or land improvements; further, although the horsepower requirements per ha are lower with the proposed minimum tillage practices, cash outlays for agrochemicals (including fertilizer) would increase. However, the current economic and financial Llimate in Argentina serves to undermine the uptake of this technology. Uncertainty stemming from high inflation and excessive real interest-rates forces farmers to favor short- term gains over the longer-term benefits of employing soil conservation techniques. ANNEX 1 Page 13 of 27 E. Recommendations Institutional Development 52. There is an urgent institutional need for an Economic Research Group to: (a) study future marketing trends globally, and (b) serve in an advisory capacity for both technical service groups and central government policy makers. Focus should be on predicting future demands in international markets based on both expanding needs and trends among Argentina's chief competitors. The Group should also solicit new ideas about how to increase markets for new products as well as to keep abreast of leading-edge technology. Working closely with biological scientists within the establishment, and particularly with a proposed "Special Studies Unit", the Group should explore the potential for new crop and animal products in Argentina and abroad (e.g., New Zealand and Chile). The new Economic and Social Research Center within INTA at Castelar would fulfill this requirement. The creation of a closely-related "Special Studies Unit" has not yet been considered. New Crop Research 53. Previous agricultura. research in Argentina assumed stable markets and low-cost inputs; however, this condition applies only to countries with highly subsidized agricultural production or generous fossil fuel reserves. The combination of good commodity prices and low-cost inputs has not been valid for most of the world for several years. On the contrary, future energy costs are likely to increase relative to agricultural commodity prices, considering the present surplus production capacity. 54. High-input research is easy, quick, and spectacular compared to a low-input approach. Moreover, new directions in biological research require long lead times and learning new ground rules. A more practical approach would be seeding soybeans into already-ripening wheat, which could be adopted from a practice already in use on 7.7 million ha in the US. Benefits include saving nearly a month of the following season, reducing costs for tillage and herbicides, improving moisture retention, virtually eliminating between-crop erosive effects, and boosting soybean yields by some 300 kg per ha. 55. This type of creative, low-input technology is needed to reduce producer unit costs and to anticipate future agricultural requirements. Applied research will need to be much more closely integrated with the technology validation and diffusion network. Moreover, scientists will need to work more closely with farmers in carrying out on-farm research. Researchers will need to develop and maintain professional contacts with colleagues working in similar geographical regions to obtain as much information and experimental data as possible. The International Agricultural Research Centers (IARCs)--especially CIMMYT (Mexico), CIAT (Colombia), CIP (Perd), ICARDA (Syria) and ICRISAT (India)--are good international sources of information about genetic stocks of several Argentine crop species. Improving Coordination between Private and Public Sectors 56. Private sector technical services have become a major contributor to Argentina's agricultural economy over the last 20-30 years by developing an extensive menu of special services to meet the needs of an increasingly ANNEX 1 Page 14 of 27 sophisticated and highly mechanized production. The private sector has for some time surpassed the public sector in its impact on technology diffusion in agriculture. However, in the current economic environment, these enterprises have saturated demand, at least until the national agricultural economy begins to improve. 57. The private sector is highly competitive but also vulnerable during extended economic downturns. The real danger is the possibility of the present crisis lasting several years, which would cause the demise of an entire industry. This would result in a major loss of a highly essential service, greatly reduced competition, and have serious consequences for the national economy. It is therefore important for GOA policies to encourage full competition but to avoid controlling prices for seeds or other inputs, to allow supply and demand to reach normal equilibrium. 58. A second measure to improve overall efficiency would be to ensure that INTA complements, and does not compete with, private advisory services. This will involve a change in approach to crops research if commercial interests are heavily involved. For extension services, a more fundamental policy shift is needed. Currently, INTA's extension service has little influence over the technological procedures used in major producing areas compared to the private sector, which also greatly outnumbers INTA's cadre of personnel (Table 3). Important future roles for INTA's extension service would be: (a) concentrating on more narrcwly-defined problem areas; (b) training private sector technology diffusion staff; and (c) participating in INTA's problem-oriented or vertically-integrated commodity krograms. Future Strategy 59. Several major developments and changes in the agricultural sector have occurred since INTA's establishment in 1956. It is not clear whether the institution has adjusted its general objectives and programs to meet the emerging local and national needs. An area for attention now is INTA's interaction with commercial seed companies. Questions may be raised about duplicated efforts in crop breeding, for example, and research management. ana whether INTA truly supports use of public enterprises. An effective means of identifying and implementing fundamental institutional changes would be a schedule of independent external reviews of INTA every 3-5 years. 60. Some of the mechanisms for change in policy and direction are already in place under INTA's reorganization. The most important of these include a decentralization initiative and an increase in authority of the regional centers. The regional boards are no longer merely advisory in nature but are becoming final decision-making bodies for the regional centers. Since these boards usually consist of at least 12 members (half of whom represent regional interests), there will be strong pressure on INTA's centers to address urgent needs likely to have an impact on INTA's future operations. New responsibilities approved by GOA under the reorganization include a planning and evaluation function (Figure 5). 61. In essence, INTA should focus more on its comparative advantage in (a) fundamental research, including genetic engineering; (b) basic germplasm development and maintenance; and (c) special problem areas, particularly crop stress response. Ensuring the complementarity of these new activities will require the involvement of the private sector in an on- ANNEX 1 Page 15 of 27 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 1: Area Harvested of Major Grains and Oilseeds, 1970-1988 ('000 ha) Grain Total Wheat Maize Sorghum Soybeans Sunflower 1970 12,453 5,191 4,017 1,872 26 1,347 1971 11,280 3,701 3,995 2,235 36 1,313 1972 10,216 4,295 3,147 1,420 68 1,286 1973 12,156 4,965 3,565 2,131 157 1,338 1974 11,302 3,958 3,486 2,324 344 1,190 1975 10,602 4,233 3,070 1,338 356 1,-05 1976 11,563 5,271 2,766 1,834 434 1,258 1977 13,224 6,428 2,532 2,377 660 1,227 1978 11,974 3,910 2,660 2,254 1,150 2,000 1979 12,686 4,885 2,800 2,044 1,600 1,557 1980 12,411 4,787 2,490 1,279 2,030 1,855 1981 13,677 5,023 3,394 2,100 1,880 1,280 1982 15,265 5,926 3,170 2,510 1,386 1,673 1983 16,987 7,320 2,970 2,514 2,281 1,902 1984 17,367 7,073 3,025 2,370 2,910 1,389 1985 16,824 5,900 3,340 1,965 3,269 2,350 1986 16,255 5,382 3,231 1,280 3,316 3,046 1987 14,015 4,893 2,900 977 3,510 1,735 1988 14,502 4,875 2,400 965 4,270 1,992 Annual Growth: 1970-72/83-85 3.2Z 3.4Z -1.4Z 1.7% 37.9% 3.6Z 1970-72/86-88 1.7% 0.9% -1.7Z -3.3Z 32.0% 3.4% Source: SAGyP A&.A 1 Page 16 of 27 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 2: Production of Major Grains and Oilseeds, 1970-1988 ('000 tons) Grain Total Wheat Maize Sorghum Soybeans Sunflower 1970 21.355 7,008 9,360 3,820 27 1,140 1971 20,283 4,920 9,814 4,660 59 830 1972 14,670 5,540 5,864 2,360 78 828 1973 23,712 7,900 9,700 4,960 272 880 1974 23,799 6,560 9,900 5,900 469 970 1975 19,717 5,970 7,700 4,830 485 732 1976 21,265 8,570 5,855 5,060 695 1.085 1977 28,200 11,000 8,300 6,600 1,400 900 1978 26,264 5,300 8,700 7,164 2,500 1,600 1979 28,130 8,100 8,700 6,200 3,700 1,430 1980 22,650 8,100 6,400 3,000 3,500 1,650 1981 38,259 7,780 12,900 7,550 3,769 1,260 1982 32,030 8,300 9,600 8,000 4,150 1,980 1983 38,500 15,000 9,000 8,100 4,000 2,400 1984 38,600 13,000 9,500 6,900 7,000 2,200 1985 41,451 13,600 11,900 6,200 6,500 3,251 1986 36,000 8,700 12,100 4,000 7,100 4,100 1987 30,150 8,700 9,250 3,000 7,000 2,200 1988 33,230 9,900 8,600 3,100 8,800 2,740 Annual Growth: 1970-72/83-85 5.9Z 6.3Z 1.5% 5.3% 43.2% 8.3Z 1970-72/86-88 3.6Z 2.8% 1.1% -0.4? 36.2Z 7.6Z Source: SAGyP ANNEX 1 Page 17 of 27 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 3: Relative Yields Among Major Exporters (tons per ha) 1979-81 1984 1985 1986 Wheat Argentina 1.55 2.24 1.62 1.82 Canada 1.78 1.61 1.77 2.24 Australia 1.26 1.54 1.38 1.55 USA 2.29 2.61 2.52 2.31 Maize Argentina 3.16 3.15 3.61 3.70 Canada 5.68 5.89 6.24 6.16 USA 6.47 6.70 7.41 7.49 Soybeans Argentina 2.01 2.40 1.99 2.14 Brazil 1.58 1.65 1.38 1.53 USA 1.99 1.89 2.29 2.27 Sunflower Argentina 0.93 1.11 1.45 1.38 Spain 0.77 1.90 2.09 2.28 USA 1.32 1.14 1.24 1.54 Source: FAO ANNEX 1 Page 18 of 27 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 4: Cost Comparisons Among Major Exporters (US$ 1985 per ton) Yield Variable Fixed Marketing FOB Cost (tons per ha) Cost Cost Cost Total Wheat Argentina 1.8 35 34 25 94 Canada 1.9 56 102 30 188 Australia 1.5 42 75 35 152 USA 2.2 67 101 30 198 Maize Argentina 3.4 38 33 25 96 USA 6.3 56 56 25 137 Soybeans Argentina 2.1 66 57 30 153 Brazil 1.8 111 69 40 220 USA 1.9 90 168 24 282 Source: Gerald F. Ortman et al, "Analysis of Production and Marketing Costs of Corn, 'Wheat and Soybeans among Exporting Countries". Dept. of Agricultural Economics, Ohio State University, symposium, 1986. AMNX I Page 19 of 27 ARGENTINA AGRICULTURAL SECTOR REVIEW Table S.: Land Use Classification (Wo00 ha) Potential Area Actual Planted Area c/ Agricultural Crops Crops/ Livestock Cropped Land Livestock /Crops Per Annum 1961-65 1971-75 1981-85 Total 28a980 5.51 10,_ U8 13,491 16,495 8,099 9,573 12,949 Centro 5,210 866 1,726 2,618 2,859 1,2i3 1,578 2,096 Zone 1 5,210 88 1,726 2,618 2,859 Malcera 5,969 3,302 1,866 812 4,845 3,415 3,358 4,914 Zone 2 1,408 472 520 416 981 Zone 3 2,594 1,545 761 288 2,184 Zone 4 1,968 1,285 575 108 1,720 Invernada 6,488 46 2,896 3,546 3,137 1,088 1,248 1,994 Zone S 6,488 46 2,e96 3,548 3,137 Crra 5,099 234 1,584 3,281 2,327 792 983 1,034 Zone 8 1,892 207 858 827 1,066 Zone 7 1,511 27 528 9568 883 Zone 8 1,696 198 1,498 588 Mar y Sierra 3,833 963 1,484 997 2,205 812 910 1,313 2one 9 1,295 204 490 600 727 Zone 11 2,038 698 943 397 1,478 South Buenos Aires 2,882 0 643 2,239 1,122 969 1,498 1,599 Zone 10 1,396 322 1,074 547 Zone 12 428 428 128 Zone 18 1,058 322 737 446 Source: INTA, as presented in "Apt1tud de Suelos on Ia Regi6n Pampeana y Potenclal de Produccl6n de Granos, SAGyP-IICA, Nov 1987. p/ 70X cropping. 6/ SOX cropping. c/ Gross area, some 1.5 to 2 million he of soybeans were double cropped mostly in Centro and Malcera zones. ANNEX 1 Page 20 of 27 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 6: Yields of Major Grains and Oilseeds, 1970-1988 (tons per ha) Grain Total Wheat Maize Sorghum Soybeans Sunflower 1970 1.71 1.35 2.33 2.04 1.04 0.85 1971 1.80 1.33 2.46 2.09 1.64 0.63 1972 1.44 1.29 1.86 1.66 1.15 0.64 1973 1.95 1.59 2.72 2.33 1.73 0.66 1974 2.11 1.66 2.84 2.54 1.36 0.82 1975 1.86 1.41 2.51 2.49 1.36 0.73 1976 1.84 1.63 2.12 2.76 1.60 0.86 1977 2.19 1.71 3.28 2.78 2.12 0.73 1978 2.19 1.36 3.65 3.18 2.17 0.80 1979 2.22 1.73 3.11 3.03 2.31 0.92 1980 1.82 1.69 2.57 2.35 1.72 0.89 1981 2.43 1.55 3.80 3.60 2.00 0.98 1982 2.10 1.40 3.03 3.19 2.09 1.18 1983 2.27 2.05 3.03 3.22 1.75 1.26 1984 2.22 1.84 3.14 2.91 2.41 1.11 1985 2.46 2.31 3.56 3.16 1.99 1.38 1986 2.21 1.62 3.74 3.13 2.14 1.35 1987 2.15 1.78 3.19 3.07 1.99 1.27 1988 2.29 2.03 3.58 3.21 2.08 1.38 Annual Growth 1970-72/83-85 2.6% 3.5% 3.0? 3.7Z 3.7? 4.5% 1970-72/86-88 1.9? 2.0? 2.9% 3.1% 3.1% 4.0% Source: SAGyP ANNEX 1 Page 21 of 27 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 7: Estimated Gross Revenue per Hectare (1988 Australes per ton) Grain Wheat Maize Sorghum Soybeans Sunflower 1970 5,308 15,729 9,271 14,191 12,014 1971 4,870 14,397 9,101 22,843 10,246 1972 3,907 11,839 7,339 21.035 12,118 1973 6,893 17,085 10,780 31,070 8,979 1974 7,097 19,956 14,876 24.095 12,192 1975 6,123 13,041 11,082 16,387 8,729 1976 6,939 10.624 11,921 24,425 11,439 1977 6.587 22.901 14,818 57,098 16,584 1978 5,044 20,652 14,770 32,825 10,301 1979 5,004 10,202 13,634 22,519 9,454 1980 5,614 11.431 8,099 10,883 4,694 1981 4,572 13,165 10,074 15,327 8,764 1982 5,469 13,744 10,584 21,953 13,129 1983 7,276 16,501 14,582 17,738 12,265 1984 5,623 15,991 10,220 27,925 18,344 1985 5,332 16.295 10,883 16,802 14,274 1986 4,303 12,807 7,015 16,827 8,569 1987 3,886 11,259 7,021 22,865 12,574 1988 5,599 12,116 5,915 22,615 11,501 Source: Tables 5 - 15. ANNEX 1 Page 22 of 27 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 8: Input Use Fertilizer Use (tons) Pesticide FencinS Wire N P205 K20 Imports Sales ('000 tons) ('000 tons) 1970 35,610 24,765 7,894 7.4 8.3 1971 41,003 26,241 7,211 7.5 11.8 1972 44,721 23,443 7,956 7.9 13.1 1973 49,101 47,285 6,680 9.0 9.0 1974 45,264 24,838 11,281 13.5 5.8 1975 35,109 30.608 6,787 9.6 5.7 1976 27,633 9,218 3,665 9.0 8.2 1977 45,719 29,392 4,933 9.8 6.7 1978 44,412 32,552 5,694 8.2 3.9 1979 60,576 64,661 12,261 15.5 6.9 1980 65,354 50,013 8,752 10.7 5.1 1981 51,173 28,886 5,301 9.2 4.2 1982 51,151 46.234 5,859 13.3 6.5 1983 63,614 55,126 10,461 16.0 8.6 1984 91,008 48,533 8,367 17.8 6.7 1985 90,697 49,153 8.000 11.8 3.1 1986 92,983 54,215 9,500 15.8 na 1987 94,287 56,801 10,000 16.2 na 1988 96,000 59,020 10,500 na na Annual Growth a/ 1970-85 6.42 4.72 0.1% 3.2% -6.4Z 1970-88 5.7% 4.9% 1.62 1983-1988 8.6% 1.4Z 0.12 1970-1983 4.6Z 6.32 2.2% 8/ End point growth rates. Source: SAGyP, for fertilizers crop year through 1977, thereafter calendar year. Table 9: Estimated Tractors in Service and Horsepower Area Units HP HP/Unit Planted HP/Unit HP/Ha ('000) (m ha) 1960 104,306 4,025 39 27.6 265 0.15 1969 190,663 8,805 46 29.4 154 0.30 1978 239,485 14,454 60 26.6 111 0.54 1981 211,242 13,679 65 25.4 120 0.54 1984 a/ 179,098 12,669 71 27.3 152 0.46 1987 i/ 153,031 12,116 79 23.3 152 0.52 a/ Area planted estimated Zor 1984, 1987. Source: Programa de Crddito Agricola, "Maquinaria Agricola", 1987, SAGyP. ANNEX1 - Page 23 of 27 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 10: Tractor and Farm Machinery Sales Combined Tractors Plows Grain Seeders Disks Sprayers Harverstor Units HP HP/Unit Blade Tine Fine Coarse (no) 1970 11,005 670.4 2,001 1,709 2,490 1,445 651 1,384 1971 13,849 985.0 64 2,675 1,297 2,054 2,587 781 1,157 1972 14,356 926.7 65 3,792 2,460 2,099 5,462 958 1,068 1973 19,082 1,229.6 64 3,823 2,724 1,733 4,449 2,731 1,443 1974 20,677 1,317.8 84 8,172 9 2,479 4,793 7,739 1,264 1,836 1975 15,245 1,032.2 6s 4,075 38 1,298 1,208 5,189 1,435 1,427 1976 21,142 1,585.1 75 4,867 1,836 2,306 3,947 1,321 2,150 1977 22,087 1,678.6 76 7,049 147 2,780 4,412 5,762 1,513 2,349 1978 6,435 511.0 79 3,863 282 1,452 4,479 3,282 1,277 2,i24 1979 8,387 670.3 80 2,851 2,155 1,690 3,052 3,038 4,426 1,762 1980 5,212 450.5 86 1,764 992 1,508 1,395 1,596 7,293 752 1981 3,227 296.4 92 885 980 680 1,429 1,252 4,944 356 1982 4,407 447.3 101 2,587 2,294 1,921 3,298 3,255 6,203 1,457 1983 8,145 860.5 108 2,597 1,660 2,203 8,388 2,596 1,230 1,976 1984 12,920 1,379.1 107 3,103 1,772 2,126 2,716 2,683 1,742 1,8086 1985 5,883 592.3 104 1,128 733 640 1,809 1,181 1,401 876 1988 6,668 645.5 97 698 738 408 438 277 470 700 1987 3,157 no Source: AFAT and SAGyP estimates as cited in Programa de Cr6dito Agricola, "Maquinaria Agricolan, SAGyP, 1987. ANNEX 1. Page 24 of 27 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 11: Professionals Involved in Technology Difussion a/ Technology Diffusion Sector/Agency Generation Extension INTA (crops and livestock) 1,363 346 b/ Co-operatives 0 0 CREA (Part-time) 0 176 Seed Companies: Multi-nationals (8) 150 950 Major nationals (6) 75 350 Minor nationals (18) 0 300 Other input suppliers (crops) 0 400 Private Advisory Services 0 1,100 Total 1,658 4,122 Percent Public Sector 8.4 82.2 Source: Mission estimates. a/ Estimates for 1988. b/ Does not include 76 home economists and 33 youth agents. . + i � ARGENTINA AGItICULTURAL SECTOR REVIEW Flgura 1к INTA'в Осяа_.izat3on. 1986 1:uvuro 1и1{ . 1:и vac 11 ; R._�, "_" - - - - - -- � . � � • раllиилl � , ulracwrr[а � . 1 � к 1 1 1 � � Г,.�=.�, _-• .-- �_...._____�...-- : �� ��i �--' � _- г1'м.ЧвlЧиw.11 l���' в авг[иавl +1 t ccwwвlc вид 1�цгв1 1:.wм•1) 1 • 1 -- 1 CrдNn � [b.+ь1в1 /rrавгсА !'ог l'гиr �!w МЧЧмв1 в�лiМrвl Cww.11, � Сиидьll I � 4ииос1l =�` МаиивИ k�""иr. '1..г Yetatlqвtr �.) �.1 ♦--Чи..'�.М..а ь t�д.гrг.А� 1 .--" <-� � � ь��� ��� " '� � � � лгкидвl Сааtгоl мв �р ррагвtlоав мг.г.,�wг.гlии 1им1n` twlw.lм qвоигсеs рараггввис wp+.rлwr actosara aMrrra 1►apartвawrf ' Olractorlsв всЧмrвlс рор Sьиив Мвwг.1 Уыигlааг� •д S.к1в! 4вwгьв• и( Ma�tupal Чиrгер ?•1ru•и Ч•иасА СвОги СЧИг а•ивг.У СвЧ1.. 1лгЧгиг Саагаг . ' � �� NаыаагсА laчl/tutaa Stвlloar l1RCAN1'LATIpN А5 DEF1Nl:l1 IN REBAld1T[дИ Nu. 4•�гs/ri6 ыи..1 ввв...вв• 1 вl ОЧ�..1иЧ М Адаив 1аа в� � � кv . и г-� О М1 N V . , .) ANNEX 1 Page 26 of V ARGENTINA AGRICULTURAL SECTOR REVIEW Figure 2: Total Institutional Resources Avail-able to INTA From Its Inception From 1958 to l9s6 XILLIONS U. S. DOLLARS MAJOR SOURCES OF SUPpORT: 1958 co 1972: 1.5% ON ZKpORTS 1973 ONLY: 1.75% CESS ON ExpORTS 1974 TO 1980: 2.0% cEss ON MORTS 1981 TO 1983: io cEss, uT=Izm SAvMGS AND GLMMAL (GOV'T.) TwDS too- 1984 To PRESMiT: 1.5% cEss RESTOMM 9 so- 72- 48- tim 71* 75 /?1 42 /? 80 4182 1?84; �-.. и - �, . � - и � � t.' �у �.. �' � U V �V', �, � �у ,' ��� l� `'• 4 С^)_ ::: �е�',j® _ : и� � '���� �V � -... �'� •С! (.1 ! ®( 1 � � � • � �. • � ,., --� s► .�� �� о .� � � . � �' . � : .. .- : , _ (� �ч �_ -i ® U� ..... �, �• 'q � .. :!R`� С 'г' !1. L� � � а lU •� �„ • ` �.. С� и ,_1�:;, �� L • t-1 ��, ���, � .. �-•'•..Y1�t� цii� V �� о � (' tl �•� и °' ' (�' U �_,� ° �+r Чi �� � р �' � � и,. �1 л �+ � .F �i-1 v �S�J L► � ' �(ц� W�ы и. . 1� �. � �.. �т и .�t�.� � 11 � �у �,_� U 1V�,• •► ,',м �•`��Q _, _ 1 � ,I . � . � . . �, . . 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О r�wьвв^ аоав..:а�.:а: • . ..... � : ..�..в. Ef4; }} ё. -.. _.. ё g ,[0 ::: �:::::::::ttl:t ; t�tiEti g titEEEiEE11't ��ilkEtt4'ci Е Е р E4i �!tlf:i � i4:fl:ii � гсе '� !; ti ; j @I� �{flf.,� ...,...е..,. , � ��ss . � у � '� �� �Е.;+ �_'��' � j'�г��� � ' • `���� � ��� � ���• �•� � ! в � � � �t• � %5 �+' ' � �; �� � �S - � ...- - .... .. --�-- ®j� - __ � � � .:.:: � lf�Eiiitl:4ili:f:4tt � � ( � .о 11 I :fi;i} g [ : W � ��j�� I �с��1 � {�� � ;�` и v� � �f о м н v A N N E X ANNEX 2 ARGENTINA AGRICULTURAL SECTOR REVIEW GRAIN MARKETING Table of Contents Page No. I. STRUCTURE OF THE ARGENTINIAN GRAIN TRADE ............... 1 A. Background........................................... 1 B. Argentina's Grain Exports ........................... 2 C. The Components of the Trade ......................... 7 D. The Modalities of the Trade ......................... 11 E. Price Formation, Margins and Market Issues .......... 16 F. Current Trends ...................................... 22 II. THE JUNTA NACIONAL DE GRANOS ............................ 23 A. The JNG as Regulator and Controller ................. 24 B. The JNG Information and Assistance Function ......... 25 C. The JNG as Trader ................................... 27 D. The JNG as Elevator Operator ........................ 29 E. Objectives, Policies, and Long-Term Strategy ........ 32 F. The JNG's Directorae ............................... 32 G. The JNG's Resources ................................. 33 Personnel ......................................... 33 Financial ......................................... 36 III. CONCLUSIONS AND RECOMMENDATIONS ......................... 37 A. Conclusions .......................................... 37 B. Recom endations ...................................... 38 Reduction of Marketing Costs ......................... 38 Increase the Farmer's Share of Export Proceeds ....... 39 Restructure and Strengthen the JNG.................... 39 Divest the JNG Elevators.............................. 40 List of Tables 1. Grain Exports, 1974/75 - 1987/88......................... 3 2. Grain Exports............................................ 5 3. FOB Prices for Major Grains ex-Argentiue Ports and ex-US Ports; 1976-1986................................. 6 4. Grain Exports by Major Traders, 1980/85.................. 8 5. Dirtribution of Grain Production; 1984/85................ 9 6. The Four Main Modalities of Selling Grain in Argentina... 11 7. The Effects of Resolution 1825 between 1978/85........... 13 8. Barter Arrangements and Implied Interest Rates, 1988-89.. 14 9. FOB Costs for Wheat in March 1988 at Bahia Blanca)....... 15 10. Conversion of.FAS Cost to Farmgate Cost.................. 1 11. Monthly Differences in Average FAS Prices for Cereals and Oilseeds 1980-1988........................ 19 Table of Contents (Continued) Paae No. 12. Wheat Exporters and Their Current Quota.................. 26 13. Selected Average Export Prices of Private Traders and JNG ............................................... 30 14. Use of Public and Private Port Elevators, 1981-1985...... 31 11. JNG - Sources of Funds for the Recurrent Operational Budget, 1973-1985...................................... 34 16. JNG - Uses of Funds for the Recurrent Operational Budget, 1973-1985...................................... 35 IS ANNEX 2 Page 1 of 41 I. STRUCTURE OF THE ARGENTINIAN GRAIN TRADE A. Background 1. Grain production and exports in Argentina have seen a remarkable growth in the last 15 - 20 years. Cereals production grew from somewhat over 22 million tons in 1970 to almost 34 million tons in 1985. Oilseed production grew even more, from about 2.5 million tons in the early 1970s to almost 11.0 million tons in 1985. Total exports increased commensurately, both in t.ie form of grains and, with respect to oilseeds, in the form of oil and meal, particularly of soybeans. In 1986 this growth pattern was abruptly changed when total production dropped to about two-thirds of the previous year's level, while exports were almost halved. The decrease in grain prices in the international market in the early 1980s was a major contributing factor to this decline. 2. Argentine institutional and physical infrastructure has been able to cope remarkably well with the high growth rates of production and exports experienced since 1970. Laws, regulations and standards have been established to support the expanding commerce, both in a domestic market and in its interface with exports. The National Grain Board (Junta Nacional de Granos - JNG) has taken a leading role in establishing the regulatory framework of the trade. The private sector has b'een responsible for rapidly expanding the storage and transportation systems, including port elevators. The down-turn in production and exports that occurred in 1986 has put great strains not only on the producers but also on the marketing infrastructure. 3. Although both production and marketing have responded favorably to market opportunities they have not shared equally in the rewards of the vastly expanded grain economy. It appears that the economic and political bargaining that has determined the relative share of the wealth created has by and large been biased in favor of the trade. The Argentine grain farmer essentially operates in a cash market where either production or pre-commercialization credits are not available or are extraordinarily expensive. Also, the more sophisticated instruments of trade, such as hedging in a futures market, are not available to the Argentine farmer partly because of ignorance, partly because of the fact that the instruments proper are relatively underdeveloped and partly because of high real interest rates, which make margin calls expensive. As a matter of fact, rather than the evolution of a gradually more sophisticated trading system to the benefit of producers, there has been a retrogression in the system with increasing reliance on barter trade. Not only does the farmer have to sell most of his product at the moment it is harvested, but an increasing portion has to be mortgaged well in advance, often before planting, as a means to obtain production credit. 4. Argentina trades at a disadvantage to its main international competitors, since it is so heavily dependent on grains for its balance of ANNEX 2 Page ' of 41 payments and fiscal revenues. Normally, the pressure to sell what is not needed for the domestic market is the central objective following the harvest. Public policy, meanwhile, has traditionally been focused on how to protect the domestic consumer, using the JNG as its main agent. 5. To-day, all major grain exporting countries either have active public sector involvement in their grain production and trade, or they have single monolithic trading bodies. Canada and Australia exporters have trading monopolies for wheat, respectively the Canadian and Australian Wheat Boards. These Boards, can, for instance, obtain export financing on their own strength to boost the competitiveness of their product. The US, the world's largest grain exporter, has a price support program for farmers and, at present, a direct export subsidy program.1 So has the EC. By contrast, Argentina's public sector assistance to its grain trade is limited to ad-hoc actions by the JNG. With resources obtained yearly from the Central Bank the JNG tries to put a floor under the wheat price by overhanging the market with a threat to purchase at what is called erroneously a support price (precio de sostdn).2 There is also a small program of support for marginal producers, and the JNG acts on behalf of the Government in government-to-government negotiations with centrally planned economies and others that have strong government influence in grain imports. To all intents and purposes, however, the Argentine grain trade is the freeest of all major grain producing countries. B. Argentina's Grain Exports 6. Although Argentina is a relatively modest producer of grains on a global scale, its well above average exports as a percentage of production make it a more important presence on the world market than its production figures alone would indicate. Data in Table 1 show, for instance, that the country's wheat exports, on average from 1974 through 1988, were almost 5% of the world wheat trade. By contrast, its wheat production was less than 2.5% of worldwide wheat harvests in the same period. Similar differences in the relative importance between production and international trade apply to feed grains and to the oil seeds, soybean and sunflower seeds and their crushing products. 7. In spite of the importance of Argentina's grain exports, both directly as the main market for its producers and indirectly as the country's major foreign exchange earner (Table 2), Argentina does not have the institutional means to support these exports, such as buffer stocks, producer support or sales credits. The country exports its excess production, and annual production variations are thus felt directly in 1/ This program is credited with having increased wheat export estimates for 1987/88 with 48% as compared with 1986/87 and with an astounding 68% over 1984/85. Much of this wheat has been sold to the USSR, 12.8 million tons since April 1987, China and India, traditional clients for Argentina. Current subsidies on wheat are $35/ton, about 30 to 35% of FOB prices. Total subsidy payments on US wheat exports, since April 30, 1987, have been almot $450 million 2/ More about this program will follow in the next chapter, on the JNG. ANNEX 2 Page 3 of 41 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 1: Grain Exports 1974(75 to 1987/86 al (millions of tons) Wheat Maize Sorghum Soybeans 1974-75 2.2 5.8 2.5 0.0 1975-76 3.2 2.6 2.6 0.1 1976-77 5.6 4.4 4.6 0.5 1977-78 2.6 0.6 4.4 2.0 1978-79 3.4 6.7 4.3 2.8 1979-80 4.7 3.5 1.6 2.3 1980-81 3.9 0.9 4.9 2.7 1981-82 4.3 4.9 5.2 1.7 1982-83 7.5 6.5 4.9 1.4 1983-84 9.7 5.9 4.8 3.0 1984-85 0.8 0.7 3.4 3.3 1985-86 6.1 7.4 2.2 2.6 1986-87 4.3 0.4 1.0 1.3 1987-88 0.5 0.5 0.8 2.6 (percent of world trade) 1974/75 3.4 13.6 28.4 0.0 1975/76 4.8 4.9 25.7 0.3 1976/77 8.9 8.2 37.4 3.1 1977/78 3.6 10.4 40.0 8.6 1978/79 4.5 10.2 39.8 11.2 1979/80 5.5 4.7 13.8 8.1 1980181 4.2 11.6 34.8 10.3 1981/82 4.2 7.3 38.2 5.9 1982/83 7.6 10.3 42.2 4.9 1983/84 9.5 9.7 36.9 11.9 1984/85 7.5 10.5 25.9 12.9 1985/86 7.2 13.6 25.3 9.9 1986/87 4.7 7.1 12.3 4.5 1987/88 5.0 8.7 9.8 9.0 averages: 1974-88 4.9 6.0 30.4 7.5 1981-88 4.8 6.2 29.2 8.3 a/ Commercial years run from July 1 to June 30 of the following year. Source: JNG, Anaario 1987, Buenos Aires, 1988. ANNEX 2 Page 4 of 41 variations in exportable amounts. In the absence of producer protection. price variations on the international market also have a direct influence on local production, and hence on the exportable surpluses. Therefore, market manipulations by other producers, particularly by the USA and the EC have a direct impact on Argentine prodvcer prices and production. Furthermore, the absence of producc7 support, coupled with the country's urgent needs for foreign exchange, have necessitated sales at times and under conditions that were not the most favorable to Argentine sellers. Pressures to sell have contributed to the negative trading margins observed between Argentine FOB prices and those of its competitors, mainly the USA (Table 3). 8. Up to the early 1980s, Argentine wheat was sold internationally in reference to and in competition with US wheat. Since the beginning of this decade, though, the EC has become a net exporter of wheat and both major producers, the US and the EC, have introduced various forms of export support, including subsidies. As a result, Argentina's wheat market has become increasingly fragmented and the country has had to look for ever more distant and less reliable buyers. For instance, approximately equal total shipments of wheat were sold to eleven major destinations in 1980/81 but to 22 destinations in 1985/86. Among the latter, Brazil, Peru and Iran were the major buyers. Neither country can be considered a stable long term buyer of Argentine wheat. 9. Table 3 shows the difference between FOB prices for US grains, ex- Gulf ports, and those applicable in Argentina during the months of main export activity of the particular grains. It is clear that in most years, and particularly since about 1982/83, the Argentine discount has become promounced and consistent. The explanation of the existence of this discount is complex and tends to vary over time, but appears to have two main variables, one exogenous to Argentina, the other related to Argentine conditions. The exogenous variable refers to the difference between FOB and CIF prices, occasioned by higher port and transportation costs from Argentine sources than from shipping points of its main competitors. This is related to high cost, inefficient, port installations and to draft limitations in main Argentine loading points; hence, to the size of vessel that can be used. Also, different transportation distances between Argentine ports and those of its competitors to the same destinations play a role. Internal conditions that contribute to low FOB prices in Argentine ports are mainly the result of competitive pressures among the multiplicity of domestic and FOB sellers at peak harvjst time. The limited ability of producers to carry their product following the harvest contribute to a price dip during harvest time, which is transmitted into the FOB market. Furthermore, Argentine exporters have a strong incentive to maximize profits off-shore on account of foreign exchange controls and export taxes. 10. Argentine maize is of high quality and usually commands a premium over its main competitor, US corn. However, '1-e resulting higher CIF prices are in part lost by higher transportation costs. Thus, also for maize, FOB Argentina prices are usually below those fetched by US corn shipped from Gulf ports, (Table 3). Since 1980, the USSR has been by far the largest buyer of Argentine maize, ranging from as much as 88Z of total exports in 1981 to 29Z in 1985. ANNEX 2 Page 5 of 41 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 2: Grair. Exports (US millions) Grains Total Grain and as 2 off Year Exports Derivates Total Exports 1980 8,021 3,084 38.4 1981 9,143 4,117 45.0 1982 7,624 3,049 40.0 1983 7,836 4,377 55.9 1984 8,107 4,723 58.3 1985 8,397 4,300 51.2 1986 6,852 3,230 47.1 1987 6,196 2,537 40.9 Source: Unpublished Monograph by Dr. Marcelo Regunaga. 11. The USSR and Japan bought almost 80Z of Argettine sorghum exports between 1982 and 1985. Mexico and Spain were the other main buyers. Sorghum production in Argentina has lately declined substantially as a result of low international prices and competition from other grains. It should be noted (Table 3) that the FOB discount of Argentine sorghum has traditionally been very large. This is the result of the transportation disadvantage of Argentina to the distant markets of Japan and the USSR, and to a quality differential with respect to the US product. 12. Argentina is one of the world's main producers of soybeans, together with the US, Brazil and China. Most of Argentina's soybean crop is locally crushed. Whole beans and meal are largely exported to Europe and Japan, while soybean oil is mostly exported to developing countries. World market prices for soybeans and their crushing products are heavily influenced by US farm policy. Soybean oil faces increasing competition from other oils, particularly from Malaysian and Indonesian palm oil. Thus, in spite of its current profitability, the long term prospects for soybeans in A4entina are uncertain. ANNEX 2 Page 6 of 41 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 8: F08 Prices for Major Grains ex-Argent'ne Ports and ex-US Ports; 1976-1988 (US$ per ton) 1978 1977 1978 1979 1986 1981 1982 1988 1984 1985 1988 WHEATa Arg. Ports 229 188 158 151 210 199 159 130 112 97 91 US Ports 221 154 159 169 183 174 155 147 139 129 118 Arg. - US 8 -21 -1 -18 27 25 4 -17 -18 -32 -27 (Arg. - US)/US 43 -14X -13 -113 15% 14X 3% -12% -14X -25X -23% MAIZE 6/ Arg. Ports 174 135 187 119 152 121 99 112 120 95 75 US Ports 171 143 147 138 114 132 1086 116 126 115 91 Arg. - US 8 -8 -10 -14 88 -11 -7 -4 -6 -20 -16 (Arg.*- US)/US 23 -63 -7% -11% 83 -83 -73 -s% -73 -173 -18% SORGHUM Arg. Ports 144 112 109 95 142 109 81 94 95 80 8 US Ports 184 124 128 122 120 130 102 111 113 91 82 Arg. - US -20 -12 -19 -27 22 -21 -21 -17 -18 -11 -14 (Arg. - US)/US -123 -103 -153 -223 MA -183 -213 -153 -16% -12% -17% SOYBEANS d/ Arg. Ports N.A 297 241 284 221 227 204 196 232 173 US Ports 228 307 270 292 245 258 218 210 250 190 Arg. - US N.A. -10 -29 -28 -24 -31 -14 -14 -18 -17 (Arg. - US)/US N.A -83 -113 -103 -103 -123 -63 -7% -73 -9 p/ Average FOB prices during peak shipping period in Argentina Dec. through March 6/ Average FO8 prices during peak shipping period in Argentina March through June c/ Average FOB prices during peak shipping period In Argentina March through June d/ Average FOS prices during peak shipping period in Argentina May through July Source: IICA ANNEX 2 Page 7 of 41 13. Argentina is a major exporter of sunflower seed oil. The European market, including the USSR, buys over 40Z of world exports of sunflower oil. The remainder is purchased by a number of developing countries. Sunflower cake is also mostly exported to Europe, whire traditionally more than 90Z of total exports have gone. Because oZ this predominance of Europe as a market for sunflower seed products, world market prices are largely determined by stock and other conditions in the European market. 14. The international grain trade is dominated by a small number of multinational trading companies, all of whom have offices in Argentina. Approximately 162 of world grain exports are originated by the two national monopolies of Canada and Australia. Centrally planned economies and some other countries, notably India and Egypt, favor government to government negotiations for major grain purchases. The increasing*importance of centrally planned and other centralized economies as markets for Argentine grain is seen in Argentina as a major justification for continued JNG involvement in the export trade. Direct government to government deals tend to be most important in the wheat trade, and less so in the trade in feed grains and oil seeds and their products. Past grain trade agreements entered into between government agencies, however, have in effect been executed by one of the major international grain trading companies. 15. There are more than 100 operators in the Argentine fob market for grains. However, as the data in Table 4 show, not more than about 15 of these companies account for approximately 902 of all exports. It is also likely that the same 15 companies are the actual exporters, i.e., the companies that arrange for the ultimate sales to the final buyers. The remainder are operators in what is essentially an Argentine off-shore market for grains. 16. The Argentine model for its grain trade, both domestic and international, that has emerged during the last 10 years is one of private initiative, based upon a free market economy, moderated by public sector interventions. As such, the model is closer to the one on which the US grain trade operates than it is to the Canadian or Australian monopolies. In Argentina itself, the trade is considered mixed between public and private initiative. Lately, though, public sector actions in the trade have been limited, as a result of limited funding and of a drive towards privatization of public activities. As a result, the JNG's actual participation in the trade has rarely been above 20Z, with most of its activities related to the trade in wheat. C. The Components Of The Trade 17. Table 5 shuws the three main destinations of Argentine grain production in the, so far, record harvest of 1984/85. It is clear that maize and sorghum are important on-farm feed grains, that over 50% of soybeans and almost all sunflower seeds are locally crushed and that a substantial portion of the wheat crop is exported. It should be remembered, though, that Argentina is a residual exporter and that, thus, exports have declined sharply since the record harvests of 1984/85. Nevertheless, the figures in Table 5 are indicative for what might be expected at a time when the farm sector is operating at a medium-to-high level of capacity. Almost two thirds of the wheat and feed grain harvests will be exported and a large part of the oilseed crop will be locally crushed. ANNEX 2 Page 8 of 41 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 4: Grain Exports By Major Traders, 1980-1985 Traders 1980 1981 1982 1983 1984 1985 ACA 1,203 1.063 1,085 2,028 1.726 1,961 AFA 159 198 143 315 317 404 Bunge & Born 76 2,310 1,445 1,434 893 927 Cargill 1,226 2,011 1,894 2,336 1,820 2,638 Emiliana 265 266 446 721 771 1,121 Continental 736 1,312 705 1,162 1,812 1,488 FACA 693 1,530 1,050 2,149 2,157 2,261 Genaro Garcia 706 1,228 1,063 1,286 654 635 Italgrani 697 941 1,072 707 243 346 JNG 334 987 642 2,466 1,917 2,167 La Plata Cereal 902 1,241 1,221 1,697 704 888 Dreyfus 880 1,594 515 1,244 1,150 1,632 Nidera 1,106 1,419 1,691 2,228 2,543 2,521 P. Sudamericanos 698 919 468 876 851 995 Sasetru 668 -- -- -- -- -- Tradigrain -- 353 665 1,228 904 917 TOTAL: 12,603 20,487 16,623 23,726 20,640 23,723 Source: ICA 18. There are typically four main stages in the marketing of grains in Argentina: from the farmer to the country elevator (acopiador) or the cooperative; from this level of product aggregation to industry or exporter; from industry to exporters or between exporters; and export proper. Of course, this is somewhat of a simplification since numerous short-cuts exist while occasionally other parties play a role, such as brokers. Figure 1 is a graphic representation of the main trading channels and their interrelationships. 19. An estimated 75? of grain production is marketed, from the farm, to the intermediary system of acopiadores and cooperatives. The remainder is either consumed on the farm or sold directly to millers and exporters. Of the 75% of production that is sold to the intermediary trade, about two thirds is purchased by acopiadores and one third by the primary ANNEX 2 Page 9 of 41 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 5: Distribution Of Grain Production, 1984185 (000' tons) Wheat Maize Sorghum Soybean Sunflower Amounts X Amounts X Amounts 9 Amounts X Amounts X Production 13,600 100 11,00100 6,90m 100 8,600 100 3,800100 On-farm consumption 700 5 2,400 22 2,400 41 0 0 Industrialization 4,072 30 1,500 14 240 4 3,495 S8 2,9088 Total Domestic Use 4,762 36 3,000 35 2,840 45 3,495 53 2,900 88 Exports as Grains 6,800 6s 7,174 65 3,227 56 2,968 46- 379 11 Exports as Milling Products 1/ 850 3 0 0 8,38 so 2,300 70 Total Export 9,150 87 7,174 65 3,227 55 6,260 95 2,879 81 I/ In terms of whole grains. Source: IICA cooperatives. The system of acopiadores accounts for approximately 10.7 million tons of static grain storage and the primary cooperative system for 6.7 million tons.3 Both acopiadores and cooperatives are essentially rural traders providing a number of services to the farmer, including the supply of imputs, transport, seasonal financing and often the sale of consumer goods. As such, the intermediary trading system provides more services than the typical country elevator in the US and, hence, its costs are not directly comparable with the latter. It is estimated by the federation of acopiadores in Argentina that the total gross revenue of the acopiador system is equal to approximately 10Z of the value of the grain crop.4 3/ See: Junta Nacional de Granos, Capacidad de Almacenaje, Buenos Aires, 1986. 4/ See: Federacion de Centros y Entidades Gremiales de Acopiadores de Cereales. El Acopio de Granos-Grain Companies Managing Country Elevators, Argentina, 1987. ANNEX 2 Page 10 of 41 20. Services provided by the acopiadores and the cooperatives may range from simple storage for a fee on behalf of the producer to outright purchase of the crop for cash. Whatever the transaction, it is governed by rules and regulations established by the JNG and is based upon a set cf non-transferable certificates of deposit. In the context of this primary trade it may be mentioned that there is substantial on-farm grain storage in Argentina, estimated at 6 million tons, or almost 20Z of all static grain storage in the country. Of this storage. approximately 450,000 tons is certified by the JNG to act as bonded warehouses upon subsequent sales to exporters, with JNG guarantee of ultimate delivery.5 21. The second step of grain marketing, between the system of acopiadores and cooperatives on the one hand and the exporters or millers on the other hand, takes place mostly on grain exchanges in Buenos Aires. Rosario or Bahia Blanca. The operational and technical nucleus of exchanges is the Camara Arbitral. As the name implies, this is essentially an entity established by all the private participants in the grain trade, to arbitrate contractual disputes. The Camara Arbitral also determines, daily, the average prices for all grains observed in the market the previous day. This is the important benchmark for sales at prices to be determined in the future, the so-called sales with p-ecio a fijar, to be discussed later. The Camara Arbitral also functions as grain quality certifier for the trade, operating fully equipped grain analysis laboratories. Actually, grain analysis and certification are the major sources of income of the Camaras. The major source of income for the grain exchanges proper is a retention of a portion of stamp duties.6 Using 1984/85 as a benchmark year, approximately one third of the grain traded on the exchanges was accounted for by millers,7 two thirds by exporters. 22. The third stage of marketing of Argentina's grain is called the FOB market. This comprises trades in foreign currency, essentially off-shore, between exporters and between industries and exporters of grains and milling products such as soybean meal. There are about one hundred traders in this market at any time, some of them quite small. 23. Finally, the fourth stage of marketing, applying to a major portion of Agentina's grain crop, is exports proper. Table 4 shows the participation in that market by main traders from 1980 through 1985. The data in Table 4 show that 16 companies usually account for 85 to 90% of all shipments. At least up to 1985, the JNG was a substantial exporter with about 10Z of all shipments between 1983 and 1985. The export trade done by the JNG originates in government to government agreements. Argentina's 5/ Under the so-called 1825 rule of the JNG that will be discussed later. 6/ Approximately 50% of the 1987 income of the Buenos Aires Grain Exchange was derived from the interest on short term deposits of stamp duties collected on behalf of the government, but not yet remitted to the Treasury. ./ Argentina has an estimated 99 wheat mills, with an annual throughput of somewhat over 4 million tons, said to represent only 602 of milling capacity. The country also has 27 sunflower, and 26 soybean mills. ANNEX 2 Page 11 of 41 exchange control and the concomitant minimum export registry price, make it mandatory for any private exporter to have an off-shore intermediary company between himself and the ultimate buyer. Sales are made to the intermediary company at, or very close to, the export registry price. The off-shore company then sells at the real, negotiated, price to the ultimate * buyer. The objective is to have the real price, on average, above the registry price. However, occasional sales below that price cannot be avoided. The off-shore intermediary is necessary in order to play the registry price. D. The Modalities Of The Trade 24. There are four main modalities in which the trade is conducted, differing mainly in methods of price setting and delivery. Table 6 shows a schematic rebresentation of these four main ways to conduct the grain trade in the primary and secondary channels. Table 6: The Four Main Modalities of Selling Grain in Argentina Instrument and Delivery Price Setting Time of Payment Names Used In future Immediate Immediate (98% Junta Certificate (up to 60 days) within 48 hrs) 1825 Immediate In future, at When price set Price to be fixed seller's option (a fiiar) Immediate Immediate Upon delivery From Stock (7 to 15 days) In future at Immediate Upon delivery From Stock fixed date (7 to 15 days) In future at Immediate Upon delivery Futures Contract a/ Source: IICA Note: In Argentina a large part of futures contracts is actually delivered; use of futures as a hedging mechanism is still relatively rare. 8/ See the next chapter, on the JNG, for details. ANNEX 2 Page 12 of 41 25. The dissociation of grain delivery and payments is of recent vintage in Argentina. One of the most important contributions made by the Junta to the Argentinian grain trade has been the introduction, in 1977, of what is popularly referred to as the 1825 regulation. Under this regulation, a seller of grain can receive payment although the grain proper stays in his, or in a country, elevator until actual delivery. In the meantime, an 1825 certificate of deposit is issued by the owner of the warehouse space, accredited by the JNG under the 1825 system. This certificate of deposit, handed to the buyer, guarantees delivery of the grain within a specified period, usually 30 to 45 days. In case either the owner of the grain or the owner of the silo where the grain is stored defaults on ultimate delivery the JNG is responsible for compliance, i.e. for ultimate delivery to the buyer. In order to be eligible for JNG guarantee under the 1825 program the JNG takes a lien on the assets of the warehouse operator or accredited producer. It should be noted that under this system a mortgage on the grain proper is not sufficient. All other assets of the trader in quest.on have to be put up as well. 26. The 1825 certificate of deposit is not negotiable. As an extension of the 1825 system, the JNG uses the grain registration under the system as the basis to issue daily delivery allowances from the various silos to the exporter's ship. Prior to the existence of this system, which essentially separates payment from delivery (i.e. prior to 1977), grain for export from Argentina was still delivered against immediate payment. That had led to unmanageable traffic congestion in ports where the entire pressure of grain sales at harvest time culminated. The data in Table 7 show the importance of the 1825 regulation, with as much as three quarters of all grain exports being handled under this mode of operation in 1980. Its relative decrease in importance in the later years is said to be due to increasingly stringent requirements with respect to underlying guarantees required by the JNG, and to the increasing incidence of essentially similar operations affected without the JNG guarantee that it is outside the strict administrative boundaries of the regulation but similar in spirit. At the end of last year there were 370 cooperatives, 1075 acopiadores, 190 farmers and 45 mills certified as operators under the 1825 system, i.e. had storage that was certified as usable under the system. 27. As an extension of the acceptance of dissociation between payment and delivery, there is an increasing incidence of grains sales prior to. harvest and even prior to planting. Early contracts for this mode of sales, entered into in 1985, rere sales for cash of part of the future crop. The seller in question had to give a bank guarantee or other guarantee instrument to the buyer. When grain prices firmed up during the period of this outstanding obligation (i.e. in early 1986), farmers found that they had sold their crop too cheaply. This led to defaults, to contract adjustments and to numerous disagreements. As of 1986, the system of forward sales against cash were changed to a system of barter, originally introduced by the JNG in 1984, as a means to promote the use of fertilizer. In these, now widespread, barter agreements the farmer will obtain fertilizer, diesel or seed for a specific amount of his future crop. Table 8 shows barter agreements in effect for the 198811989 season, both ANNEX 2 Page 13 of 41 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 7: Argentina - The Effect of Resolution 1825 Between 1978-1985 a/ (tons) Grain Exports Res. 1825 Exports Year Total Grain Under Res. 1825 As Z of Total 1978 17,628,953 8,446,722 48% 1979 19,766,907 11,337,761 57Z 1980 15,054,785 10,917,878 73Z 1981 22,509,472 12,550,150 56Z 1982 19,50-1,726 9,257,782 47% 1983 28,008,886 10,594,222 38% 1984 25,537,996 10,200,215 40% 1985 29,508,086 9,897,086 34% a/ JNG as performance guarantor under the contract: the JNG as deliverer of the grain in case either the seller or the country elevator defaults Source: IICA from the Junta as well as from private companies. Table 8 also shows that the interest implied in these barter agreements, based on product values as of the time of writing this report range from 38 to 35%. It should be noted that barter agreements of this kind either for future delivery or for immediate purchases are more and more common in Argentine agriculture, as a result of the uncertainties related with the country's financial margets. 28. Although a future contract for grains was introduced in Buenos Aires as early as 1907, its use has remained limited. The reasons usully given for this limited use are inflation, uncertainties over exchange rates and the high cost of financing margins. These, though, are all arguments that pertain to the current situation but have not always being true, or have not been true to the same extent they are now. A more fundamental reason is the lack of knowledge among farmers, cooperatives and acopiadores of the operation of futures markets, the inaccessibility o ANNEX 2 Page 14 of 41 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 8: Barter Arrangements and Impiled Interest Rates 19888 Typical Private Arranaament in Wheat Growing Area of Bahia Blanca: Fortilizer Wheat Barter relation : 1 ton q/ 4.5 tons Time of delivery June 88 Jan. 89 Prices at delivery US8321/ton k/ US390/ton g/ Values at delivery : US3321 US4065 Implied Interest rate per month 2.955 per year :35.8 Barters offered by JNG In earlZ May 1988: Fertilizer Wheat d/ UREA Barter relation 1 ton 2.80 tons Time of delivery : June es Jan. 89 Prices at delivery USS207 g/ US*90/ton S/ Values at delivery : US$207 US$252 Implied interest rate per month 2.49X per year 29.875 Superphosphate Barter relation : 1 ton 3.40 Time of delivery June 88 f/ Jan. 89 Prices at delivery : USS.264 USS90/ton c/ Values at delivery US$264 US$386 Implied Interest rate per month 2.86X per year 28.275 ap Probably superphosphate. k/ Port of Necochea, June 1988. c/ Best estimate, future price January 1989 (May 13/88 futures market quotation in Buenos Aires was US387.50 for January delivery) d/ Delivered up to 200 km from a port, i.e. typically at a country elevator, acopiador, or cooperative. e/ The price of urea to JNG in March 1988 was US3239.09/ton. A subsidy of US$31.78/ton applied, resulting In an actual cost of US3267.36/ton. / The price of superphosphate to JNG In March 1988 was US8294.34/ton. A subsidy of US340.08/ton applied, resulting in actual cost of US$254.28/ton. Source: Bank Estimates. ANNEX 2 Page 15 of 41 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 9: FOB Costs for Wheat in March 1988 at Bahia Blanca FOB Price per Ton USS110.0 of FOB Cost FOS costs: a. Taxes and duties ZNTA contribution.......................1.5 of FO8. 1.65 1.50 Stamps and registraon.................0.3 of FO 0.33 0.30 Foreign exchange transfer...............0. of FOB 0.88 0.60 Merchant Marine contribution.............86 of FOB 0.40 0.38 Subtotal Taxes and Duties 3.04 2.76 b. Handling costs: Elevation...............................US$ 4.0 fixed aj 4.00 3.64 Junta Inspection........................US$ 1.00 fixed... 1.00 0.91 Port charges............................US 1.00 fixed... 1.00 0.91 Quality differential (average)..............e). of FOB.. 0.33 0.30 Standard losses.............................0.3 of FOB.. 0.03 0.03 Subtotal handling costs: 8.36 5.78 c. Miscellaneous marketing costs: Broker's commission......................8 of FAS.. 0.8 0.07 Grain analyst..........................8.3 of FAS.. 0.03 0.08 Financing and guaran6ees................0.2 of FAS.. 0.02 0.02 Subtotal miscellaneous marketing costs: 0.12 0.11 Total FOB costs in US$/ton: 9.62 8.65 FAS coat In US$/on........................... 100.4 FAS cost In Australes (at 4.89) 6/............ 491.8 a/ There Is a discount of 25X given for ships topped up when their base cargo is loaded at JNG elevators on the Parana river. b/ Average commercial buying rate for Australes during March 1988. Source: IICA ANNEX 2 Page 16 of 41 this market for the trader outside Buenos Aires and a general distrust of the market as a place where fortunes have been lost. The futures market in Argentina, to the extent that it is used, is largely to contract for actual future delivery, rather than to hedge price changes. As such, it is reminiscent of the use of early futures markets in the US, at the turn of the century.9 Furthermore, the amounts traded are only a fraction of the total crop. 29. The major operators in the FOB market are multinational companies whose objective is to maximize profits globally. In order to do this, they will always try to buy locally at the lowest prices and maximize profits where taxes are minimal or non- existent, i.e. in their off-shore companies. The incentive to buy low will depress the local market when it is weak anyway, at peak harvest time, with most farmers under pressure to sell. Of course, without the incentive to maximize profits off-shore. there would still be a good motivation to buy low, with the farmer facing a depressed market during harvest time. However, the need to depress the FOB market would be less. Hence, the global profit maximizing posture of the multinational companies explains, in part, the descuento Argentino as a phenomenon occasioned by local economic and political conditions. As a corollary, if local conditions can be changed. for instance by strengthening the farmer's bargaining leverage through the availability of precommercialization credit, this would tend to decrease the descuento Argentino, at least for insofar as it is influenced by domestic market conditions. E. Price Formation, Margins and Market Issues 30. Argentina is a taker of world market prices, and thus price formation starts with the FOB price. As reasoned earlier there are a number of factors, both endogenous and exogenous to Argentina, that can explain the differences between Argentinian FOB prices and those of its main competitors throughout the year. The difference between the FOB price and the FAS (Free Alongside Ship)10 cost is essentially made up of three components: taxes, handling charges and miscellaneous marketing costs. Taole 9 shows a typical breakdown of the FOB/FAS difference by the three mentioned main components. The data in Table 9 show that, under conditions applying in March 1988, taxes constituted about 32Z of the FOB/FAS difference for a typical wheat shipment.11 Handling and miscellaneous marketing costs were respectively 67Z and 1Z of total Fobbing costs. The difference between FOB and FAS prices is here expressed in terms of objectively determined costs. If the FAS prices, calculated backwards from the FOB price, is above the prevailing price for the product in question at the grain exchange, there is a positive margin and hence a profit between FAS and FOB price. In case the FAS cost is below the prevailing quotation on the grain exchange, a loss (contramargen) obtains. 2/ At present, not more than about 3Z of futures contracts in the US, culminate in delivery. The total amount traded far exceeds the total crop. 10/ Essentially at the truck or rail unloading point of the terminal elevator. 11/ At that time the 5Z export tax on wheat (the retencion) had been I1J.-- ANNEX 2 Page 17 of 41 31. An important factor in the conversion from FOB to FAS is the prevailing exchange rate. The FOB price is denominated in foreign exchange, customarily in U.S. dollars, while the FAS price is denominated in Australes. Although the applicable exchange rate, at any point in time, . is known and is the same for all exporters, the latter's actual foreign exchange position may be different from one company to the other. These different positions are brought about by the possibility of importing foreign exchange, up to 180 days, and sometimes up to 300 days, before actual exports are made, ostensibly as a means of financing production by way of advance purchase of future crops. Thus, the actual conversion rate applicable for each exporter between FOB and FAS depends upon the amount and timing of the particular company's imports of foreign exchange, the extent to which t.his foreign exchange is used for advance crop purchases and the extent to which it is applied in the local capital market at effective interest rates exceeding those that are paid on the same funds by the exporter to the financing agency. In other words, the ability to import foreign exchange under the prefinancing schemes greatly complicates the calculation of actual average exchan e rates applying to each exporting company and makes the FOB market opaque.12 As a result, it is virtually impossible to estimate the actual FOB prices of grains exported from Argentina. It appears safe to sa, that, on average, actual FOB costs are below listed and quoted FOB prices, mainly as a result of capital market operations with prefinancing funds by all major exporters. This also implies that any company unable to obtain prefinancing funds is at a serious disadvantage in exporting grains from Argentina.13 32. The data in Table 9 also show that port elevator colts are the single largest contributor to total "Fobbing" costs. The elevator costs listed here are actually monopoly tariffs charged by the JNG and are determined by its need for funds, rather than by actual costs incurred to provide the service. At present, private ilevators along the Paran& river charge about half of the JNG tariffs at Bahia Blanca. In the following sub-chapter, on current trends, we will return to this issue within the context of a discussion about structural changes taking place in grain marketing in Argentina. 33. In order to obtain the farmgate price from the FAS price, again three main categories of cost have to be considered. The major cost is transport, consisting of the so-called short transport from farm to country elevator and the long transport from elevator to shipping point. The country elevator can be located at the site of an intermediary trader, called acopiador, or at the location of a primary cooperative. Among the costs incurred at the location of the country elevator or cooperative are conditioning charges for operations such as drying cleaning and fumigation. Furthermore, they include a handling and sales commission, generally 12/ It also explains why fully 50% of financial administrative personnel at one of the main exporters is engaged in managing funds, according to one of that company's directors. 13/ In particular, the JNG. ANNEX 2 Page 18 of 41 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 10: Conversion of FAS Cost to Farmaate Cost (Wheat, March 1988, in Australes per ton) Percentage of FAS Maximum FAS price al 491.36 Cost between farmgate and FAS: a. Transport Short-haul-(farm to elevator) .............. 12.00 2.44 Long-haul (rural elevator to port) / ...... 55.00 11.19 Subtotal transport: 67.00 13.64 b. Country elevator (acopiador) Grain Conditioning ......................... 9.00 1.83 Standard Losses ............................ 9.00 1.83 Commission Charges at 4Z of FAS ......... 19.65 4.00 Subtotal Handling Costs: 37.65 7.66 c. Taxes: On gross receipts .....at 0.9Z of FAS ...... 4.42 0.90 Stamp duties ..........at 0.3Z of FAS ...... 1.47 0.30 Social security taxes..at 0.6Z of FAS ...... 2.95 0.60 Subtotal taxes: 8.84 1.80 Total costs FAS to fagate ....... 113.50 23.10 Maximum farmgate price ............ 377.86 Farmgate price as a Z of FOB c/.... 70 A/ The price at which there is no profit; that is, the price is equal to the FOB price minus the FOB processing costs. See also Table 6. b/ Based on an estimated 30% rail and 70Z truck transport. a/ At the average commercial buying rate for Australes during the month of March 1988, i.e. 4.89 Australes per US dollar. Source: IICA ANNEX 2 Page 19 of 41 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 11: Monthlx DIferences In Average 7AS Prices for Cereale and Oilseeds 1980 - 88 a1 1980 1981 1982 1988 1984 1985 1986 1987 1988 WHEAT Feb 0.00 6.19 -6.17 -1.46 -4.66 4.89 -1.78 1.38 7.31 March -2.85 -4.87 -2.82 -8.28 -4.87 5.79 -1.41 6.99 -1.55 April -2.37 3.53 12.57 -5.61 8.79 6.54 -2.67 14.29 May 4.86 1.28 19.80 -4.34 -9.38 -2.65 4.58 0.89 June -2.73 18.685 11.83 8.84 7.54 -13.12 15.59 9.38 July 7.71 -0.24 10.81 20.50 -10.11 4.31 0.81 5.18 Aug -0.78 15.17 0.45 -2.90 9.26 0.56 -4.97 23.23 Sept -1.57 8.74 -19.96 -1.14 -8.47 0.19 -4.75 24.59 Oct -6.67 3.31 -20.94 -1.44 3.27 -1.31 -15.14 -31.76 Nov 2.81 -19.583 6.26 -11.46 0.66 8.57 -7.6 0.73 Dec -9.97 -19.04 *4.66 3.96 -7.8 1.32 -7.59 -11.98 MAIZE Feb -2.82 -10.92 -23.16 16.24 -2.76 -15.55 -11.01 -11.61 -3.87 Mar -7.63 -11.53 -13.48 3.87 -7.16 -16.22 -9.38 7.51 -2.11 Apr 1.03 -1.35 7.38 12.23 -0.16 1.49 -1.18 9.48 May -12.95 -2.85 -0.19 -8.10 -4.85 -2.20 7.62 6.15 June -3.33 6.37 4.97 -5.93 -0.34 -7.82 -1.99 0.00 July 6.48 11.86 - 8.98 16.87 -5.57 6.88 -7.45 3.86 Aug 5.32 2.38 3.18 9.82 1.81 -0.57 9.27 .6.82 Sept 1.44 0.00 -21.88 -7.18 1.58 -1.90 23.88 4.88 Oct -0.53 10.88 -8.30 4.30 8.15 -1.75 5.95 2.75 Nov 6.80 19.12 19.23 -2.08 8.65 4.55 6.46 -1.23 Dec -1.84 0.71 -1.33 4.91 25.86 -.38 -15.02 5.42 SORGHUM Feb -3.94 -9.82 -16.18 -3.17 -5.11 3.06 -2.02 -4.97 -12.78 March 11.88 -7.41 -1.59 4.91 -2.31 0.23 -1.80 6.97 -0.38 April 5.41 -3.25 5.30 17.15 -5.31 3.87 -4.19 0.28 May -14.47 -0.20 -13.13 -11.65 -9.568 -7.68 -1.37 3.95 June -4.87 11.57 9.82 -8.66 -4.14 -15.44 7.48 -1.90 July 8.92 14.57 18.81 6.60 -2.40 8.18 9.28 0.28 Aug 10.65 2.80 4.44 25.92 -2.46 1.32 26.40 -8.29 Sept 4.72 -4.19 -15.71 -14.44 9.57 8.31 -5.74 23.46 Oct -2.52 12.25 -8.33 -0.38 3.22 2.34 -0.55 3.41 Nov -2.40 9.55 25.84 1.80 -8.02 7.71 7.24 -0.76 Dec -3.41 -11.57 -2.69 -3.89 7.51 3.45 -9.81 5.85 SOYA -an Feb 8.87 -11.00 -3.45 -10.39 -11.19 -4.04 -6.56 -2.71 -18.23 Mar -10.72 0.14 -7.92 -4.58 4.50 -0.10 -1.48 5.06 -11.83 Apr 8.88 18.09 4.73 6.62 -2.27 0.29 -2.84 13.36 May 1.84 1.30 1.90 -7.06 0.16 -12.33 1.29 9.27 June -5.82 13.86 3.63 -3.39 -14.40 -8.07 1.16 -2.54 July 17.72 5.98 3.16 18.48 -18.26 7.24 -1.26 0.24 Aug 6.23 1.84 2.98 34.55 1.58 8.44 2.43 -6.82 Sept 9.66 -8.19 -17.06 0.79 -8.15 0.11 11.64 14.55 Oct 2.44 14.78 -10.69 -18.67 13.23 -0.55 2.33 1.06 Nov 20.83 6.15 25.48 -3.38 7.55 -0.22 0.69 6.32 Dec -21.36 -9.45 -3.01 -1.79 -2.88 -0.44 -5.21 -1.91 1/ The average FAS price during the month in question, minus the FAS price of the previous month, divided by the average FAS price of the previous month. If It is true that monthly price Increases for grains are less than the cost of money to farmers, then farmgate prices move in parallel with FAS prices. ANNEX 2 Page 20 of 41 ranging from 3 to 6? of the value of the product. Finally, the third component of cos,.i is a group of levies and taxes. Table 10 shows a typical breakdown of these Lists, as they obtained recently. It should be noted that costs as listed here are rapidly out of date, since current inflation in Argentina is at least 20% per month. It can be assumed, though, that relative values of these costs, with respect to the value of the product, will remain valid, as long as there is not a substantial increase in FOB prices. Assuming that, the figures in Table 10 show that transport costs account for approximately 60Z of the total difference between FAS and farmgate prices. Combining the data in Tables 9 and 10, it can be estimated that, on average, farmgate prices in Argentina for wheat, are approximately 702 of FOB prices. 34. Although all costs in the final instance are negotiable and thus somewhat flexible, the largest degree of flexibility appears to be in the commissions charged by the acopiador and in the conditioning costs incurred at the country elevator. With respect to the latter, there is a certain lack of transparency, since it is probably difficult to judge, for the producer, to what extent some or all operations were necessary. Also, losses and shrinkages are calculated on the basis of generally accepted norms, rather than on values as actually incurred. Efficient acopiadores may be able to reduce those losses and hence have an extra margin. The flexibility of commission charges, conditioning costs, and, to a certain extent, transportation are the cost reducing opportunities exploited by the newly emerging large scale operators who are integrated from shipping terminal backwards to having their own country elevators, about which there is more discussion in the following sub-chapter. 35. At real interest rates above 2 to 32 per month, post harvest financing of grain inventories is not feasible. Lately, product price increases after the harvest have been less than the cost of financing would have been (Table 11). Furthermere, even if post- harvest financing were available, it is unlikely that it would be used for the early crop, that is for the important wheat crop.14 Because of the same high financing costs, most farmers are heavily indebted with production credit either obtained in kind or in barter deals, necessitating immediate sales of the first crop. Under present conditions, product retentions on the farm are the chosen means of post- harvest financing and are used whenever financially possible. Economic, social and political uncertainties have led farmers to this behavior, though selling all crops and depositing the money in short- term interest-bearing instruments might be more economically rational. This trust in physical inventory is an extension of the demonetization of the Argentine economy, evidenced further by widespread barter deals to obtain production inputs and agricultural implements. 36. Primary physical infrastructure, particularly storage, and to a lesser extent drying capacity, are sufficient in Argentina for current conditions and for the medium term future. The country has an almost 1:1 relationship between total current yearly grain harvests and storage 14/ In Argentina the harvest sequence is wheat, flax, corn, sorghum, sunflower seeds and soybeans. Harvests start in December and end in August. ANNEX 2 Page 21 of 41 capacity.15 Since a large part of production is exported shortly after the harvest, there appears to be no foreseeable lack of storage capacity. As a matter of fact, much on-farm storage remains idle, while storage capacity can be purchased for 50Z or less of replacement costs. The development of this infrastructure by private interests has kept pace during the last ten years or so with increasing production. 37. The influences of public sector policies on the grain trade are felt in three areas: exchange rate policy, tax policy, (particularly export taxes) and monetary policy which has a direct bearing on the cost of money. The exchange rate has a direct bearing on the translation of FOB into FAS prices and hence on the price ultimately received by the farmer. Commercial exchange rates set below the free market rate by are in effect a tax on producers.16 Direct export taxes, the so-called retenci6nes, were abolished for wheat and feed grains in 1986 but have recently been reintroduced. The original abolition of the export taxes on wheat and feed grains constituted a substantial windfall profit for those exporters who had forward purchasing commitments, for instance through the ubiquitous prefinancing programs for crops, including the barter programs. 38. The impact of the high cost of money, occasioned by the Government's monetary policy, has been discussed previously. A direct impact of this policy on the grain trade, not formerly commented on, is the need that may arise occasionally to export at a time and under conditions that are not favorable, that is when a particular exporter comes to the end of the maximum period allowed under the prefinancing schemes, currrently between 180 and 300 days, depending upon the type of financing in question. 39. Another important influence on the grain trade is the actions of the JNG. In the absence of a firmly funded program the JNG's actions lately have been ad-hoc, fully dependent on funds made available periodically, mostly for opportunistic political reasons. Hence, the JNG has been used as the executing agency of short-term government policies. These have usually been related to the purchase of wheat during the harvest season. Coverage of foreign sales obligations, entered into as a result of government to government deals, have had to be exercised in the FOB market. This has made the JNG occasionally an important buyer in that market and thus to a certain extent the determinant of prices at that time. The role of the JNG will be discussed in further detail in the following chapter. 15/ The 86/87 grain harvest was about 32 million tons, total itatic storage capacity according to a 1985 survey done by the JNG is about 31 million tons. 16/ There is a confusing habit in Argentinian grain circles to calculate, so-called, effective exchange rates for each grain and milling by- product exported, taking into account not simply the difference between the commerical (government fixed) rate and the financial (free market) rate, but also all applicable taxes, i.e., the export tax, INTA and the tax on the transfer of foreign exchange. Not surprisingly, the difference between this effective rate and the free market rate can be very high. ANNEX 2 Page 22 of 41 40. A final market related factor that should be mentioned is the strong incentive for market manipulation in the case of wheat and oil seeds, given by the way in which these markets are organized. Wheat for domestic consumption is essentially acquired by the JNG during harvest time and is re-sold to the millers during the remainder of the year.17 Most oilseeds are purchased by crushers under the system of Precio a fMjar. In either case, the future price at which payment is made is determined by the then prevailing cash price on the exchange. However, the actual cash market for these products is extremely slim outside the harvest season. After all, both wheat and oilseeds are already in store at the mills. Thus, a substantial portion of both wheat and oilseeds is sold on the basis of prices observed in what is, at best, a marginal market liable to manipulation. Both the oilseed crushers and the wheat millers have interest associations that could be used for such market related actions. F. Current Trends 41. There are four observable trends that stand out with respect to Argentina's grain marketing, most of them linked in one way or another. These ares (a) a structural change in the trade from farmgate to exports; (b) a move to privatize certain functions and services; (c) the JNG's implied wish to get out of the elevator business; and (d) a move to make available to the farmer financial instruments, particularly futures contracts and an institutionalized system of production credit. 42. * The structural change in the trade is essentially brought about by the competition given to the traditional marketing channels by newly emerging systems that are integrated from export terminal all the way to country elevator. This competition has been brought about by the opening of the export terminal business to private initiative in the early eighties. As discussed previously (Tables 9-10) there are several opportunities for cost reduction in the cost components that contribute to the FOB/farmgate price difference. The new integrated structures exploit these opportunities by reducing their elevation, transportation and commission costs to well below prevailing charges in the traditional channels. As such, the new structures are at once able to offer higher prices to the farmer than the traditional acopiador can and are also more profitable than the old structures. Of course, the new structures do not offer all the services of the old systems, such as credit, full conditioning, consumer goods, overdrafts on personal accounts, etc. In other words, the new systems are less of a "godfather* to the farmer than the traditional acopiador or cooperative is. However, increasing market penetration of the new structures will force them to offer gradually more services, increasing their costs. 17/ In fact, the wheat is purchased by and stored at the mills. The JNG finances the mill's working capital under a version of sales with precio a fiar. ANNEX 2 Page 23 of 41 43. The new systems often by-pass institutions such as the grain exchanges, making the marketing chain less transparent and reducing the income of the exchanges.18 The new systems started off by taking the most profitable clients first (i.e., the large farmers), who are anyway less dependent upon the paternalism of the traditional operations. On the other hand, the newly emerged competition is forcing the least efficient acopiadores and cooperatives to the wall. It can be predicted that a market equilibrium will be established, with co-existence of the more efficient traditional operators, some after mergers, and the most adaptable of the new structures. In short, the market appears to work here, and temptations to support the less efficient of the traditional operators should be resisted. 44. The move to privatize certain public sector functions in the grain trade should be seen within the context of general privatization. This led in the late seventies and early eighties to the construction of private terminal elevators, as discussed in the previous paragraph, to the assumption by the exchanges of the functions of grain tester and certifier, a function previously limited to the JNG, to present discussions about private rail transport of grains, and to the desire to rid the JNG of its remaining elevator operations. Privatizing the grain testing function has given the exchanges a substantial new source of income, at the same time depriving the JNG of similar income. The euphoria engendered by the new income, bolstered as it was by rapidly expanding trade in the early eighties, made all three exchanges19 start the construction of new office buildings. All three constructions have been halted, partially completed, as a result of .the downturn in business as of the mid-1980s. 45. The desire to rid the JNG of what has become an unmanageable cost center, its terminal elevators, will be discussed in the following chapter. The move to strengthen and make available financial instruments to farmers was originated by the exchanges as a means to counteract the loss of business brought about by the competition of the new trading structures. It takes various forms from promotion of traditional instruments, futures contracts in Rosario, to a proposal for the introduction of new instrumeuts, negotiable certificates for future delivery, in Buenos Aires. This is discussed further below. II. THE JUNTA NACIONAL DE GRANOS 46. The Junta Nacional de Granos has it origin in the Junta Reguladora de Granos, established in 1933, in an effort to standardize and improve the quality of Argentine grain shipments. Over the years, the JNG and its predecessors have had different influences upon the grain trade in 18/ It was estimated by personnel of the Rosario exchange that as much as 50Z of all business now by-passes the exchange. 19/ Buenos Aires, Rosario and Bahia Blanca. ANNEX 2 Page 24 of 41 Argentina, ranging from a monopoly to mere overseer of free trade.20 The present JNG is based on a decree law, number 6698- 63, which establishes it as an autarchic institution under the umbrella of the Secretary of Agriculture.21 The JNG is the instrument of the executive to implement its policy with respect to the grain trade. As such, it has four main functions: (a) to act as a regulatory and control agency; (b) to collect and disseminate information on grain production and trade; (c) to act as trader; and (d) to operate physical, trade-related infrastructure. A. The JNG As Regulator and Controller 47. In the exercise of its obligations under the first function of regulator and controllor of the trade in grains, the JNG requires all participants in the trade to be registered with it. The JNG regulates all aspect of the trade, such as types and formats of purchases and sales contracts, sale and delivery procedures, etc. Essentially all grain shipments in Argentina, be they between farmer and acopiadores or between acopiadores and industry or exporter, are accompanied by documentation standardized by the JNG. As a further control of grain movements, all cooperatives, acopiadores and industries have to send monthly movement reports to the JNG. Exporters are obligated to send weekly purchase reports to the JNG.22 In order to exercize its responsibilities of regulator and controller, the JNG has 34 district offices in all grain producing areas in Argentina. 48. Another important area of trade control is the JNG supervision of all export sales, under Law 21453 of 1976. All signed export contracts have to be registered within 24 hours, at which time the FOB price of the contract, applicable taxes and other conditions of sale are determined and are fixed. In this respect it is important to notice that grain exports from Argentina, based as they are on Law 21453, are the only exports whose conditions are firm and fixed as of the time of registration of the export contract. All other exports from Argentina are effected according to conditions of applicable taxes and exchange rates on the day of shipment, and as determined by customs. The existence of Law 21453 has given the grain exporting industry a large measure of certainty and predictability. Although the law is not perfect, the trade is extremely reluctant to suggest any changes, not knowing what the end result of a process of change might be. Under the law, grain shipments can be registered up to 210 days 20/ The JNG had a monopoly on the grain trade from 1946 through 1956 and from 1974 through 1976. The trade was free or mixed, i.e., with public and private interests, between 1956 and 1974 and since 1977. 21/ For the legal history and framework of the JNG see: Villegas, Walter A. Regimen Juridico del Control del Comercio de Granos, Buenos Aires, 1982. 22/ There are indications that the newly emerging integrated trading channels, discussed earlier, increasingly dispense with standards, regulations and reporting requirements. These new structures are self contained and, in as much as they do not need the JNG, they see no reason to fulfill its requirements. ANNEX 2 Page 25 of 41 prior to actual shipments. Failure to effect a shipment once registered, carries a penalty of 15Z of the total value of the shipment as registered. The JNG determines, daily, minimum export prices, for all grains, below which shipments can not be registered. The determination of export registry prices is done by the economic section of the JNG on the basis of daily contacts with exporters and brokers, and with the international trade, and with the benefit of information derived from the JNG's own export sales.23 49. The export registry operated by the JNG is also used as a main instrument to regulate supply to the domestic market. Periodically, the registry is closed, effectively inhibiting exports. At other times, the export registry price is set on purpose above the market price, obviating export sales that way. A chronology of the incidence of this market regulation is currently being prepared by the JNG. 50. In order to control effectively the supply of wheat to the domestic market and, iz is said, to prevent monopolization of the wheat export market, the JNG operates a wheat export quota system. Table 12 shows the current holders of quota under this system. Periodically, the JNG opens the wheat export registry, for those who obtained a quota. The quotas proper are determined, by the JNG, on the basis of past export performance of the various companies. Lately, however, the cooperatives have been were assured of an automatic 10Z of the available quota, a percentage that is supposed to increase in the future. Wheat quotas are apparently a profitable possession, with a lively secondary market. There are indications that the existence of the wheat quota system, with its many relatively small quota holders, is a major reason for the continued existence of the FOB market. Also, the profitability of a wheat quota, obtainable at essentially zero cost, makes the wheat quota system potentially disruptive to an orderly market and its allocation subject to cronyism and corruption. 51. Finally, the JNG inspects all export shipments and issues Certificados Argentinos de Calidad. Although this system of export quality control is in full force, the trade is making use of the services of the Camara Arbitral, as previously discussed, for the determination of qualities with respect to its trading contracts. It is not clear why such a duplication of efforts is necessary. B. The JNG Information and Assistance Function 52. Because of its involvement with all aspects of the grain trade in Argentina, the JNG is without doubt the best source of information on the grain trade in the country. Apart from the information on grain movement mentioned earlier, the JNG also collects, through its regional offices, 23/ The mission heard few complaints about the level of registry prices established by the JNG. This may indicate that, on average, these prices are somewhat below actual market prices. The difference becomes an automatic underinvoicing and an externalization of foreign exchange. ANNEX 2 Page 26 of 41 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 12: Argentina: Wheat Exporters and their Current Quota (metric tons) Actual Exports Average 1985-87 Quota 1985 1986 1987 9 at 2/27/88 Nidera 1,399,205 428,391 391,893 739,830 15.48 69,338 Cargill 1,139,087 344,391 218,980 587,432 11.87 53,411 FACA 971,421 270,392 393,973 545,262 11.41 51.411 ACA 821,482 325,083 341,443 495,996 10.37 48,687 Dreyfus 898,377 117,005 279,279 429,887 8.99 40,464 La Plata Cereal 448,259 264,132 191,644 300,678 6.29 28,302 Bunge A Born 280,177 360,549 105,450 248,725 5.20 23,412 Tradigrain 243,160 284,872 118,3560 215,394 4.51 20,278 Continental 434,232 120,590 63,540 208421 4.31 19,402 Genaro Garcia 271,134 178,648 86,059 169,247 3.54 15,931 Prod. Sudamericanos 205,818 207,264 44,381 152,491 3.19 14,354 Italgran! Plata 100,290 198,091 40,925 113,102 2.37 10,648 Cia. Emiliana 201,988 71,217 45,735 166,313 2.22 10,007 Transafrica 104,386 124,252 15,836 81,491 1.70 7,871 C. Trigales 73,393 90,062 25,184 63,526 1.33 5,980 AFA 98,738 67,373 27,367 60,493 1.27 5,694 Conagra 9,060 79,574 59,999 49,524 1.04 4,662 Gear 68,911 48,469 16,000 41,797 0.87 3,934 Panchaud 65,500 25,444 14,452 35,134 0.73 3,307 Curcija 44,130 31,224 9,766 28,373 0.59 2,671 Richco Cereales 23,200 49,785 11,628 28,198 0.59 2,654 Capesa 46,959 17,113 11,938 25,337 0.53 2,385 Georgolos 31,658 14,917 6,320 17,632 0.37 1,660 Cia. Rio Cereal 32,00 1,011 4,500 12,504 0.26 1,177 Mol. Concepcion 28,400 - 5,094 14,247 0.30 1,341 Samage 23,083 - 5,00e 14,642 0.29 1,322 Suc. Moreno 10,00 9,874 5,000 8,225 0.17 744 Victoria Cereales 15,7560 - 5,060 10,375 0.22 977 Irursum 15,750 - 5,000 10,375 0.22 977 Agenmar 11t - 6 8,000 9.17 753 YEARLY TOTALS: 8,102,515 3,716,981 2,522,716 4,780,737 100.00 450,000 Source: JNG ANNEX 2 Page 27 of 41 crop production and harvest information. This information is published in daily bulletins. These same bulletins are used to supply information on international trade, on exports, on the extent of milling and on other variables related to the trade, information not dissimilar to that regularly supplied by the USDA on the US grain trade. The JNG is used by the executive as its main source of information on the Argentine and on the international grain trades. The JNG's forecasts of harvests and exports are used by the Central Bank as a main determinant of the expected inflow of foreign exchange. Its following of the international market also helps the JNG in its own trading activities. C. The JNG As Trader 53. The law that established the JNG also gives it a broad mandate to trade in grains both nationally and internationally. The JNG's trading functions, though, are financially and legally independent of its other operations. Specifically, the JNG has a so-called commercial fund24 for its trading operations, while all recurrent expenses, i.e. those of offices and personnel, are paid out of its regular budget. The JNG's operations as trader are governed by civil laws, its operations as regulator and controller are governed by public laws. This distinction appears important since it may determine and may limit the extent to which the JNG can obtain financing for its operations. 54 The JNG's commercial operations are a convoluted mixture of systematic and ad-hoc actions at various levels of marketing, based upon an equally varied mixture of justifications and motivations. Lately, the JNG's trading activities appear to have concentrated in four areas. 55. First, the JNG tries to put a floor under grain prices, particularly in early and peak harvest time. Limited funds have restricted this program, in recent years, to wheat. Since wheat is the first crop, the producers tend to be most vulnerable to market pressures during wheat harvest time, since indebtedness forces them, usually, to sell early and quickly. If price support is attempted at all, or funds are very limited, it makes senpe to focus on wheat. Early in the harvesting season, the JNG effectively makes the market for wheat, being careful not to impede export sales, that is being careful not to establish farmgate prices that would lift FOB costs above prevailing worldmarket prices. In essence, the JNG's professed policy is to limit monopsonistic profit taking by the trade through the establishment of daily support prices (precios de sost4n) that limit the difference between farmgate price and FOB price to what is considered a reasonable margin. Thus, the term support price is partially a misnomer, particularly when compared with the use of the same term elsewhere. It is not a blanket program to support farmer's income. Rather, it is a short-term market interference to prevent monopoly margin setting between FOB and farm gate at the time of highest vulnerability of the producer. 24/ This fund (at that time about US$200 million) was partially lost in 1980 as a result of government-induced non-convertibility of the fund, then denominated in Australes. Final losses were incurred in 1984 through, government-induced, subsidized wheat sales to millers. ANNEX 2 Page 28 of 41 56. Unfortunately, this program has become mixed up with programs to support the milling indust:y and with measures to hold down consumer prices. In essence, the JNG now buys, mostly through the support program, about 15 to 20% of Argentina's wheat crop, as good as 752 of the domestic market needs. This wheat inventory is purchased from December to March at prevailing prices for wheat, themselves supposedly determined by international (FOB Argentina) wheat prices, if the policy works as professed. During the remainder of the year this wheat is sold to the mills, as needed, at prices found to prevail in the market at the time of sales. Comment has been made above on the thinness of this market and on its limited transparency. Also, there are always political pressures to use the wheat sales as a means to keep inflation down. 57. Apart from being mixed up with de-facto working capital financing of the millers and consumer subsidies, the wheat price support program is also used as a source for exportable quantities of wheat sold by the JNG. The main reason for this mixture of objectives under the price support program is that, recently, this has been the only program for which the JNG obtained substantial budgetary support, directly from the Central Bank. This availability of funds, though, has not always been either timely or sufficient. Often, funds arrive too late or are insufficient to support the program deemed necessary. The JNG has had to resort to measures such as deferred payments of purchases, effectively lowering prices. JNG personnel feels strongly about both the need for and the effectiveness of their price support program. According to that sentiment, the threat of JNG purchases overhanging the market is, in itself, sufficient to firm up prices. If so, it would be interesting to find out the lowest cost at which such a threat can be maintained, at the same time minimizing actual purchases. 58. Secondly, the JNG operates what is referred to as a pilot program of actual producer price support for rice, similar to the loan rate system of the US. The JNG guarantees a rate at which it will purchase rice after harvest. Based on this guarantee, a producer can obtain a loan from his local bank against the storage warrant of the rice. If, during the period the loan is outstanding, the market price of rice drops below that guaranteed by the JNG, the rice automatically becomes JNG's property and the JNG is responsible for payment of the loan to the bank. 59. Thirdly, it is considered to be one of the social responsibilities of the JNG to support marginal producers, both with respect to size and to location. Until recently, a small farmer's program was in existence whereby the yield of the first 150 has. harvested by any farmer was purchased. This, it was argued, was a small farmers support program, since it purchased the full harvest of the smaller farmers. The program is now discontinued. An on-going program (for the last 9 years) is the guaranteed purchase at a minimum price of all grains in marginal areas, principally in the North West and North Eastern part of the country. Production in these remote areas, it is felt, is at a disadvantage because of relatively high transportation costs to export ports. Hence, the support program is said to, in effect, subsidize 502 of transportation costs. However, it is not clear whether other production inefficiencies are also being camouflaged by ANNEX 2 Page 29 of 41 the same subsidy. Also, during the last 3 years this program has become mixed up with support for local processing industries, similar to the de-facto working capital financing of the wheat millers. Finally, this program is also used by the JNG as originator of exportable quantities under the JNG's export responsibilities. 60. Finally, in recent years, the JNG has been responsible for 15 to 20Z of all arain exports from Argentina. The majority of these shipments have been acquired in the FOB market, possibly financed with back-to-back letters of credit. A minor part consists of the excess purchasing under the previously described JNG support programs. Some of these export deals have reportedly been quite profitable for the JNG. The main argument advanced for the need to have the JNG operate as international trader is the perceived requirement to have a public sector institution for certain government-to-government negotiations and agreements. Argentina's agreements with the USSR, Iran, India, Mexico, Peru or Brazil are used to illustrate the point. However, all of these countries have at some time bought grains from the US or from the EC. In neither case do public sector traders exist. Furthermore, even when agreements are entered into by the JNG, the majority of actual shipments are effected by the traditional private exporters from Argentina. Furthermore, fact finding trips to major client countries, such as the USSR or China, are commonly arranged by the private company known to have the best contacts in the country in question, rather than by the JNG. Thus it appears that the argument of preference for a public sector interlocutor on the part of some important client countries is not too strong. 61. A stronger argument may be the need for the JNG to be directly involved in international trade if it wants to have a chance of policing Argentina's overall grain exports effectively. The earlier description of Argentina's FOB market, its registry price and the incentives to maximize profits off-shore suggests that only actual participation in the trade will give the JNG the information and expertise needed to exercise its control function. The best indicator found for this need is the fact that JNG export sales, almost without exception, are concluded at prices that are above those declared by private traders at roughly the same time, (Table 13). In a sense, the JNG's own exports support FOB prices, in the same way that farmgate prices are supported to some extent by the JNG's price support program for wheat. D. The JNG as Elevator Operator 62. To all intents and purposes the JNG does not anymore operate country elevators.25 Up to 1980, the JNG was the sole operator of terminal, or port, elevators. Since then, 10 private elevators have been built, all of them on the Parani river, reducing substantially the participation of the JNG in total shipments (Table 14). The JNG participation in export shipments dropped from 702 in 1981 to about 562 in 1985. The data in Table 14 show that, in particular, the third party use of private elevators has 25/ There are still approximately 30 elevators registered as belonging to the JNG. These, though, are said tn ha-** o --- ' ANNEX 2 Page 30 of 41 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 13: Selected Average Export Prices of Private Traders and JNG Private Trade JNG JNG as % of Months of Average Months of Average Private Year shipment price shipment price trade (US$/ton) (US$/ton) Wheat 1988 Jan-May 99.55 Jan-June 107.67 108.15 1987 Jan-March 78.39 Jan.May 91.33 116.52 All Grains 1984 Wheat Jan-Dec 132.19 Jan-Dec 138.39 104.69 Maize Jan-Dec 134.49 Jan-Dec 141.20 104.99 Sorghum Jan-Dec 108.00 Jan-Dec 114.17 105.71 Soya Jan-Dec 278.53 Jan-Dec 292.35 104.96 Sunflower Jan-Dec 346.72 Jan-Dec 347.40 100.20 Rice Jan-Dec 279.89 Jan-Dec 412.31 147.31 Source: JNG increased substantially. As a result of high tariffs26 and poor service, the JNG elevator system has become the marginal provider of service; first to be dropped, last to be considered. At current reduced shipments, as compared with the record exports of 1985, the JNG system in Rosario is essentially idle, or at best is used as static storage. The elevator in Bahia Blanca retains business, thanks to its monopoly position. Since the tariffs charged for elevator operations are the main source of revenue for the JNG, these tariffs are set on other than purely cost-related grounds. 26/ The tariff of the JNG elevator in Rosario is LS$4/ton; private throughput houses reportedly charge US$2/ton and less. ANNEX 2 Page 31 of 41 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 14: Use of Public and Private Port Elevators, 1981-88 New Third Pary JNG Integrated Use of Elevators Systems Private Elevators Tonnage Tonnage Tonnage Handled 5 Handled X Handled X TOTAL 1981 15,881,400 70 4,144,200 18 2,543,000 11 22,548,800 1982 12,560,860 8s 3,868,754 18 8,213,159 17 19,132,763 1983 17,808,886 66 4,273,688 16 4,949,569 18 27.026.888 1984 13,923,824 67 4,324,805 18 6,191,345 25 24,439,974 1985 15,777,452 56 4,239,597 16 7,914,039 28 27,931,088 Source: IICA 63. The JNG is the remnant of more than 50 years of government involvement in the trade, involvement that has ranged from a state monopoly to overseer of free trade, from passive quality controller to active trader. The changing responsibilities, implicitly or explicitly assigned to the JNG over time, are reflected in fhe multiplicity of technology and expertise found within the organization. Unfortunately, its somewhat turbulent history is also reflected in its multi-departmental, overlapping, organizational structure with redundancies and duplications of effort. The political nature of the JNG has given rise to frequent turnover of its directorate with resultant instability of management, and lack of long term direction and developmental strategy. Finally, fiscal policies putsued by the Government, the privatization drive, and the long erosion of efficiency in the elevator complex, have emaciated the JNG and have led to a financial and organizational crisis. The JNG's present situation, and the government acceptance of the need for change and restructuring, provide a major opportunity to rejuvenate the JNG and to put it on a path of long-term growth as a contributor to an expanded and much more efficient Argentine grain trade. This sub-chapter deals with some of the major organizational, institutional and financial aspects of the JNG. ANNEX 2 Page 32 of 41 E. Objectives. Policies, and Long- Term Stratesy 64. The law that established the JNG is vague about its ultimate role. Nowhere is a clear definition to be found of its objectives, of policies and priorities. The law as such does not guide the development of a long-term strategy and, as a matter of fact, the JNG does not have one. Over the years, the JNG appears to have responded, often effectively but in an ad-hoc manner, to perceived or imposed problems. Its introduction of the 1825 certificate as a means to regulate flows from country elevator to port, establishing the country elevator as the buffer in the system, is a case in point. The only programs that have been developed and that have a certain measure of continuity and coherence, are the price support program, a fertilizer distribution program and the support for marginal areas. Even with respect to these programs, it is difficult to see an underlying strategy guiding their development in a unifying structure. It is probably necessary to rewrite the law upon which the JNG is based as the cornerstone for any serious effort at restructuring the institution. 65. The JNG is different from most other public sector institutions in that it deals with often rapidly changing conditions. It is confronted with issues of commercial importance that have a high political visibility, with interest associations and groups that are vocal and have political influence, and finally it has to deal with issues that are at the heart of the country's macro-economic policies. Thus, the institutional context in which the JNG has to operate is complex. In spite of the importance and the multi-faceted nature of the JNG's actions, its formal contacts with other public sector institutions, such as the Central Bank, the Ministry of Foreign Affairs or the Ministry for Industry and External Commerce, remain limited and inconsequential. 66. The JNG's important role of organizing the logistics of grain transport, both on land and at sea, is stymied by its limited interaction with either the transportation ministry or the port authorities, in spite of the representation of the former on the JNG's board. The presently discussed new port law, proposed by the Ministry of Public Works, has been written without input from the JNG, the major user of Argentina's port facilities. In spite of the JNG's obvious interest in and potential impact on these matters, it is not consulted with respect to such issues as: fiscal policies, particularly export taxes, exchange rate policies, domestic price stabilization programs, or budgetary policies that influence directly the resources available for production credit and price support programs. Any restructuring of the JNG should take into account this institutional context in which it has to operate. On the one hand, efforts should be made to restrict the potential influences upon the JNG. On the other hand the JNG's say in matters of its responsibility and competence should be broadened and deepened. F. The JNG's Directorate 67. The JNG's law of establishment prescribes a directorate of nine members, five of whom are to be from the public sector and four from the ANNEX 2 Page 33 of 41 private sector.27 as such, the directorate appears to be dominated by the public sector, though until recently the President was from the cooperative movement, appointed by the Secretary of Agriculture. As a result of its political nature of the high visibility of its actions, and the aggressiveness of some of its interlocutors, the JNG has seen a remarkably high turnover of top management. In the last 50 years, the JNG and its predecessors have had 53 different presidents, caretakers or national directors, with an average stay in office of 11 months and 22 days. The average stay in office of the JNG's top manager during the last 20 years has been not more than 8 months and 18 days. Apart from this frequent turnover at the top, the rest of the directorate is not always sufficiently competent professionally, or personnally interested, to make substantive contributions to the work or the future of the JNG. Stability and further professionalization of top management should be an issue of concern in the current phase of restructuring, ind hopefully strengthening, of the JNG. G. The JNG's Resources 68. The resqurces available to the JNG can conveniently be sub-divided into three categories: technological, human and financal. As mentioned earlier, the JNG, as currently constituted, is the result of an historical process of change, evolution and retrenchment, often without clear objectives and mostly guided by political opportunism. As a result, the JNG has a reservoir of technology at different levels, with different degrees of sophistication and sometimes with different degrees of applicability, given that conditions have changed.28 Grain classification, inspection, trading, storage, elevation or transportation require different technologies and expertise. A rationalization of in-house expertise and technology in the context of a long-term strategic development plan is needed. Personnel 69. The total number of JNG personnel has decreased substantially in the past decade from 7,000 in the mid-1970s to about 4,000 now. Personnel reductions have not been suffered equally by all departments, however, and departmental reductions are not always explainable on the basis of departmental restructuring or demonstrated need. Also, there appears to be an imbalance between reductions in field offices and those in the central 271/ President and Vice-President are appointed by the Secretary of Agriculture; two members are appointed by, respectively, the Ministry of Finance and the Ministry of Trade and Transport. The four private sector members are one each from the farming sector, the cooperative sector, grain millers and the trading sector. 28/ The JNG's organizational structure recognizes eight departments, five divisions and one general secretariate, all of the same hierarchical level. Some of the departments, and most of the divisions have been put at their current hierarchical level as a means to promote personnel for reasons of higher remuneration or status, rather than for reasons of operational necessity or merit. ANNEX 2 Page 34 of 41 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 15: JNO - Sources of Funds for the Recurrent Operational Budget. 1973 - 1985 (values in '00 Australes of 1985) Sub-Total Resources Services Income Capital Own Total Minus 6/ Levies a/ Elevators Other Injections Resources Debits Resources Expenditures 1973 28,819 41,878 5,498 1,478 75,889 1,837 77,588 (434) 1974 40,883 77,878 6,253 158 123,971 4,768 128,737 2,101 1976 17,679 92,784 878 84 111,125 2,672 113,897 2,717 1978 15.102 87,201 3,227 28 85,68 1,311 88,887 1,090 1977 20,832 57,912 1,884 24 80,452 808 81,265 274 1978 14,769 87,644 11,783 7 94,073 2,10W 98,179 14,801 1979 8,126 62,895 18,838 2 77,858 1,083 78,921 3,060 1980 8,544 49,381 11,788 2 69,896 890 70,585 551 1981 91,681 3,896 95,358 1,183 96,539 30,229 1982 64,681 18,950 231 71,782 940 72,702 17,884 1983 87,285 18,415 83,700 293 83,993 20,734 1984 48,771 13,230 2 62,003 384 62,387 88 1985 63,325 5,823 69,148 1,215 70,383 7,775 as X of (percentage breakdown) total resources 1973 34.6 64.0 7.1 1.9 97.8 2.4 18.0 -0.6 1974 31.8 80.5 4.1 0.1 96.3 3.7 100.0 1.8 1975 16.5 81.8 0.8 0.1 97.7 2.3 100.0 2.4 1976 17.4 77.4 3.7 0.0 98.5 1.5 100.0 1.8 1977 26.6 71.8 2.1 0.0 99.0 1.0 190.0 0.3 1978 15.3 70.2 12.2 0.0 97.8 2.2 100.0 15.4 1979 10.8 67.0 21.8 0.0 98.7 1.3 100.0 3.9 1980 12.1 70.0 16.7 0.8 98.7 1.8 100.9 0.8 1981 0.0 94.9 3.8 0.0 98.8 1.2 100.0 31.3 1982 0.0 75.1 23.3 0.8 98.7 1.3 100.0 24.6 1983 0.0 80.1 19.5 0.0 99.7 0.3 100.0 24.7 1984 0.0 78.2 21.2 0.0 99.4 8.6 100.0 1.1 1985 0.0 90.2 8.3 0.0 98.3 1.7 100.0 11.0 a/ Up to 1% of the FOB, or delivered Industry, value of grains, and up to 1.5% of grain sales. Discontinued as of 1981. 6/ See Table 16 for expenditures. ARGENTINA AGRICULTURAL SECTOR REVIEW Table 16: .NG - Use of Funds for the Recurrent Operationa# Budget. 1973 - 1986 (values In 000 Australes of 1986) Debt Service Capital Personnel Services and Investente Salorles etc. Overtime _Me6le ter Amortlzations Cquimen Bulldings ether Contributions Total Amounte % Amount Amount 1 Amounts % Amount* % Aounts % Aounts 2 Amounti 1 Amont Am~uat I 1973 32,714 42.0 7,092 9.1 S,28 7.1 14,479 18.8 14 0.0 1,217 1.6 1,186 1.6 69 0.1 16.662 28.1 77,949 180.0 1974 41,078 32.4 14,018 11.1 6,294 56.0 30,1ØS 23.8 38 0.0 2,891 2.3 840 0.7 1,768 1.4 29,621 23.4 128,83 110.8 1975 44,267 39.9 18,111 11.8 7,283 6.8 80.982 27.9 5 0.0 2,99 2.7 466 0.4 8,414 3.1 8,600 7.7 110,980 100.0 1178 28,100 32.8 7,990 9.8 14,869 17.3 26,724 0.0 3 0.0 1,398 1.6 1,843 1.9 3,458 4.0 2,692 3.0 865,777 100.0 1977 22,932 28.3 7,096 8.8 13,819 17.1 26,600 31.5 14 0.0 2,326 2.9 1,760 2.2 1,917 2.4 6,617 0.9 80,982 10.0 1978 24,28 29.8 9,819 11.8 10,630 12.9 21,796 26.8 154 0.2 1,420 1.7 6,568 6.8 1,68M 2.1 Ø,~58 7.8 81,378 140.0 1979 20,214 84.8 10,775 14.2 7,887 10.4 19,017 26.9 848 0.9 1,809 1.4 3,465 4.6 1,028 1.4 6,158 8.8 76,861 111.0 1980 30,06 42.9 7,101 10. 6,108 8.8 20,932 29.9 491 0.7 667 0.8 2,181 3.1 622 0.7 2,117 a.0 7g,034 1t0.0 1981 23,282 85.1 7,639 11.4 7,469 11.3 22,643 34.0 2,699 3.9 1,074 2.5 768 1.1 460 0.7 0.0 6,310 100.0 1982 15,728 28.7 4,09 7.6 4,B06 8.2 20.181 38.8 1,671 2.9 142 0.3 712 1.3 437 0.8 7,483 13.6 54,818 10.0 tAIN 1983 18,887 29.9 8,962 11.0 8,263 13.0 20,401 32.2 0.0 349 0.6 660 0.9 465 0.7 7,383 11.7 63,259 100.0 0 1984 23,232 37.7 6,180 10.6 7,328 11.9 19,188 31.1 194 0.3 99 0.2 2,674 4.2 141 0.2 2,396 3.9 81,702 100.0 1985 18,834 30.1 7,308 11.7 7,586 12.1 24,414 39.0 0.0 330 0.S 3,660 6.8 467 0.7 0.0 62,88 10.0 Source: XICA ANNEX 2 Page 36 of 41 office. Salaries have suffered seriously over the last years. This has in part been negated by promotions, which have led to a proliferation of posts at the top, by increased and institutionalized overtime and ty remunerations in kind. In summary, the personnel reductions, in large part occasioned by dwindling income, have led to organizational changes that are not related to operational requirements and to destortions in the hierarchical structure of the institution that are not conducive for harmonious development and good labor relations. An overhaul of the JNG's salary structure, linking it to definitions of the responsibility of each position, is called for as part of institutional restructuring. 70. The JNG does not have a personnel development policy or any systematic way to attract, keep or promote personr.el. Thus, there is no effort to evaluate requirements of any position, or ways and means to attract qualified applicants. There are no entrance tests, there is no career path. As a result, not only does the JNG fail to attract qualified personnel, it tends to loose good people for spurious reasons and it has pockets of overemployment alongside unfilled needs for qualified people in other areas. Financial 71. The financial resource issue should conveniently be split in two, sources and uses of funds. Furthermore, the JNG has two financial flows which are independent and separate, one concerning its day-to-day operational budget, the other related to its trading function, the so-called "commercial fund". 72. Formerly (up to 1981), the JNG had two main sources of income for its recurrent, operational budget. These were fixed levies on the grain trade and income from services provided. The fixed levies consisted of up to 1% of the FOB, or delivered industry, value of all grains marketed, and up to 1.5Z of grain sales. Service income was derived from grain testing, elevation, fines, donations, rents, etc. The levy part of the income was abolished during the previous government as part of a general move to eliminate all special funds and fundings. Table 15 shows the JNG's income and its sources from 1973 through 1985. Traditionally, the JNG has been able to generate over 981 of its resources from its own income and it has never relied on the annual budget of the public sector. Income from the elevator function has dominated total income, particularly after 1980 when the special levies were discontinued.29 However, the income from other sources such as grain testing and other services is also substantial. 73. Total income decreased appreciably between 1974 and 1985. In constant terms, income fell more than 40Z, largely in line with a fall in income from the elevator function. Nevertheless, when comparing Table 15, sources of funds, with Table 16, uses of funds, it is clear that the JNG's available financial resources have always exceeded its yearly outlays. 29/ It is said that reed for income, on the part of the JNG, determines the elevator tariff, rather than actual operating costs. These above cost tariffs are also the benchmark for tariff setting by private elevators, making the latter particularly profitable. ANNEX 2 Page 37 of 41 Actually, it is interesting to note that the JNG's largest positive balances on its recurrent budget occurred in 1981, 1982 and 1983, immediately after its levy source of income was discontinued. 74. A cursory evaluation of the summary budget of the JNG, as shown in Table 16, demonstrates that total personnel remuneration has become distorted by virtue of being, now, the sum of salaries, overtime and meals, the first three data columns of Table 16. Since 1980, this personnel remuneration part of the budget has absorbed from a low of 44Z of total expenditures in 1988 to a high of 62Z in 1980. In the same period, the nominally non-salary part of remuneration (meals and overtime) have in combination constituted between 302 of total remuneraticn in 1980 and 45Z in 1983. Although meals were once furnished as such, nowadays they are paid out in kind. For every two hours of overtime, there is a right to one meal, plus an unspecified amount of 'refrigerio". Furthermore, in the past, overtime was decided upon, as it should be, in view of the need for work to be done. Today, overtime has become an institutionalized part of remuneration with 'cupos" assigned to each department. For instance, the administrative personnel in headquarters has an assigned overtime cuRo of about 15 days per months. Overtime itself is paid at 1.5 times normal hourly rates. The personnel that works for the department that administers the elevators is paid on the basis of an extra shift, rather than so-called overtime. In neither case is the overtime that is paid actually spent working for the JNG. The available cupo of eitber overtime or extra shift varies up or down with the availability of funds. In other words, the personnel of the JNG receives a fixed basic salary and a variable component depending on the availability of funds. Although .this apparently has evolved as a way to solve salary-related budgetary problems, the system as such has become distorted to the extent that the correct remuneration for services provided and the incentive for superior performance appear to be lost in the complexity of a bureaucratic juggling of resources. 75. The data in Table 16.show further that capital investments, including regular maintenance and periodic equipment renewal, have been limited for a long time to a fraction of the JNG's budget. The largest capital investments shown, those for buildings, are funded out of World Bank credits. The substantial outlays listed under other services (data column 4 of Table 16) are for such consumables as pesticides and fumigants, fuel, office supplies and wearing parts in elevators, mainly conveyor belts. III. CONCLUSIONS AND RECOMMENDATIONS A. Conclusions 76. Grain production and exports will be crucial for Argentina's economy in the foreseeable future. Both production and trade appear to be well developed, although room exists for improvements in efficiency, among others through reductions in costs. Private initiative is largely responsible for recent expansions, while the public sector has done a commendable job of regulation and control. There is an obvious need to improve the interface between production and trade in order to increase the disproportionately small share of the farmer in the rewards of the grain economy. Responsiveness and success of the private sector, particularly in ANNEX 2 Page 38 of 41 grain storage and handling, on the one hand, and the public sector's failure to contain costs and remain competitive on the other hand, argue for a reduced role of the latter in physical handling of grain, particularly terminal storage and elevation, but also as an operator in the market place. The increasing opaqueness of the marketing system calls for measures to support and strengthen those institutions that provide transparency, i.e. the grain exchanges and the JNG. Argentina's grain exports face a world market that is distorted by subsidies and other export support from its main competitors to an extent, and in ways, that Argentina cannot match. This condition lends even more weight and urgency to any measures that may enhance the country's natural advantage of being a low- cost producer, that is by reducing costs even further. 77. In view of what was stated in the previous paragraph, a long term strategy for economically and socially beneficial development of Argentina's grain economy should have three basic objectives: (a) to reduce marketing costs, by increasing the efficiency of transportation, handling and selling of grains; (b) to reduce the difference between export prices and those received by the farmers; and (c)to restructure the JNG. B. Recommendations Reduction of Marketing Costs 78. Efforts to reduce marketing costs should be directed, systematically, to all components that contribute to handling, shipping and selling of grain. In order to evaluate the many alternatives in this moderately complex logistics problem, a linear programming model should be developed of the entire system. Such a model should enable the evaluation of any improvements that may be suggested, in view of their contribution to cost reduction of the system as a whole. It appears to be of particularly importance and urgency to find out which combination of ports and land transport means would result in the lowest total cost of exporting grains from Argentina, given current and expected production and storage centers. Optimum use of deepwater facilities, particularly the port of Bahia Blanca, now and after deepening of its access channel, is crucial as the main means to reduce the CIF/FOB Argentina costs. Table 10 showed the importance of transportation costs in total handling charges between farm and port as a major factor to be addressed. 79. Fortunately, private initiative in Argentina has shown itself to be adept and willing to build the necessary handling infrastructure, given a chance to do so, as demonstrated by the construction of 10 private export terminals since 1981 and the development of a network of country elevators earlier. Also, the market appears to work in the s4nse that a streamlining of existing handling and marketing infrastructure is under way. And lastly, a transportation project that may contribute materially to a rationalization of grain transport is in an advanced stage of preparation. Thus, the history of recent developments in Argentina would indicate that a mobilization of private initiative, with public sector regulation and, possibly, with overall government control if professionally exercised, might go a long way towards optimizing the logistics of grain movements. ANNEX 2 Page 39 of 41 Increase the Farmer's Share of Export Proceeds 80. Reduction of the difference between export avd farmgate prices cannot be found enly in cost reductions of the respective handling system. There is no reason to expect that even part of such cost reductions would be passed on to the farmer in the form of higher prices. Rather, cost reductions as discussed in the previous paragraphs will only accrue to the armer, all or in part, if the latter's bargaining strength vis-&-vis the trading system is improved. Within the context of current developments in Argentina there are two venues that may lead to achieving that objective: broadening the appeal and accessibility of the futures market, and institutionalization of production credit, for instance as outlined in Appendix 2. 81. Promotional efforts with respect to the futures market are being undertaken by the Grain Exchange of Rosario. However, it is likely that this effort needs strengthening, a better focus on the farmer and, particularly, an evaluation of who should be the rural brokers for futures contracts. This promotional and organizational work with respect to futures contracts appears to be a legitimate component for a grain marketing related project. 82. Organizing production credit, for instance by means of the negotiable advance sales note discussed in Appendix 2. is in essence an institutionalization of credit that is de-facto already available. Institutionalizing this credit, though, in the sense proposed, would reduce the gap between present costs of this credit and market rates for other commercial credit, would increase the transparency of rates for production credit and would, by its very nature, improve the bargaining strength of the farmer. Inter alia, the creation of this note, which would be marketed on the grains exchanges would increase the business, and hence the income, of the exchanges. This would strengthen what is arguably the most important contributing factor to market transparency, the grain exchanges. Restructure and Strengthen the JNG 83. There is little doubt that a public sector institution, within the grain marketing complex in Argentina, should exist and should have three of the four functions now exercised by the JNG, that is trade regulation and policing, information gathering and dissemination and certain trading functions. Trade regulation and policing is a public sector responsibility, required in all major grain trading countries, and has been conducted effectively by the JNG so far. Information gathering and dissemination are at the heart of market transparency. Although it is not strictly a public sector function, there is no other institution in Argentina able and willing to assume this function as performed by the JNG. 84. A number of pre-conditions and principles are at the heart of establishing a reinvigorated JNG: (a) It should be based on a revision of law decrees 6698/63, the legal structure of the current JNG, and should succinctly spell out the new JNG's objectives and responsibilities. ANNEX 2 Page 40 of 41 (b) It is essential that the new JNG recovers its full autarchy and operational autonomy. It should have its own, independent, sources of income and should be govarned by its own Board. (c) The JNG's management should be professional, should be appointed and promoted on merit and should receive a remuneration package that is competitive with that of top management of the main private traders. (d) The present JNG should be completely restructured and reorganized on the basis of a set of clearly defined functions that follow logically from the objectives and responsibilities established for the JNG. (e) The JNG's management should be guided by a Board of Directors, whose members are chosen for their affiliation as much as for their ability to make professional contributions to the JNG's work and development. The Board as presently constituted should probably be expanded with one or more representatives from farmers organizations, from the private banking establishment, and from the Central Bank. (f) Although being in the public sector, the new JNG should exercise its autarchy by becoming a professional institution with a minimum of political interference and, thus, with a maximum of long-term stability and predictability of actions. The JNG should publish an annual report with a summary of its activities and audited financial statements. The latter should include, at least, a balance sheet and a sources and uses of funds statement. 85. To the extent that support programs for marginal producers remain necessary in Argentina, the JNG could be asked to act as executing agency for such programs. Each program would have to be funded directly and separately and broad guidelines for its development should be given by government. The JNG would administer and execute the programs, preferably by means of ad-hoc administrative units with temporary, contract personnel. It would account to government for funds used and profits made and would bill government for the administrative costs incurred. The JNG would be free to refuse programs that in its view are seriously flawed, for instance by being underfunded. Divest the JNG Elevators 86. A final topic to be addressed is the divestiture of the JNG's elevator operations. Although there seems to be a consensus that the operation of terminal elevators is no longer an appropriate function for the JNG, the notion persists that some sort of elevator utility should exist. Support for this position is particularly strong among the independent acopiadores and smaller exporters who feel encroached upon by the new integrated trading structures that have their own elevators. Partially based on this perceived need for an elevator utility, it has been suggested to privatize the management of the JNG's elevators and thus effectively to remove the operations from the JNG's responsibilities. ANNEX 2 Page 41 of 41 87. Negotiations with a fairly broad based group of private interests have been under way for some time focussing on the elevator in Bahia Blanca. Problem areas appears to be the future of the present personnel of the elevators and the appropriate level of rent to be paid to the JNG for the use of what will remain its property. Both problems, though, may be solvable by, respectively, considering all retirement and lay-off costs of current personnel as an investment in the new elevator entity and at the same time calculating the level of rent that the new entity can afford, given competitive throughput tariffs and a reasonable return on investments. In other words, a cash flow analysis of the new venture will have to be made, simulating future operations and varying rentpayments as a function of expected profitability. A computer assisted general venture model, with a capability to do sensitivity analysis would be the appropriate instrument to use. ANNEX 3 ANNEX 3 ARGENTINA AGRICULTURAL SECTOR REVIEW LIVESTOCK SUBSECTOR Table of Contents Paae No. I. BACGROUND .............................................. 1 A. Dominance of Beef ................................... 1 B. Early Export Orientation ............................ 1 C. Current Focus on Domestic Market .................... 2 II. RESOURCE BASE ........................................... 3 A. Concentration in the Pampean Region ................. 3 B. Livestock Location and Production ................... 3 The Main Cattle-Producing Zones ................... 3 The Beef Cycle .................................... 8 Sheep ............................................. 10 Poultry .......................................... 10 Pigs .............................................. 10 The Primary Milksheds ............................. 11 III. TECHNICAL SERVICES ...................................... 13 A. Research Institutes ................................. 13 B. Veterinary Services ................................. 15 C. Dairy Industry Technology ........................... 16 D. Major Diseases-Incidence and Economic Impact ........ 19 E. Environmental Factors ............................... 21 IV. MAREETING .................... .......................... 23 A. Current Marketing Environment ....................... 23 B. The Cattle Marketing System ......................... 24 Livestock Marketing ............................... 24 Animal Slaughter .................................. 26 Meat Marketing .................................... 26 C. Domestic and Export Markets ......................... 27 Sheep ............................................. 27 Poultry ...............................ry,,....... 29 Pigs .............................................. 29 Dairy Industry .................................... 30 Milk Pricing Policies ............................. 31 D. Meat Processing Industries .......................... 31 The Beef Industry ................................. 31 Sheepmeat Industry ................................ 33 Pigmeat Industry .................................. 33 Poultry Industry .................................. 33 E. Capital Investment for Export Effectiveness ......... 34 Table of Contents (Continued) Paae No. V. INSTITUTIONS ........................................... 35 A. National Meat Board (JNC) ........................... 35 B. Argentine Producer's Cooperative (CAP) .............. 36 C. National Committee for Milk Policy (COCOPOLE) ....... 36 VI. RECOMMENDATIONS ........................................ 37 A. Meat Industry ....................................... 37 Policy ............................................ 37 GOA Trade Delegations ............................. 37 Export Promotion and Marketing .................... 38 Domestic Commerce ................................. 38 Meat Industry Capital Investment .................. 39 B. Cattle Production ................................... 39 C. Sheep Market Transparency ........................... 41 D. The Poultry Industry ................................ 41 E. Increasing Pig Production ........................... 42 F. Dairy Industry Investment ........................... 42 G. Institutional Strengthening ......................... 43 H. Studies ............................................. 44 VII. PROPOSED STRATEGY ....................................... 45 A. Overall .................................... 45 Stages I, II, III .......................... 45 B. Subsector Focus .............................. 45 Enhancing Cattle Production ................. ... 45 Sheep Industry: Wool Marketing and Investment .... 45 Dairy Industry Funding ............................ 46 C. Institutional Strengthening: Technical Services ..... 46 D. On-going Preparation and Proposed Follow-Up ......... 47 List of Tables 1. Evolution of Beef Production in Argentina, 1914-1988 .... 48 2. Livestock Product Export ................................ 50 3. Herd Size and Beef Production. 1976-1988 ................ 51 4. Distribution of Sheep ................................... 52 5. Indicative Data for the National Dairy Herd ............. 53 6. Canales de Comercializaci6n del Ganado para Faena ....... 54 6. Evolution of Livestock Marketing Systems for Slaughter Cattle ................................ 55 7. Wool Clip by Fineness ................................... 56 8. Relative Production of Greasy Wool, 1983-1986 ........... 57 9. World Exports of Frozen Sheep Meat by Origin ............ 58 10. Exports of Sheep Meat ................................... 59 11. Meat Consumption ........................................ 60 12. Evolution of Poultry Meat Production in Argentina 1970-1988 (JNC) ........................ 61 Table of Contents (Continued) Page No. 13. Evolution of Poultry Meat Production in Argentina 1988-1985 (SAGyP) ..................... 61 14. Market Share of Dairy Products Sold by the Three Principal Firms ........................ 62 15. Milk Production ......................................... 63 16. Milk Exports ............................................ 64 ANNEX 3 Page 1 of 64 ARGENTINA AGRICULTURAL SECTOR REVIEW LIVESTOCK SUBSECTOR I. BACKGROUND A. Dominance of Beef 1. Livestock exports, mainly beef and wool, have traditionally supplied about 302 of all agricultural export income and about the same percentage of agricultural production; they currently provide about US$1 billion annually. The sector has also ccntributed about 45% of total product value (US$4 billion annually) in financial transfers to industrial development through export taxes and exchange rates. 2. Livestock products were the first and for many years principal export industry of Argentina. This early dominance provides livestock exports not only with a strategic but also an emotional edge in Argentine thinking about the export arena, even though they are now of secondary economic importance to grains and oilseeds. Meat for the domestic market represents about 142 of the domestic cost-of-living index, which is unmatched by any other country. 3. Argentina fully developed its enormous appetite for beef in the 1920s. Between 1922-25, meat consumption reached almost 100 kg per capita per year. Since that time, although there have been cyclical variations, per capita per year consumption has rarely fallen below 70 kg, with an average over the last 70 years of 30 kg, which is the highest in the world (Table 1). The very high demand for beef translates into lower-than- average demand for sheep, pig, and poultry meat compared to other substantial meat-eating countries. B. Early Export Orientation 4. The meat and animal by-products industry, especially beef, has played a major part in the economic development of Argentina from the time of the first European settlers onward. Almost frvm the beginning there was a pronounced export orientation. By the early nineteenth century the salted-meat industry was established with a considerable export trade in dried and brined salt beef destined for Cuba and Brazil. By 1850, sheep threatened to displace cattle in importance based on the huge demand for wool in the industrialized countries. 5. The single greatest development in the Argentine meat industry occurred in 1886, when the first experimental cargo of chilled beef was ANNEX 3 Page 2 of 64 transported from France to Argentina. When this vessel returned to Europe with a load of Argentine beef, the era of chilled meat began. Subsequent investment mostly by British and North American firms not only established large-scale, integrated meatplants but also support infrastructure (railways, banks, insurance companies, shipping firms) which provided an enormous impetus to the development of Argentina. During World War I, beef production in Argentina exceeded one million tons per year, and nearly 60Z of it was exported. Between 1924-28 annual production averaged over 1.7 million tons, with Argentina holding a 62Z share of total world beef export trade, the UK being the principal destination. 6. The era of free trade in meat came to an end as a result of the the UK's 1929 world economic crisis. Then, in 1932, the Treaty of Ottawa established the Commonwealth Preference System which, among other things, restricted meat imports from Argentina in favor of those from Australia and New Zealand. While Argentine meat exports remained high (partly due to amendments to the Ottawa Treaty negotiated between Argentina and the UK), the shock of this protectionist measure was the catalyst for the development of Argentine sentiment for domestic consumption over servicing export markets that still exists today. C. Current Focus on Domestic Market 7. Since World War II, Argentina has not been a serious meat exportert instead it supplies the world market that proportion of meat not required domestically. Concurrently, meat-importing countries in the developed world have restricted imports from the traditional meat-exporting countries, particularly those such as Argentina with endemic foot-and-mouth (FD) disease. The alternative export trade to socialist and developing nations has been captured by highly-subsidized exports from the EC and competing countries with more active export policies, such as Brazil. As the result of these internal and external restrictions, Argentina's share of the world beef export market fell to little over 6Z in 1987, averaging around 260,000 tons carcass weight equivalent (CWE) between 1984-87, compared to an average of around 550,000 tons CE in 1970-79. Similar dramatic declines have occurred in pigmeat and sheepmeat exports in recent years, with pigmeat reduced on average from 7,700 tons CWE in 1970-79 to a 200 tons CWE average in 1984-87; sheepmeat fell from 31,000 tons CWE over 1970-79 to 7,100 tons CWE between 1984-87 (Table 2). 8. On the other hand, meat production has not declined in proportion to exports, since home consumption based on population (20 million in 1960, 31 million in 1987) has increased slightly in the case of beef in these periods and has suffered gradual, rather than dramatic declines, as in the case of pigmeat and sheepmeat following their high demand during World War II. The beef export markets that were lost are generally low-value ones (boned beef, manufacturing beef, etc.) whereas the markets retained were those of high value (boneless cuts, corned beef, cooked/frozen beef, etc.) to the extent that these now account for over 90Z of the total value of beef exports. Recent changes in GOA policy between 1985-88--more realistic exchange rates and lower export taxes--combined with a degree of capacity rationalization returned the beef-export sector to profitability, and hence to a better position to compete in world markets. ANNEX 3 Page 3 of 64 II. RESOURCE BASE A. Concentration in the Pampean Region 9. The central-east region of the country, known as the PaApa, is one of the most extensively fertile areas of the world and the focal point for Argentina's livestock production--containing about 702 of the national stock of 50 million cattle and 302 of the 30 million sheep plus most pigs and poultry. The southern regions of the country are used mainly for fine wool production, the northern and western areas contain many herds of breeding cattle and relatively small and numerous flocks of medium wool sheep. The natural conditions of the soil, climate, and grassland resiurces give Argentina's livestock industry a tremendous potential for expansion. B. Livestock Location and Production The Main Cattle-Producing Zones 10. Cattle can be found everywhere in Argentina but not to the same degree or the same types. An index that captures the relationship between animals used as products and those used as capital is the ratio of steers (including male calves) to cows. In Argentina, the ratio usually means the following: <0.34: cow-calf operations on extensive marginal land where calves cannot be reared after weaning; 0.35-0.64: cow-calf operations where male calves are reared; 0.65-0.99: cow-calf operation where all calves are reared and extra male calves are bought to rear; and >1.00: steer-fattening operations. 11. Cattle production takes place in four zones depending on the type of farming that predominates: crops, mixed farming (crops and cattle), cattle, and finally the marginal zone. Each of these zones are discussed below except for the marginal zones, such as Patagonia. 12. Crop Area. This area covers the south of the Province of Santa F4, the north of the Province of Buenos Aires and the southeast of the Province of C6rdoba. Total area is 5.0 million ha, of which about 70% is covered with crops, mainly soybeans, wheat, and maize. This region is where cropping is most highly developed and where cattle production has been partially eased out, mainly due to the financial attractiveness of the wheat-soya rotation. 13. The area has a humid temperate climate with excellent soils; however, soil erosion has begun and will need to be controlled in the near future. The rapid growth of cropping is clearly evident: in 1960, 1.5 million ha were cropped with grains and oilseeds, by 1985 this figure had more than doubled, at 3.3 million ha. Yields also grew, from about 1.8 ton per ha to 2.7 ton per ha. The increase in yields was due mostly to the use of hybrid seed and an improvement in cultivation practices. The increase in crops has meant that cattle have less importance to farmers and ranchers. ANNEX 3 Page 4 of 64 14. In the Crop Area, cattle production concentrates mainly on rearing and fattening steers. Although the number of cattle has been reduced, cattle production has increased since 1960, and today this is the most productive cattle area in the country. There are 3 milliof head of cattle in this area, representing 62 of the national herd. Most are steers on grass leys that usually include alfalfa. Leys typically occupy two-thirds of the area dedicated to cattle (only about 100-200 ha per farm), the other one-third comprising short-term pastures, crop residues, and native pastures. 15. The average stocking rate is 1.3 cow equivalents per ha; weight gain about 0.35 kg per head; slaughter weight about 390 kg at about 22 months of age; and production of about 200 kg/ha. Although production is high, it has been demonstrated that with becter management it could be even higher. Farmers (under CMEA groups) using a higher than normal stocking rate, rotational grazing and forage reserves have obtained 400 kg of liveweight gain per ha over a 10-year period. Research has shown it is possible to obtain 600 kg per ha. 16. Mixed Farmins Zone. This area is very diverse and covers five subareas: (i) the center of Buenos Aires; (ii) northeast of Buenos Aires; (iii) east of La Pampa; (iv) south and southeast of Buenos Aires; and (v) east and south of C6rdoba and the center of Santa Fd and Entre Rios. 17. Center of Buenos Aires. This area covers 21 municipalities of the central Province of Buenos Aires. Total area is 7.8 million ha of which about 232 is used for cereals and oilseeds. In the east, farms include breeding and rearing of calves; to the northeast, farms are usually dedicated to steer fattening. The climate is subhumid and temperate with a 900 am annual rainfall and good soils. Here too cropping has expanded, though at a less spectacular rate than in the previously described area. The main crops are wheat, sunflower and maize and the total area under crops has increased from about 1.2 million ha in 1960 to 1.8 million in 1985. 18. There are about 6.3 million head of cattle. The steer/cow relationship is about 0.5, compared to almost 0.9 in the agricultural zone (SAGyP, Census of 1982). Cattle are fattened on leys, including alfalfa, and short-term pastures and crop stovers are also used. Heifers are put to the bull at about 23 months with some 300 kg, weaning of calves is done at about eight months with about 170 kg. Productivity is high, fatteners obtain just under 0.2 kg of liveweight gain per day; breeders obtain about two-thirds that rate. 19. Northeast of Buenos Aires and East of La Pampa. This area covers 12 municipalities of Bueros Aires and nine of La Pampa Province. The total area is 7.6 million ha of which about 30Z is dedicated to cropping. The area under crops has expanded although the increase in stocking rates has allowed livestock numbers also to rise. The region has a temperate, wet climate that is colder and damper in the south. Rainfall is about 700-900 mm per year and can cause flooding during summer. Soils are good but crops benefit from rotations with pastures. 20. Agriculture has expanded at the cost of the area dedicated to cattle; however, cattle numbers have not dropped significantly as farmers have intensified production. Cattle production concentrates on fattening, ANNEX 3 Page 5 of 64 the steer/cow relationship in 1982 b,..ng 1.14. Farms are large (750 to 1,000 ha) with good managcment. Some farmers undertake their own breeding. Steers are typically sold at about 27 months of age with 380-430 kg of weight, heifers are sold at 20 months of age with 280-300 kg of weight. Productivity is about 140 kg per ha pei year, although potential productivity based mainly on increasing the percentage of permanent pastures, could raise productivity to 360 kg per ha per year. 21. South and Southeast of Buenos Aires. The area covers 17 municipalities that are located in the south and southeast of the Province of Buenos Aires. Total area is 8.5 million ha, of which about one-third is used for agriculture, main!- wheat and sunflower. The climate is temperate but cold and rainfall is about 900 mm per year. Soils are generally adequate. 22. During the herd expansion phase of 1970-77, this area had the highest growth rate of stock numbers, with cattle numbers increasing by 1 million head. This was partially due to the fall in wheat prices between 1969-76 and the sunflower price between 1972-75. During the herd liquidation phase (1977-82) the opposite happened, with the number of cattle diminishing by 1.1 million head in response to the price of wheat and sunflower peaking in 1977-78. This clearly shows the sensitivity to price relationships in mixed farming areas. 23. The steer/cow index fluctuates between 0.4 and 0.6, increasing during liquidation phases. Data for this area are scarce, but productivity is estimated to be about 160 kg per ha per year; the potential according to INTA is more than twice that. The biggest constraints to higher productivity are the need for better permanent pastures adapted to the area and improved animal health. 24. East and South of C6rdoba and Center of Santa F6. This area comprises 14.7 million ha of which slightly less than one-third is used for crops--mainly sorghum, maize, soybeans, wheat and peanut. This is the most important region in the country for beef and milk production, although cropping has pushed out some livestock operations. The climate is temperate-warm with abundant rainfall; soils are good. Cropping predominates but this is one of the cattle-raising areas with the best productive potential and the best infrastructure. Some areas are showing the effects of overgrazing. 25. As in the south and southeast of Buenos Aires, the herd size has expanded and contracted in response to changes in major crop prices. The increase in the acreage under soybeans is remarkable; while in 1970 no soybeans was planted, by 1985 there were over 750,000 ha. The steer/cow index gradually increased as the area became more concentrated on fattening, although it still is not as efficient as the Province of Buenos Aires. The average production is about 150 kg per ha per year although the potential production is thought to be over 400 per ha per year. The potential is not realized because of reasons related to pasture growth: high percentage of weeds, lack of forage reserves, hard pan from excLssive plowing, and high stock rates. 26. Entre Rios. This region is a transition zone between the mixed farming area of the Pampa and the subtropical cattle breeding zone in ANNEX 3 Page 6 of 64 northeast Argentina. In the southwest of the Province flax is grown and cattle are fattened; in the center and southeast, flax and rice are grown and cattle fattened; and in the north cattle and sheep-breeding predominate. The total area is 7.6 mill'on ha, of which 12Z is used for crops. It is one of the few areas in the country where the area under grain and oilseeds has diminished, mainly because other areas show better yields for these crops. The region is still underused, both for livestock and crops. 27. The herd expansion and liquidation phases in this region occur in phase with the rest of the country but the price relationship that affects farm decisions is the relative price of steers and flax. The steer/cow index has gradually increased over the years, as some farmers have started to keep their own calves for fattening. 28. Cattle breeding is typically done under very extensive conditions, the birthrate is only 64Z and weaning rates are even lower, about 52z. Productivity is very low, 30-40 kg per ha per year which would double if cattle were kept until slaughter. Improving productivity requires little investments essentially a small acreage under artificial pastures to rear calves after weaning but much better animal husbandry. 29. Cattle Zone. Three typical cattle areas, all very different from each other, are described: the watershed of the Salado River known as the Cuenca del Salado; the area surrounding the Pampa known as the Cintur6n Peripampeano; and the north of Argentina or Litoral Norte, that in itself contains three subzones. The cattle population, mostly pure Aberdeen Angus or Hereford stock, is about 3.8 million head. During the last 15 years the growth of stock numbers of this region reflected the changes that were occurring at national level: 1970-77 (expansion) 3.1 m; 1977-82 (liquidation) 2.9 r; 1982-84 (expansion) 1.5 m. In addition, the steer/cow ratio declined slightly (in 1982 it was 0.12), given the few viable alternatives to cattle breeding and its role as main supplier of calves to nearby fattening areas. 30. There are many small farms. However, farms of over 1,000 ha constitute 55Z of the area yet represent only 8Z of the total number of farms. Ninety percent of the pastures are native, the rest are permanent-artificial pastures and short-term leys. The average stocking rate for the area is 0.7 cow equivalents per ha. Productivity has not increased in 15 years and is still relatively low, about 70 kg per ha per year. Birthrates are about 75Z and weaning rates on large properties descend to 632 (72Z on smaller farms). 31. Cuenca del Salado. The area covers the center-east of the Province of Buenos Aires. The total area is 5.2 million ha, of which only 6Z is used for cropping. This is the most traditional breeding region in the country and also the one with the best productive coefficients. The climate is temperate and subhumid, with an annual rainfall of 700-1000 mm. The area is often flooded due to its low topography and high water table. Soils are often alkaline. 32. The main reasons for low productivity are: limited pasture growth during winter; deficient native pasture management; low persistence of planted pastures; deficiencies in animal health (FMD, brucellosis, ANNEX 3 Page 7 of 64 leptospirosis. trichomoniasis and vibriosis all have high rates of incidence); recurrence of floods, and low adoption of existing, improved technology. 33. Two of the feasons for low productivity require further research. Not enough is known about the nature of flooding in the Salado region (a UNDP-financed project is studying the area); also, native pasture management is complex because of the different grass varieties contained in the sward. INTA-Balcarce is currently analyzing this problem. There is, however, a sufficient body of knowledge to be able to improve productivity considerably. Production levels of 115 kg per ha per year have been reached when farmers use artificial pastures with phosphate fertilization; improve their animal husbandry skills; develop higher stocking rates; and adopt better animal health programs. 34. Farmers acknowledge that their management is often deficient and that new technology, when known, is somttimes badly applied. There is a high degree of absenteeism among farmers, especially on the larger farms. Some studies show that this may be as high as 70Z. This factor is clearly important when analyzing why technology transfer has had such a low impact. 35. Cintur6n Peripampeano. This area surrounds the Pampa on the west, including 15 municipalities northeast of C6rdoba, the entire Province of San Luis, and seven municipalities of La Pampa. The area includes 15.5 million ha, of which 95Z is dedicated to cattle production and, to a lesser degree, goats. 36. The climate is temperate to warm with rainfall varying from 500-800 mm per year. Land is generally underused and the soils generally are poor. This is the one region that has steadily increased its stock numbers, even during the liquidation phase. In 1970, there were 2.8 million head, and today there are 4.3 million head. Cattle-stocking rates vary from 0.20-0.27 head per ha. There is a number of reasons for this increase in stock numbers. The competition from agriculture in the mixed farming areas has led to a decrease in the number of cattle breeders, and thus a steadier demand for calves. In addition, Cuenca del Salado's productivity is static. Furthermore, this area does not suffer floods and is well located near the fattening areas of western Buenos Aires. 37. The technology used is that of very extensive farming with low capital investment. Productivity is low, about 25-50 kg per ha; weaning rates are 60-65Z. The greatest limitations to increased productivity are: insufficient waterholes, extremely large fields, a high incidence of animal disease, inadequate animal husbandry (especially reproduction), and lack of pastures at winter's end. 38. Litoral Norte. This extensive region covers 24 million ha and represents the biggest breeding area in Argentina. The region has a subtropical climate with rainfall that varies from 700-1200 mm per year. Some areas suffer from flooding on the margin of the Paraguay and Paran& Rivers. The area is heterogeneous and can be subdivided into the Province of Corrientes, north of Santa Fd Province, and the Provinces of Chaco and Formosa. The Province of Corrientes covers 7 million ha, over which range 3.9 million head of cattle occupying 95Z of the land. They graze almost exclusively on native pastures of poor quality and low phosphorous content. The average stocking capacity is about 0.5 cow-equivalents per ha. ANNEX 3 Page 8 of 64 39. Cattle farming is extensive and farms are large; over 622 of the area is concentrated in farms of over 2,500 ha. Productivity is low since heifers are not bred until their third year. The bull-cow ratio is 7% because of large fields, and mortality is high at 3?. Weaning rates are 50Z. Animal husbandry is poor; animal health measures often inadequate; cows are not culled severely enough; and calves are often weaned at the wrong time. 40. Improved animal husbandry, such as pregnancy testing, brucellosis control, deworming, and early weaning, can raise birthrates from 65Z to 80Z. If a small percentage of the area is put down to artificial pastures, the carrying capacity can increase substantially up to 0.65 cow equivalents per ha, and productivity can be raised from 40 to 60 kg per ha per year. INTA has shown that it is possible to produce 450 kg steers (usually Zebu crossbreeds) in 32 months if starting with heavy calves, smaller fields, and supplemental minerals. If this potential can be spread among farmers, the possibility of increasing fattening on land that can be nine times cheaper than in the Pampa is very attractive. 41. In the north of the Province, productivity is even lower since the area is very low in places and covered with lakes. Animal husbandry is even more casual and productivity is sometimes as low as 20 per ha per year. Steers can take up to six years to reach 400 kgs. 42. In the north of Santa Fd, livestock breeding occurs under very extensive conditions. There are about 1.9 million animals. Pastures are extremely poor, especially during winter. Stocking rates are very low, about 0.33 cow equivalents per ha. Production is only about 20-25 kg per year; weaning rates, about 45%. The reasons for this low productivity are: inadequate nutrition (including mineral deficiency), infectious diseases, late weaning, and continuous grazing. However, once again, small measures of improved animal husbandry could almost double productivity. 43. The Chaco and Formosa region has a subtropical climate with an annual rainfall of 1,000-1,200 mm. The farms are for breeding and tend to fatten their own production. Stock rates are only about 0.33 cow equivalents per ha; steers are sold at 48 months of age at 450 kg; productivity is about 30 kg per ha per year. The main reasons for the lack of efficiency are inadequate feeding. lack of minerals, and infectiou- diseases. 44. In the agricultural areas (cotton, sorghum, and sunflower) cattle farming is extensive but farms are relatively small (about 200 ha) and more efficient. The Beef Cycle 45. Cattle production in most countries fluctuates relative to biological, financial, and technical constraints. Fluctuations, for example, can occur in herd size, volume of slaughter, dressed weight, and the type of stock slaughtered (Figure 1). The beef cycle generally refers to stock numbers and involves the two stages of herd expansion (restocking) and herd liquidation. ANNEX 3 Page 9 of 64 46. The expansion phase occurs when cattle prices start to improve (near the end of the herd liquidation phase) and farmers begin to hold back calves and females that will then allow them to expand their stock. As the supply of cattle for slaughter diminishes, prices increase. Competition for cattle stems from their representing both capital investment and a product for sale. Reduction in the numbers of cattle for sale contintes for 2-3 years, since it takes that long for most cattle to reach maturity before slaughter. Then the supply of finished cattle suddenly increases, which depresses prices and in turn initiates the herd liquidation phase. During this phase not only does the herd size diminish but the volume of slaughter peaks, dressed weights are high, and the percentage of female stock slaughtered reaches its zenith. 47. Argentina's beef cycle has its own peculiarities that can accentuate the beef cycle even more. Seventy percent of the stock is found in the Pampean region which is also used for growing agricultural products. When beef prices rise farmers not only expand their herd but also reassign part of the returns from cropping to beef enterprises. Another peculiarity is the low price elasticity of internal demand for beef. As herd restocking occurs under the stimulus of higher prices, demand for beef does not drop but remains basically static, thereby causing a drop in the surplus available for export. 48. Within Argentina, the beef cycle has many effects. On the farm, the changes in the beef cycle affect capital and land use, which often means that both are not used efficiently. In addition, farms tend not to specialize and limit their adoption of technology for reasons of affordability. For meat packers, the gross margins in the export industry are so reduced it often means a severe reduction in exports. Finally, because meat consumption is high, the price of meat is a factor in individual budgets. A severe beef price increase will bring inflationary pressures and demands by workers to increase their wages to compensate for the cost of living increase. 49. Argentina expanded its cattle herd during the early 1970s until 1977, when it had 59 million head (Table 3). From there on, Argentina began to liquidate its herd until 1982 when it appeared that herd liquidation would slow; however, it did not. Only in mid-1987 did the liquidation phase really began to decelerate. 50. One of the factors that precipitated the liquidation phase was the extraordinary revolution in the cropping sector in the Pampa, with an 80Z increase in grain production between 1976-85. The capital that flowed into the cropping sector often came from the sale of cattle. In addition, the opportunity cost of land increased because of the economic benefits offered by cropping, so that cattle production became financially less attractive. Cattle farmers in the Pampa were therefore more reluctant to reinvest on th*eir farms, which was one reason for productivity indexes to remain at the same level. A further consequence was that areas surrounding the Pampa, the Cintur6n Peripampeano grew steadily in stock numbers, even during the liquidation phase, because cattle breeding became a profitable alternative. The slaughter level predicted for 1988 was 12.0 million head about 6Z less than 1987 and 14Z less than 1985 and 1986. The expected extraction rate was 24Z, slightly above the point of equilibrium where the herd size remains unchanged. Argentina's cattle herd will probably stabilize at about 50 million head in mid-1989. ANNEX 3 Page 10 of 64 Sheep 51. There are about 100,000 farmers with sheep in Argentina. The primary sheep-raising areas are Patagonia, Buenos Aires Province, and the Litoral (Table 4). Shearing is carried out by tying the feet of each animal and clipping the wool with hand-operated shears. Wool yields are between 4-5 kg, lambing rates 70-80Z, and carcass weights about 17 kg. Of the six million sheep slaughtered annually, about 40% are killed in slaughter plants; the other 60% are slaughtered on farms for local consumption. Of the sheep slaughtered, about 752 are less than 12 months old, the balance comprising mainly old ewes. 52. Lambing rates and the wool yield vary greatly, being influenced by breed, location, season, climatic cycles, and farm management. A continued importation of rams from overseas, particularly from New Zealand, has strengthened the quality of local ram-breeding flocks, especially in the Corredales and Merino breeds. The overall quality of Argentina's sheep is reasonably good. The recent development of a national wool laboratory and a fleece-recording service provides the basis for further improvements in the quality of sheep breeding. 53. The system of sheep production in Patagonia is one of large flocks (1,000 to 5,000 head) grazing natural grassland at a low stocking rate. In the center and north o* Argentina dual-purpose, smaller flocks (100 to 500 head) associated with cattle and arable agriculture predominate. Major production problems center on high rates of mortality associated mainly with climatic adversity and nutritional stress; death from cold-shock following shearing is widespread. Because fodder conservation is rarely practiced, much winter and spring sheep loss occurs; also, the lack of tight fencing reduces opportunities for better sheep management. Poultry 54. Poultry production is concentrated in the northeast of Buenos Aires Province and southeast of Entre Rios. Santa F4 and Mendoza contribute 10Z and 3X, respectively, of total production. Basic stocklines are mostly imported from the US (852). The production of birds is done by farmers who are paid for the use of their facilities and labor, based on the weight of live poultry produced. The firm provides day-old chicks and feed, absorbs up to a certain mortality rate, and pays a premium for better feed-conversion efficiency. 55. Performance has improved regularly over the last 10-15 years, and average mortality dropped from 12? in 1976 to 7Z in 1986, and possibly as low as 5Z in 1988. The average age at slaughtering also went down (from 67 to 58 days) as did feed conversion (2.6-2.4 kg of feed per kg liveweight). In other advanced poultry-producing countries, broilers are slaughtered at a lighter weight (1.3 kg versus 1.7 kg carcass weight in Argentina), so that the feed conversion ratio is lower, around 2.2. Piss 56. The major pig production areas are located in the maize-growing areas of the Pampa, in the north of Buenos Aires province, south of Santa ANNEX 3 Page 11 of 64 Fe, and southeast of C6rdoba. In other areas, production is mainly for family consumption, with few surpluses entering the market. The traditional production system on small- and medium-size fams is extensive or semi-extensive: breeding, rearing and fattening are done by the same farmer, and animals are kept on pastures, with supplementary feeding consisting mostly of maize. Disease control is limited to vaccination against hog cholera and antiparasite treatments. Facilities range from a complete absence of minimum shelter, jith fenced plots for sows and their piglets. Pigs are slaughterei at 10-15 months, at a relatively heavy liveweight of 110-120 kg. The Primary Milksheds 57. Dairy Farms. The first great division of milksheds is that between the Pampean region, which provides 752 of the milk produced in Argentina, and the regional milksheds. The main regional or localized milksheds are those that supply the cities of Mendoza and Tucum&n; other less important ones are those that provide Salta, Santiago del Estero, Catamarca, and Rio Negro provinces. The Pampa milkshed obtains most of its milk from Buenos Aires, Santa F4, and C6rdoba provinces and to a much lesser degree from Entre Rios and La Pampa. There are six milksheds within the Pampa. 58. The South Supply Zone milkshed lies to the south of the city of Buenos Aires and provides about a 25Z of the province's total output; most of the milk is consumed as liquid milk. Costs of production are relatively high due to poor soil impeding the planting of permanent pastures. In some areas, getting the milk off the farm in winter can be difficult because of muddy roads. 59. The North Supply Zone milkshed lies to the north of Buenos Aires and provides about a 20% of the province's total output consumed as liquid milk. Farms are often 100 km from the plant and tend to be large to justify the plant's paying for transport cost. Productivity is high and soils are good; because of this, cropping is often preferred over dairying. 60. The East Supply Zone milkshed covers the northwest of .- province of Buenos Aires and provides about one-third of output. Efficiency varies: productivity per hectare and per animal is high, but the reproductive efficiency of the herd is low. Soils are well drained and winters are fairly mild. Milking is often combined with cropping and steer fattening. Alfalfa is widely planted. Average distance to milk plants is often over 100 km. 61. The Sea and Mountain Zone milkshed covers the area near Mar del Plata and Balcarce and provides about one-tenth of Buenos Aires Province's output. The stocking rates are the highest in the province due to excellent pastures of rye grass and white clover. Soils vary considerably but some are of the best in the province. Winter conditions present no major problems for pasture growth or milk transport. 62. The Southern Santa F6 milkshed is small and provides liquid milk to Rosario and Santa F4 as well as Buenos Aires. The productivity per ha is very high, about 70 kg of butterfat per ha per year. Milk production per cow is also high, about 2,600 liters per cow per year. Replacement cattle are usually reared off the farm because of the high cropping value of land. ANNEX 3 Page 12 of 64 63. The Central Zone milkshed is located in the center of the Provinces of Santa Fe and Cordoba. This area traditionally supplies milk for industry. It has a high concentration of farms that are slightly smaller and less efficient than those located in southern Santa F6. Much importance is given to calf-rearing because of the owner interest in diversifying risk. Soils generally are better than in Buenos Aires Province, but the winter can be dry, with very little pasture growth. Crops create serious competition for milking enterprises. Currently, milk production is not used exclusively for processing, but parts of it find their way even to Buenos Aires to be consumed as liquid milk. 64. Dairy Farm Husbandry. Given Argentina's seasonal pasture growth --almost no growth in winter, peak growth in spring and to a lesser degree in autumn--why do farmers produce milk all the year round? The reason is that Argentina's milk production is geared toward a domestic market where demand is relatively constant. The milk pricing system (para. 67) encourages farmers to produce milk in winter. 65. The production of milk is pasture-based. Pastures are often grass-legume leys supplemented by short winter and summer pastures, such as black oats or sorghum grass. Low-yielding native pastures often comprise a large percentage of the pasture base and in part explain the low milk yields that are still found on many farms (Table 5). Concentrates are used but often badly, as an expensive substitute for the lack of adequate pastures in winter. The practice of making hay or silage is not widespread, in part due to a lack of capital investment in machinery. Although national yields have increased in previous years, they are still low, at about 50 kg of butterfat (BF) per ha. 66. Most farm owners engage a resident share-milker and his family to do the milking. The financial arrangements are diverse, but a share-milker typically only provides labor and receives as payment between 15-40Z of the base milk receipts (not including the bonuses often given by the industry for milk volume and quality). The more heavily capitalized farms with a higher milk output typically pay a lower percentage to their share-milker. In future, on the very small farms, the owner will either have to pay a high percentage, be willing to milk himself, or consider leaving the dairy farming altogether. It is expected that a dairy farmer will have to produce no less than 1,000 liters/day to justify having a share-milker. 67. On medium- or large-scale farms calf-rearing is done artificially because it is more economical than providing milk. However, some farmers do give relatively high amounts of milk to their calves because they do not share calf production with the share-milker. Small-scale farmers also prefer to allow the calf to suckle, as this allows the small farmer to diversify his products. Most farmers breed their own replacement stock. A good farmer in Argentina expects to cull 25Z of this cows every year. A heifer typically has her first calf within 36 months, but good farmers have lowered this age to as little as 27 months. A few farmers, especially those that have a high percentage of their farm under crops, will not breed their own replacement stock on their farm. They either purchase replacement stock or rear their follow stock on less expensive land. ANNEX 3 Page 13 of 64 68. A surprisingly large number of farmers still milk by hand. A survey done in 1985 revealed that only about 46Z of the farmers employed mechanical milking. However, the vast majority of medium- and large-scale farmers (and therefore most of the volume of milk produced) do not milk by hand. The survey also revealed that those farmers that milk by hand do so not out of ignorance but because their scale of operation is too small to justify the purchase of milking equipment. 69. The cooling of milk at farm-level is very important for milk quality. Cooling is still a problem on many farms because of the lack of investment in adequate equipment. In future, milk plants will become more demanding in quality control, especially when the new law on milk quality becomes fully implemented. 70. Different Scales of Dairy Farmers. There is a high correlation between the size of a dairy farm, the level of technology used, and the productivity obtained. The best way to measure farm size is by daily milk output. 71. A large dairy farm, producing over 1,000 liters per day, is usually run as a profit-making business. It has at least 150 ha of which about 40Z are under permanent pasture. The farm typically has mechanized milking and uses artificial insemination, record control, and technical assistance. Cows in milk receive some form of feed supplement. These farms are usually managed by their owners but milking is done by a share- milker. The large dairy is often the farm's sole enterprise: lately farms that have other enterprises have begun dairying because of the attractiveness of a regular cash-flow, given Argentina's high inflation. 72. A medium-sized dairy enterprise, producing between 250 and 1,000 liters per day, typically has less than 150 ha and usually less than 40Z of the area under permanent pasture. Although the farm will usually use mechanized milking, calves are sometimes reared with their mothers. Artificial insemination and record control are rarely used. Feed supplement is used but not always efficiently. These farms are sometImes managed and operated by the owner. 73. A small dairy enterprise p7qduces less that 250 liters per day and usually has a low percentage of peruAnent pastures; instead, temporary pastures are used as well as native pastures (mostly Cynodon sp.) and crop residues. Cows are usually milked by hand once daily and calves are left to suckle. Cattle are rarely given supplementary feed. The farm is typically owner-operated; however, some small dairy farmers do not own or rent land, but simply tie cows to graze at the roadside. III. TECHNICAL SERVICES A. Research Institutes 74. Meat and livestock industry research in Argentina is performed by INTA, and INTI--respectively, the National Institutes for Livestock/Agriculture and Industrial Research--and by the universities. INTA was created in 1956 iu response to an awareness of the benefits that increased efforts in agricultural and livestock research could bring to ANNEX 3 Page 14 of 64 Argentina. Its budget amounts to US$70 million per year and is financed by a levy of 1.51 on agricultural and livestock exports, excluding an extensive list of mainly horticultural products, on which INTA incurs appreciable research expenditures. Personnel costs at INTA take about 70% of the budget and are used by about 1,800 professional staff and 3,500 support personnel. The organization has its own Board of Directors plus a series of regional centers each with its own advisory board. Research and the diffusion of research results through extension services are INTA's primary functions. 75. The livestock program of INTA absorbs about 402 of its resources and is divided between research and extension. Its three major livestock research activities are: (a) animal health research, particularly research into improved vaccines and concentrated on foot-and-mouth disease (FMD) at Castelar. This unit is being expanded to give it a biotechnology focus; and (b) animal nutrition and management studies, centered mainly on pasture improvement in Buenos Aires Province at Balcarce. 76. The major research center dealing with animal diseases within INTA is Veterinary Sciences Research Center CICV at Castelar. It employs about 270 people (100 scientists) and carries out resoarch programs in bacteriology, virology, molecular biology, pathology, parasitology, and meat technology. Of particular interest is the advanced work developed in the recently created Molecular Biology Institute, where the use of biotechnology could potentially lead to the development of new types of vaccines and new diagnostic techniques. CICV is also supplementing the National Animal Health Service by advanced diagnostic activities (e.g., identification of FMD virus strains). Diagnostic activities are also carried out by some ten INTA research units all over the country as a back-up to private laboratories and to SENASA regional laboratories. 77. The main animal production research center of animal diseases at Balcarce works on the impact on productivity of INTA, and has developed a number of recommendations for improving cattle-breeding performance through improved herd *sanitary management". 78. Research for dairy farming is mostly carried out by INTA at Rafaela, Santa Fe. Contact between the research establishment and milk firms is good. In 1981, the research station established a typical dairy farm of 87 ha that works as an effective demonstration unit. Most techniques involve the use of soils, pastures, improved nutrition, reproduction, health, and milking conditions. This farm is operated by a share-milker. Yields at the research station are 140 kg of BF per ha per year whereas typical yields in the region are about 50 kg of BF per ha per year. The research station currently spends a major part of its budget on improving animal health especially against the effects of mastitis, animal nutrition, and pasture growth. In addition, research in Argentina, no. just at INTA, in concerned with milk quality. ANNEX 3 Page 15 of 64 B. Veterinary Services 79. Veterinary services are available in Argentina from private professionals, provincial services, and central government services (SENASA). Vaccine production and distribution, as well as imports, local production, packing, and distribution of veterinary pharmaceuticals are done by private companies, SENASA being responsible for quality control. The coordination between central and provincial services is through a National Animal Health Commission (CONASA). A national animal health program, fully prepared in 1985 for submission to IDB, was halted by the Ministry of Economy since it was considered overambitious in relation to the economic situation of the country, as most costs were to be supported by Government. A pilot program was initiated in the Ayacucho (Cuenca del Salado) that paves the way for alternative approaches (para. 83). 80. The National Animal Health Service (SENASA) is part of the Secretariat of Agriculture, Livestock and Fisheries (SAGyP). It was created in 1963 and reorganized in 1972. Total staff is about 3,300 including some 1,500 professional staff. Its budget is about US$412 million per year, 90Z of which is covered by earmarked taxes or fees (e.g., from meat inspection). 81. SENASA comprises three services: (a) The Animal Disease Control Field Service (SELSA) consists of 22 regional inspectors and about 300 local offices. There are nine programs, dealing with FMD, brucellosis, mange, ticks, tuberculosis, rabies, pigs, poultry and horses; (b) The National Laboratory Service (SELAB) manages veterinary laboratories: one central laboratory, considered to be obsolete, and 14 very small regional laboratories. A major activity is FMD vaccine quality control; and (c) The Animal Product Inspection Service (SIPA) is the largest service in terms of staff; it provides for sanitary inspection of about 70Z of the slaughterhouses in the country, i.e., all those that are not working exclusively for local consumption. 82. SENASA is administratively managed as a self-contained organization, but within the regulations of the civil service. A new status aiming at giving SENASA full institutional autonomy is currently under study; such a change would require a law to be passed by Congress. 83. Joint Ayacucho Pilft Project. The Ayacucho program, located in the Cuenca del Salado area of the Buenos Aires Province, focuses on improving control of three major diseases: FMD, mange, and brucellosis. Initially, only FMD was the focus. The operation is carried out jointly by SENASA, INTA and MAA (the Ministry of Agriculture of the Province of Buenos Aires). The area has been divided into four zones, each one staffed by a supervisor and four or five vaccinators. Most vaccinators are professional veterinarians and all staff have been contracted by MAA. Instead of the system currently in use, where FMD vaccinations are carried out by farmers and controlled at random by SENASA staff, vaccinations are done by staff of the operation. The price charged to the farmer includes the cost of the ANNEX 3 Paje 16 of 64 vaccine, the tax to SELAB, which finances quality control, a margin to cover handling and cold storage of vaccine, and another margin to cover the cost of hiring and mobilizing project staff. Vaccine distribution and cold storage is done through the existing network of private veterinarians. 84. The operation shows not only that farmers can be convinced to shift to another system but also that they are willing to support the cost if they believe that the result will be better control of diseases. A key element in this scheme is the use of a recently developed vaccine (oil added instead of the traditional aluminum hydroxide saponin adjunct), which is recognized as providing better and longer immunity (6-12 months cf. 4). The initial reluctance of private industry to develop a new production process for a product which is bringing less benefits to them (due to the reduced number of vaccinations) explains why the availability of sufficiently large quantities of oil-adjuvated vaccine is still a major constraint. 85. The success of this pilot operation in establishing a good relationship with farmers is shown by the number of animals vaccinated (730,000), against the number recorded under the traditional system (450,000). C. Dairy Industry Technology 86. Technology Capacity. Most of the necessary technology for the dairy industry is highly standardized and easily available, but is dependent on a well-developed cpital goods industry. Usually the technology is provided by the capital goods industry. In Argentina introduction of international milk processing technologies has taken on average about six years from the time it was discovered to the time of wide use. Two exceptions that took much longer were the introduction of the continuous system of butter production and the "spray" method for producing powdered milk. In general, Argentina is on an international level of technology for the production of liquid milk, powdered milk, yogurt, and cream cheese. It is slightly behind international levels in the production of butter and custards and very behind in the production of cheese which, broadly speaking, is still artesanal. 87. Research and Development of Milk Products. The Santa F4-C6rdoba United Cooperatives (SANCOR) has developed an in-house engineering capability, often to adapt line processes from other countries or other institutions within Argentina that develop products or processes. This has paid-off so well that the firm has considered exporting technology to other Latin American countries. Because this possibility could easily be hampered by the even-lower quality of milk in other countries, SANCOR has considered the possibility of "turnkey projects", which could include backward linkages, such as extension systems to farmers. 88. Research and development is carried out not only by the main dairy enterprises but also by institutions such as the Center for Technological Research in the Milk Industry (CITYL), mainly addressing cheese-making technology; the Institute for Food Technology (ITA), also dedicated to cheese-making technology as well as experimental types of milk and milk jam (dulce de leche); the chemistry faculty of the Universidad Nacional del ANNEX 3 Page 17 of 64 Litoral that undertakes much research on milk cooling; the Reference Center for Lactobacteriology (CERELA), which conducts research into fermentation "starterso; and the Technological Center for the Chemical Industry, which undertakes research into transport processes. However impressive ongoing public research and development efforts are, they still are not well coordinated with those undertaken by private industry. 89. Extension. The recent history of successful extension in dairy farming probably has few parallels in Argentina's agricultural sector. Its results are most interesting not just because of the achievements in terms of increased efficiency but also because this was done primarily by the private sector with little cost borne by government. It is also worth noting that the moving force was industry, not the farming community. 90. By 1970, the main problems faced by dairy fa.7ns were their low productiv_:y, unstable milk supply due to seasonal influence, and low milk quality. The problems originated mainly through a lack of adequate animal nutrition and inadequate farm hygiene. In 1976, a recession hit 'he dairy industry. Farmers began to turn away from dairying as real prices for milk began to drop, input prices increased, and other farm activities became more lucrative. Dairy processors realized that they had to address the problem of low farm productivity so that their own growth would not be hampered. The processors felt that the level of technology available to farmers had to increase, farmers needed better organizing, and they also needed to be able to purchase inputs at reasonable prices. The two largest plants (SANCOR and La Serenisima) decided to act. Both were and continue to be successful in their extension efforts. 91. SANCOR formed a solid extension department with a central office staffed by seven professionals and eight regional offices, each managed by an agronomist assisted by medium-level technicians. Each office deals with almost 40 cooperatives using different methods of extension. SANCOR has developed two basic ways for assisting groups of farmers beyond the general assistance offered by its regional offices. One way is semi-intensive and consists of providing extension to the cooperatives themselves. Some 32 cooperatives receive assistance this way. The other is to assist a small group of farmers (usually 6-15) to meet monthly on their farms to discuss the visited farm's progress and problems (similar to the GREA concept). SANCOR initially assists in financing the group's technical assistance but after 30 months the group of farmers pays for the professional agronomist itself. Today, SANCOR has 120 such groups. 92. In addition, SANCOR publishes its own magazine and bulletins and has radio and television programs. It also finances a mobile school for milkers and study tours for its technical staff. There are various artificial insemination circuits that are organized by SANCOR as well as accelerated heifer-rearing programs aimed at getting heifers calving at less than 36 months of age. Perhaps one of the most important forms of farmer assistance, in addition to extension, is the provision and financing of a varied list of farm inputs. Between 1976-85 productivity increases among SANCOR's farmers produced 15% more milk, despite a 24Z decrease in the number of dairy farms supplying SANCOR as seen in the figures below: ANNEX 3 Page 18 of 64 No. of Daily Production Yields Year Farms per Farm (Kg BF) Kg of Milk/Cow Kg BF/ha 1976 13,275 240 2,050 28 1985 10,026 366 2,315 42 93. La Serenisima also formed a strong technical assistance department to tackle the same three problems faced by SANCORs to increase the quantity and quality of milk and to reduce the difference between summer and winter throughputs. La Serenisima, a private company, deliberately directed its assistance toward its medium- and large-scale farmers. There are over 60 professionals, 30 administrative staff and 50 milk-quality inspectors working on technical assistance, including three social scientists. There are five regional offices each with five zone offices. These zone offices each work with a group of up 25 farmers. Each region has a store and the administrative capability to provide farmers with necessary inputs (which in SANCOR's case are financed out of the milk check). Magazines, bulletins, and radio and television programs all form part of the extension effort. 94. The response to La Serenisima's technical assistance has been even more impressive than SANCOR's, probably because the former can freely choose where to spend its funds on technical assistance. During 1978-85, though the dairy farms area feeding La Serenisima shrank by more than 6%, production increased by almost .Ot, as shown below: Farm Area Daily Production Yields Year (ha) per Farm (kg BF) kg of milk/cow kg BF/ha 1978 488,000 286 1880 27 1985 468,000 533 3105 57 95. Since 1985, efficiency has continued to increase especially on SANCOR and La Serenisima farms. Farmers who are too small or too inefficient will probably have to stop producing milk. Improvement in productivity still can be achieved, especially on medium-sized farms producing less than 60 kg BF per ha. The large-sized farms that produce over 120 kg BF per ha probably will not dramatically increase their production since improvements at high levels of productivity are more difficult to achieve. There are very few farmers in such a position. 96. The reasons for the success of the extension services deserve close attention given the possible lessons for other subsectors. First, the initial level of production was extremely low given Argentina's natural resources. Second, the drive for improvement came from the private sector. Third, although the drive originated off-farm, it derived from ANNEX 3 Page 19 of 64 self-interest. Fourth, the nature of milking allows results to be seen and quantified more rapidly than, say, in beef production. Fifth, there was available financing since the daily sale of milk products allows plants to have access to large amounts of cash. Sixth, given the dependency of a dairy farmer on his plant, the latter can exert pressure on the farmer to edopt technology more rapidly than in the case of other agricultural products. D. Maior Diseases - Incidence and Economic Impact 97. Foot-and-Mouth Disease (FMD). As in many other countries in Latin America, FMD is the disease that has received most rttention, and government veterinary services have largely developed around MD control activities. Except in Patagonia, which is free from the disease, vaccination is compulsory three times a year. The vaccine is produced by private industry and vaccination is carried out by farmers at their own expense. The annual cost to the livestock industry is $70-80 million for the vaccine alone.1 Vaccination started in the early 1960s and has contributed to reducing the incidence of FMD from over 10,000 outbreaks a year to about 1,000-1,500, but has not allowed full control. Moreover, the insufficient level of immunity is a factor that favors virus mutations and the generation of new subtypes, as sho%n by the outbreak of 1987. 98. In addition to the high cost of vaccinating, FMD causes direct losses estimated at $15-20 million per year due to mortalities, reduced fertility, loss in milk production, and growth interruption of the affected animals. FMD is also a barrier to the access to some important markets (e.g., US); the world meat trade is divided between FMD and non-FMD countries. It does not mean, however, that eradicating the disease would automatically open these markets, since trade policy issues have wider ramifications than simple health reasons. 99. The epidemiology of the disease is now much better understood than ten years ago. EMD is known to present different characteristics depending on the region. The incidence of the disease in a given area can be either endemic, epidemic, or sporadic. Endemic incidence (also called primary endemic) applies to areas where one or more types of the FMD virus are permanently present; they are typically breeding areas, often of difficult access leading to lower-than-average vaccination coverage. These areas act as virus reservoirs, the animals having developed a level of resistance from continuing exposure to the virus. The disease is spread to other areas by trade movements of healthy virus carriers being sent to fattening areas. Endemic areas are the breeding regions of the Provinces of Buenos Aires (e.g. Cuenca del Salado), C6rdoba, La Pampa, Santa Fd, Entre Rios y Corrientes, the most important being in Mesopotamia and Cuenca del Salado. Epidemic areas are those where breeding and fattening are carried out, mostly in the Humid Pampa where the disease is introduced by animals from endemic areas. Area animals have a lower level of immunity from natural exposu-e to the virus, and outbreaks develop mostly in those areas (the heterogeneous level of cattle resistance creates conditions for the so-called exacerbation-of-virulence phenomenon). Sporadif areas are those where the incidence of the disease is occasional due to low animal density 1/ Compared tu gross value of cattle production of about $2,500 million. ANNEX 3 Page 20 of 64 and/or limited animal movements. Outbreaks can occur if the disease is introduced from other areas. The disease shows no occurrence in the provinces of La Rioja, San Juan, Rio Negro and Neuqu4n, and the part of Patagonia south of the 42nd parallel is considered FMD-free. 100. Brucellosis. Brucellosis is endemic in Argentina, with an incidence estimated a few years ago at 3 to 102 depending on the area. The disease primarily affects fertility, as it induces abortion. The systematic vaccination of female calves between 3 and 8 months of age substantially decreases the incidence of the disease but does not to eradicate it. An incidence of 102 over the total cattle population of 55 million would corre,pond to economic losses of about US$100 million (SENASA estimates) due to abortion, resulting in the loss of the calf and of milk production. Recent work by INTA indicates incidence from 0 to 202 depending on the farm, with a large number of farms without the disease. After many years of vaccinalion, a ntw strategy aimed at eradication might be feasible in some areas, based on serological diagnosis, elimination of animals with positive reactions, and epidemiological vigilance. 101. Skin Parasites. Skin parasites are estimated to affect 1OZ of sheep and 52 of cattle. They are traditionally controlled by dipping or spraying with insecticides. Some newly-introduced drugs against internal parasites are also active against mange. Their increasing use might result in maintaining a low level of clinical mange incidence in a floLk or herd without actually eliminating the parasites. Losses from damaged wool, hides and skins as well as from liveweight loss might be as much as US$100 million per year. Since disease is contagious, its eradication requires systematic treatment, close monitoring, and strong control of animal movements as well as hygienic treatment of vehicles traveling from infected areas. 102. Ticks and Tick-borne Diseases. Ticks are wide-spread in all the subtropical zone (302 of Argentina). The parasite reproduction cycle includes a phase on the ground, so that the animals are infested from the pastures. The impact is from direct losses from blood consumption by the ticks as well as from the transmission by the tick of blood parasites (Babesiosis, Anaplasmosis). These parasitic diseases also result in reduced growth and increased mortality. Farmers are obliged to treat animals regularly (using dipping tanks or sprays), and this is a major cost in infected areas. The annual losses from the disease are estimated by SENASA to be US$230 million. A more conservative estimate in 1983 was US$60 million. It is technically possible, with regular treatment, to break the reproduction cycle of the ticks and eliminate them completely from a given area. It is essential to avoid re-infestation by bringing animals with ticks into cleaned pastures. Major results have already been achieved, with the eradication of ticks from about 27 million ha involving 13,000 livestock farms. The tick eradication program is currently active over an area of 5.4 million ha. 103. Tuberculosis. All animals are affected. Because of its character of chronic disease, tuberculosis is ignored by most farmers. Statistics at the level of controlled slaughterhouses indicate that lesions are found in about 5% of cattle and pigs. Assuming that significant parts (202) of these animals have to be discarded from consumption, losses are estimated by SENASA to be about US$46 million. Beyond these direct losses, the ANNEX 3 Page 21 of 64 disease is a major human health problem, as it can be transmitted by milk. The disease can be centrolled by systematic diagnosis and elimination of infected animals. The industry currently pays a 3Z premium on milk from farms that are officially free from the disease. 104. Equine Infectious Anaemia. I is considered that 602 of horses are affected. This acute or chronic viral disease results in progressive weakness and loss of weight. Mortality can be high in acute stages, but some level of tolerance has developed in enzootically affected areas. Losses were estimated at US$27 million per year in 1983. The disease can be eliminated only by slaughtering infected animals and establishing a vigilance system. 105. Bovine Venereal Diseases. Diseases such as trichomoniasis, campylobacteriosis, and vitriosis are widespread in cattle-breeding areas, and play a significant role in reducing bull fertility. It is estimated by INTA that in the breeding area of El Salado only 15Z of bulls are regularly checked, but that there are venereal diseases in two farms out of three. 106. Rabies. The disease is localized in the subtropical part of the country, in areas where vampire bats are found. In addition to resulting in cattle mortalities, outbreaks represent a major public health problem in these areas. 107. Poultry Diseases. The most important ones are the Newcastle disease and Salmonellosis. Little information is available on their actual incidence, but it can be assumed that they are reasonably well controlled by a fully-integrated subsector. 108. Pig Diseases. The most important pig disease (hog cholera) is controlled by vaccination. Other diseases of importance are brucellosis, aujeski disease, tuberculosis, trichinosis and FMD. There is no comprehensive epidemiological vigilance system. The possible introduction of African Swine Fever is a major threat, as the disease can be controlled only by slaughtering all pigs in infected areas. E. Environmental Factors 109. The meat processing industry in the past has produced environmental problems in the forms of transport congestion, unpleasant odors, and effluent pollution. In Argentina these problems are not serious (with exceptions such as Liniers Market) following the closure of the original large-scale export meatworks and the replacement of this capacity by smaller more modern plants. Moreover, adequate legislation exn ts to control the major potential problem of effluent pollution. While enforcement of this legislation is uneven, improvements are likely to be made as and when the industry becomes more profitable. On the other hand, the widespread use of chemicals in livestock husbandry and agriculture has resulted in pest resistance, health risks, wildlife damage, and environmental pollution, particularly of drinking water. As a result, registration requirements for new chemicals worldwide are now much more stringent and the cost of developing and releasing new chemicals much greater. The result is a major shift using biotechnology to biological forms of pest control and the creation through genetic manipulation of new ANNEX 3 Page 22 of 64 varieties of plants and animals that facilitate pest management. This trend is strongly reinforced by importing countries which now ban the sale of products treated with chemicals (and hormones), whether residues exist or not, thereby jeopardizing future exports from Argentina. Thn chemical options available for disease and pest control are steadily decreasing and there will be little replacement of exiting chemical control materials as pest resistance develops. The use of biotechnology to replace agrochemical pest control is essential to Argentina's economic future. 110. Developments in biotechnology elsewhere in the world have great significance for livestock production in Argentina. They include: (a) new vaccines against specific diseases and insect vectors (ticks); (b) the production of biologicals that modify growth rates and lactation yields and enable a biological shearing of sheep to occur; (c) improvement of reproductive performance and genetic gain; (d) the change of pasture plants to increase their feed value and decrease metabolic problems (bloat) they can cause; and (e) the modification of the microbial population of ruminants to enable cattle and sheep better to utilize poorly digestible material (e.g.,straw) and/or otherwise toxic plant materials (e.g., Leucaena). 111. The likely impact of worldwide developments in biotechnology on Argentina appear to be: (a) to increase the downward pressure on the prices of major export commodities; (b) to reduce the comparative advantage the country has traditionally enjoyed in beef, wool and cereal production; (c) to reduce the relative importance of its land resource relative to other production inputs; and (d) to increase national dependence on: (i) expanded national research and training efforts using diversified funding sources; (ii) collaborative research with biotechnology laboratories in Europe and North America; and (iii) transnational companies able to provide biological inputs to agricultural production and willing to cooperate in resolving production, processing and marketing problems. 112. The issues which will arise in the near future in respect to the use of biotechnology in Argentina center on recent court rulings which indicate that virtually every product, process and technique arising from biotechnological research will be patented and that Argentina will have limited access to the technology involved unless it develops a strong capability for collaboration in using this technology. The first problem area for collaboration will probably be associated with the diminished use of agrochemicals and the rapidly increasing importance of biological pest control. ANNEX 3 Page 23 of 64 IV. MARKETING A. Current Marketing Environment 113. Up to the 1960s, the more developed countries were fully aware of the high quality of Argentine beef. Since that time, as the result of lack of product availability and lack of promotion by Argentina, a whole generation exists which is unaware of the products' qualities. One exception to this general rule is West Germany. where a number of restaurant chains actively promote Argentine beef. The very high proportion of high-quality beef exported to the EC and consumed in West Germany provides proof of the effectiveness of this promotion. Export marketing is an additional constraint to the meat industry. Given the relatively small volume of beef currently exported and the large number of firms participating in this trade, no one domestic firm is sufficiently large to establish a strong brand image overseas. Consequently, most meat and meat product exports are done either on a given commodity basis or use the brand names of foreign importers. A sensibly organized, industry-wide export promotion and marketing scheme could enhance Argent.na's immediate prospects as a meat exporting nation. 114. About 8OX of wool production and 10% of beef production are exported, primarily to the EC, the USSR, and China. Export volumes and production have declined appreciably (about 30Z) over the last decade, a consequence of depression of world markets and instability in domestic financiti and monetary policies. The export market outlook in beef and in dairy products, in which Argentina also has a comparative advantage and a modest export trade (US$20 million per year), depends greatly on a reduction in the export and production subsidies used by many industrialized countries to reduce their beef and milk surpluses. The prospects for some change in these subsidies now seems promising, and there is optimism regarding the likely increase in the volume and unit value of meat and milk exports from Argentina in the next decade. The outlook for fine wool is equally attractive, since the international market is now using much more fine wool in high-value and high-fashion garments. On the other hand, while the organization, efficiency, and transparency of national markets for beef, milk and poultry are adequate, the market chain for wool is complex and leads to the involvement of many intermediaries and traders. A considerable improvement in wool marketing is clearly needed. 115. The pervasive problem recurring throughout the livestock industry is uncertainty. Government intervention in the livestock sector has included export taxes, price controls at the wholesale and retail levels, official prices for exports and export quotas. Indirect effects have resulted from the frequently overvalued currency and a high degree of production provided to the industrial sector. Some compensation has been provided on occasion through subsidized credit and tax exemptions (e.g., in Tierra del Fuego). However, these have been minor relief from the overall weight of direct and indirect taxation on livestock output. When coupled with current real rates of interest on credit, producer interest in farm investment is not high. ANNEX 3 Page 24 of 64 B. The Cattle Marketing System 116. The marketing of livestock and meat industrialized in Argentina is highly complex compared to the systems eNvJIved in countries. The Argentine system has the advantage of providing multiple choices and considerable maiket transparency to the farmer and other parties involved in the trade (Table 6). It has the disadvantage of considerable overhead costs. This results in higher-than-necessary pricing to the domestic consumer, diminished export competitiveness, and the creation of a large contingent of industry middlemen. 117. The origins of this system can be traced to the years of market dominance by five multinational companies which developed the Argentine meat industry, principally for exports but also for domestic trade. The preferred purchasing system of these companies was direct sales from the farmer to the packing plant without intermediaries, preferably on a carcass weight basis, and based on payment to the livestock owner a significant time after the delivery (up to 90 days). The actual payment terms varied according to supply and demand and the relative bargaining power between the farmers and the meatpacking industry. While the structure of the industry has changed since the days of the multinationals, the principle of buying animals on credit still remains. In an inflationary economy sucb as tLat of Argentina, payment time is of considerable importance. Even more so is security of payment, the record for which is not good within the meatworks industry, various crises of over the years having left a significant trail of bad debts. Table 7 delineates the evolution of the livestock marketing system in Argentina. Livestock Marketing 118. The livestock producer has the following alternatives for marketing his animals. 119. Central Markets include Liniers in Buenos Aires and similar markets in Rosario, C6rdoba, Santa Fd, and Tucumdn). Currently, these markets, where sales are by both auction and by negotiation, represent approximately 25Z of total livestock sales in Argentina (with Liniers alone representing 22Z of the total).. The sales are conducted by agents (consianatarios). The average cost of the sale is around 8Z, which includes 2Z sales commission, 12 payment guarantee, 2.5% market charges (loading/unloading, use of facilities, veterinary inspection), and taxes. Transport costs are in addition to these costs (approximately US$0.5 per km per lorry load). 120. Liniers is probably the largest livestock market in the world (its throughput is 2.5 million cattle per year, plus pigs and sheep) but a law has been passed to close it on environmental grounds. The agents hope to replace it with a private-enterprise market located about 45 km outside Buenos Aires, the estimated cost being about US$15 million. It should be noted that the EC prohibits the import of meat from Argentina from animals that have passed through a livestock market. The JNC records and publishes livestock prices obtained in these markets and SENASA undertakes veterinary and hygiene supervision activities. ANNEX 3 Page 25 of 64 121. Rural Auctions (Remate Ferial). There are approximately 520 rural auctions which sell animals for breeding and fattening as well as for slaughter. As with the central markets, sales are undertaken by livestock agents and the marketing costs of the two systems are similar, except that transport costs are likely to be less in the rural auctions, given the large number of locations. As a consequence, these rural auctions have great value for farmers who wish to trade a small number of animals, whereas the Liniers trade is basically by lorry-loads of approximately 30 cattle. These markets represent between 20-35Z of total trade in animals for slaughter, their popularity varying mainly in inverse proportion to the quantity of direct sales to meatpacking plants. 122. Direct Sales. In principle, this is the most efficient and cost- eifective form of sale since transport requirements are minimized and agents' commissions, market costs, and various taxes are eliminated. The popularity of thi. system in Argentina is, however, restricted (compared to other countries) because of the bad record of plants defaulting on payments to farmers. As a result, a variation of these direct sales is through an agent (comisionista) who, in addition to arranging the sale, provides a payment guarantee to the farmer. The cost of this service averages around 4%. Sales through the comisionista vary in inverse proportion to the financial health of the meatpacking industry; i.e., in times of financial problems they represent substantial proportions (e.g., 72Z of direct sales in 1980-44). 123. Heat Auctions (Consianaci6n de Carnes). This system uses a meat sales agent (consignatario de carnes) as an intermediary. The agent arranges for the collection of animals from the farm and for their slaughter in a designated plant. The slaughterhouse retains the byproducts and pays the consignatario, who transports the carcasses to a meat auction center in which meat is sold by public auction to retail butchers, who pay cash at the time of sale and arrange for transport to their shops. The consignatario then forwards the money received for both the carcasses and the byproducts to the farmer, less his commission and other costs, including transport. 124. This system is growing in popularity in Argentina (8.12 of livestock sales in 1987) for two reasons. First, the farmer can frequently obtain a better return on his animals, since total marketing costs from farm to retail butcher are about 4% plus transport; second, the cash payment system involved means the farmer receives his money in 48-72 hours from the time the animals leave his farm. The latter is a considerable advantage in a highly inflationary economy when compared to the typical 10-15 days (animals for local consumption) and 15-30 days (animals for export) paid by animal purchasers in the livestock markets. It does, however, depend on the integrity of the consignatarios, and certain forms of meat auctions have been banned by the authorities on the grounds that the cash sales element of the transaction can give rise to financial speculation for any persons using this system while purchasing animals on credit. 125. Unregistered Sales. This proportion of approximately 25% of total livestock sales refers to those sales transactions and slaughter activities not recorded by JNC. This does not necessarily imply that these transactions are illegal or that they are necessarily designed to avoid payment of various taxes. ANNEX 3 Page 26 of 64 Animal Slaughter 126. Approximately 75? of total animal slaughter in Argentina is done in plants registered and controlled by JNC and SENASA; in addition to approximately 150 registered plants (for all animal species), there are approximately 1,000 slaughterhouses operated by rural communi les, municipalities, and small private-sector companies. The total slaughter capacity can be divided into three categories: (a) plants which slaughter only animals that are the property of a plant operating company (own account slaughter); (b) plants that only operate a slaughter service for third-party animal owners (third-party slaughter); and (c) plants representing mixture of both (a) and (b). 127. Within the Argentine meat industry, there is a substantial group of middlemen called 'Matarifes" who purchase livestock, arrange for it to be slaughtered in facilities owned by other parties, and sell the meat *either to retail or wholesale butchers. In Argentina (and in many other countries, principally developing ones) these middlemen represent an important part of the overall meat industry. The problem with the matarifes system is that they are given the opportunity (through publicly- financed slaughterhouses) to make full trading profits from the meat industry in favorable financial times, while their negligible degree of capital investment gives them an unfair advantage over properly- constituted meat-processing companies in difficult times. In Argentina, as in other countries where middlemen exist, public health considerations suffer, since the matarife is not responsible for the sanitary condition of the slaughterhouses used. Heat Marketing 128. Traditionally, the Argentine meat packing industry has left its meat marketing activities to intermediaries in both export and local markats through parent companies or overseas subsidiaries in the case of the old multinational meat companies with Argentine slaughterhouses. For domestic trade, the meatworkp would sell to wholesale butchers (abastecedores) who would distribute the meat to the retail butchers (carniceros), of which there are approximately 18,000 tn Greater Buenos Aires and 35,000 in Argentina as a whole. For exports, none of the Argentine meat companies are large enough to mount their own comprehensive overseas sales operations on a multinational basis. 1n the absence of a national export sales organization for the entire industry, they continue to sell their products either to large end-users in the consuming countries --usually chain supermarkets who market the products under their oan labels--or to international meat trading organizations which also have their established markets under their own brands. 129. While to-date the largest proportion of export marketing continues in the above manner, a number of changes have recently taken place in domestic marketing. The first of these has already been described, i.e., the services of consianatorios de came, which provides a means for the farmer to market his own meat. The second is the rapid development of supermarkets and chain butcher shops which have meat sales sufficient to allow for economical direct shipments from the meatpacking plants. The third (pioneered by one company to-date) iv the sale of branded meat in supermarkets. ANNEX 3 Page 27 of 64 130. As with livestock marketing, the growth of these new marketing channels, in parallel with the existing ones, provides a healthy choice for participants in the industry and the possibility (if the meat processing industry grasps the initiative) that in future supermarkets will take fully boned (prime cuts) and eventually retail portion-control packs directly from the meatpacking plants which have better facilities for waste product recovery than the supermarkets. The possibility that other companies will follow the present pioneer into branded meats is also interesting. It is probable that this route is the most practical alternative to improve 'he existing inadequate "cold' chain for meat distribution and sale in Argentina. Although no accurate figures are available, the present proportion of meat sold "hot" in Argentina rilher than schilledu is very high, even from plants equipped with full chi:ling facilities. The sale of "hot" meat reduces the holding of inventories to 24 hturs, which is important in an inflationary economy. However, the latter causes considerable protein waste (drip loss) and has various public-health disadvantages. C. Domestic and Export Markets Sheet 131. The driving force determining the sheep/wool profitability and size of the sheep industry is the price of wool, ana to a lesser extent, of meat. Throughout the last twe decades, international prices for wool, while variable, have declined from about bS$1.6 per kg in 1960 to about US$0.8/kg in 1986; sheepmeat prices remain essentially constant in current terms but input production prices are more than doubled. The result has been a marked drop in sheep production profitability and in sheep numbers. In the 12 months ending September 1988, the price of fine wool has shown a major increase to around US$6 per kg. The cause is a much greater demand, both domestically and internationally, for high-quality fine wools for fashionware. Expectations are that this demand and higher prices will continue and thaL the supply of fine wool will not increase rapidly. The outlook for medium to coarse wool is less favorable, since these fibers are more readily replaced by synthetics and not used in the high value fashion markets. Of Argentina's current annual wool production of 143,000 tons, about one-third is fine wool, one-third is fine crossbred, and the balance medium to coarse wool (Table 8). Exports take almost 100,000 tons of which 40Z is fine wool, 402 fine crossbred and the balance medium to coarse. Domestic consumption of 40,000 tons is mainly fine crossbred (50Z). 132. Wool marketing in Argentina involves a complex and expensive selling chain which lacks transparency. The reason is essentially the small size of many producers and the resulting variability in the quality of the many small parcels of wool in the primary market. Only the large, specialized wool producers grade and classify their wool prior to sale and are thereby able to sell directly to export houses. Smaller lots must be bought and aggregated into larger classified lots by agents wbo incur appreciable risk in these purchases and who discount the price accordingly. The recent development of wool marketing cooperatives should improve this operation; their organ4zation is based on similar cooperatives established on an extensive scale in uA.-uay. ANNEX 3 Page 28 of 64 133. Over the last 20 years, the average FOB price realized for unwashed wool sold domestically compared to that sold internationally has differed by about 27Z. This reflects mainly export taxes and higher marketing and transport costs of international sales. FOB prices for wool average about 602 of CIF prices (UK basis), and farm prices average about 60% of FOB prices. Because export taxes have been applied at a rate favoring increased local processing of raw wool, the export of wool "tops" has steadily increased as a proportion of overseas sales. Such wool represents about 25? of the total, with unwashed wool at 352 and washed wool about 40Z. Major export markets for Argentina's wool include China, the USSR, West Germany, and Holland (Table 9). 134. The variability in producer net returns results from changes in export taxes (from 0 in 1980-81 to 29.5Z in 1985-86) and the exchange rate for commercial exports. In June 1988, export taxes on unad ed wool are modest (82) and a high commercial exchange rate is in force. Since price incentives to the fine wool producer are now attractive, a considerable strengthening of the industry is envisioned. Wool exports are most important to Argentina. An export volume of 80,000 tons, worth about $2,000 per ton, contributes $160 million to export earnings, roughly the same as meat exports. The potential for expansion is large but the uncertainty associated with variable returns to the producer and the cumbersome nature of present domestic wool marketing systems constrain incremental investment. The positive aspects of the international wool market center on its freedom from trade barriers in importing countries and from production subsidies in exporting countries. Overall production and demand is increasing by about 1Z per year. Australia and New Zealand have doubled their wool production and exports in the last 40 years and now dominate export markets, supplying 75? of international trade. Following large production declines in both countries, Argentina and South Africa each now supply about 5Z of the world market (Table 10). 135. Two opportunities for Argentina's sheep industry appear to warrant particular attention. The first is the increased production rf good quality lamb for both the domestic and export markets. The immediate objective should be to fulfill the quota available in the EC (Table 8). The case for encouraging specialized lamb production in areas well-suited to the use of improved temperate pastures warrants investigation. 136. The second, and more important, opportunity centers on the promising market for fine wool. Perceptions of uncertainty by sheep producers prevail in regard to this market and to the likely instability in market prices as well as in exchange rates, export taxes and import costs. These perceptions contribute in large degree to the slow response by producers to currently attractive market indicators. How best to overcome these concerns is debatable. A stable price incentive is certainly a large part of any answer and two actions by GOA might help in ensuring this. The first centers on achieving a wider recognition of the importance of the sheep industry to the national economy. In spite of its being a major source of foreign exchange earnings, few people appreciate the role of the industry and its potential. A clear statement by GOA of its importance could help change this. The second action centers on improving the efficiency of national wool marketing. Initial steps for this are now in place including competent wool-testing facilities, new marketing fto ANNEX 3 Page 29 of 64 organizations in the form of producer cooperatives, and provision of bank credit to finance wool stocks. A careful examination should be made of the improvements these new facilities and structures are fostering aid if need be, steps should be taken to encourage their expanded use. This examination could well be associated with a study of the traditional marlet channels for wool, along with the case for Argentina joining the International Wool Secretariat. 137. Sheepmeat production in Argentina is now about 100,000 tons per year. of which about 7,000 tons is exported (Table 11). This meat is essentially a by-product of wool production, with little specialized lamb produced. National consumption of sheepmeat is low--3 kg per person and mainly confined to rural areas (Table 12). The export quota for lamb to the EC of 13,000 tons per year that Argentina has is not being met. Poultry 138. Poultry has played a minor part in the history of the Argentine meat industry, with imports and exports at negligible levels and per capita consumption low compared to Argentina's large domestic per capita consumption of beef. However, in recent years poultry meat production has expanded considerably, with annual production increasing from around 200,000 tons in the late-1960s to early-1970s to over 400,000 tons by 1987. Per capita consumption has also increased, from around 10 kg to 14 kg over same period (Table 13). 139. The three .argest production units each use different marketing systems and sell undec their own brands. One supplies directly to retailers through its ovi distribution system; another sells directly to consumers through a chain of supermarkets; the third sells partly to supermarkets and other special customers and partly through a network of wholesale representscives. The other units distribute their production through a normal system of wholesale and retail outlets. There is an increasing trend towards additional processing of poultry meat to increase its value added (e.g., cuts). Although poultry meat consumption is small compared to beef, it is second in importance and represents the main substitute for beef. Production is mostly for domestic consumption, which fluctuates in relation to the beef cycle--peak consumption occurs when beef restocking causes sharp increases in meat prices. Consumption of poultry meat has ranged from 200,000 to 400,000 tons over the last 20 years, with a regular increase during the last few years, due to the relatively high price of meat. The prospects for expansion of domestic consumption depend directly on government policy for beef prices; development for export will depend on the extent to which major exporting countries continue to subsidize their poultry exports. pigs 140. The pig marketing system is relatively underdeveloped. The processing industry buys 95Z of total production, either directly from producers or from a market. Ninety percent of the sales through markets (representing 45Z of total marketed production) is done at the Liniers central market, which sets prices for practically all transactions in the country. Transport of live animals by truck to the central market and from there to the slaughterhouse is a major marketing cost (actual transport ANNEX 3 Page 30 of 64 cost and weight losses). Sales are on a live-weight basis, a system that has been abandoned by all countries with a developed pig industry. The unit prices are thus set in a subjective way, and there is no incentive for the producers to improve the quality of their animals. 141. Exports of pig products are insignificant. The peak export volume occurred in 1976, reaching 7? of local production and generating US$17 million in export earnings. Exports have gone down regularly, to reach less than US$1 million in 1986 (Table 15). Meat products are exported mostly to Spain and Hong Kong, and fat to Bolivia and Chile. The trend for major pork-consuming countries is for self-sufficiency, so that prospects for exports are limited. Dairy Industry 142. The marketing of raw milk from the farm to the plant is organized basically by the dairy plants. Since they pay for the transport of milk, the firms, especially those that are not cooperatives, try to rationalize milk collection by having as many large-scale farmers as suppliers as possible. In fact, a considerable bonus is paid to farmers who deliver in volume. Another bonus is paid for milk quality. At present, milk quality is measured indirectly through a system that awards points for improvements in buildings, equipment, milk temperature, animal health, milk recording controls, milk cleanness and fat content. 143. There were 722 milk plants in 1983, about 302 less than the number registered 10 years earlier. Over 95% of the plants are small and have less than 50 employees. Dairy plants compete heavily with each other. They try to secure markets through product diversification and differentiation and also by taking measures to ensure the provision of raw milk. These measures include: (a) acquiring other plants together with the supplying milkshed; (b) developing technical assistance programs for farmers; (c) installing milk cooling stations; (d) enlarging the refrigerated truck fleet; and (e) selling farm inputs. The market share represented by the three principal plants is given in Table 16. Milk production has been steadily increasing between 1970-87 (Table 17). 144. Exports of milk products (Table 18) are erratic and residual in character, coming into play once domestic demand is satisfied. Currently milk exports are said to use about 5Z of the country's milk production. The quantities of different milk products exported over the years have changed considerably. During 1960-64 Argentina's most important exports (in order of importance) were casein, butter, cheese, and powdered milk. Twenty years later, the importance of the main milk exports has changed to powdered milk, cheese, butter, and casein. Most exports go to other Latin American countries, except for cheeses (especially hard cheese) that are exported to the US. These exports have to compete with those of the US and the EC which are still highly subsidized. However, it is promising that both the US and the EC have recently taken measures to curtail production. At present, Latin America only imports about 5% of its milk from other Latin American countries (mainly Uruguay and Argentina). Opportunities for Argentina to increase its milk exports could crystallize if the US and the EC continue to curtail production or if incomes in Latin America (especially in Brazil) increase. ANNEX 3 Page 31 of 64 145. On the dairy farm, the focus has turned to increasing output, especially the amount of milk produced during the difficult winter season when most native pastures have little growth. The industry also has attempted to stimulate farm productivity by: (a) giving a better price for winter milk; and (b) by developing extension programs that encourage the use of new farm technology. Both measures improve the quality of milk delivered to plants, and improved milk quality permits better product diversification by industry and encourages more reliable exports. Milk Pricing Policies 146. The dairy industry attempts to support a stable price for milk to increase the marketability of its products. The Fund for Promoting Milk Enterprises operates in two phases: the abase phase" (during which enough milk for the internal market is produced) and the "surplus phase", when milk production exceeds internal market demand. Farmers and representatives from the dairy firms through COCOPOLE decide the base price level relative to internal costs. The administrative council of FOPAL then determines the surplus price based on international prices, the exchange rate, and the volume of surplus milk. The difference between the base and surplus price is what the industry deposits into the Fund. These resources are then distributed to exporters once they export. If exports are not realized, the proceeds revert to the farmers. The cost of the milk used for products sold in the domestic market is always above the cost of milk used for exports. The purpose of the system is to link the surplus price to international prices and to provide funds to offset international subsidies. The system also attempts to reduce cyclical variations in the domestic milk price. 147. Price stability favors domestic consumption because it allows consumers to depend on a product price throughout the year. This is especially important now since new products are constantly tested in the domestic market. It also favors farmers since milk overproduction will not mean an immediate drop in the milk prices as in the past. It also protects regional milksheds from having milk products dumped on them by the more powerful dairies located in the Humid Pampa. In essence, this system allows flexibility and provides a forum for setting prices; with time it will also improve the regularity of exports. D. Meat Processing Industries The Beef Industry 148. For the two years ending in 1988 both the domestic and export beef industries operated at a profit. This is a distinct improvement over previous years when the export sector was in serious financial trouble due to low capacity use, price restraints, overvalued currency, and export taxes. A considerable debt burden still overhangs the industry, estimated at US$500 million (1983 dollars) of which the export sector accounted for approximately US$400 million. The impact of these debts, however, has been lessened by debt rescheduling by official banks so the trading picture has considerably brightened in the light of increased relative prices, both at home and in export markets, and reduced export taxes and more favorable exchange rates in the case of exports. Closing of many export plants also ANNEX 3 Page 32 of 64 increased efficiency and improved capability utilization for those that remained. In general, the industry has adjusted successfully to current domestic and export trading volumes. 149. Currently, thirty-two firms hold EC export licenses and nine hold USDA licenses. In total, there are approximately 100 meatpacking plants operating under Argentine federal inspection by SENASA. However, some firms not holding EC/USDA licenses also export to developing countries. (Tables 6A16B). These enterprises collectively account for approximately 732 of all cattle slaughterhouses with varying degrees of sanitary inspection. Mostly it is organized and performed by local rather than federal authorities. 150. Historically, considerable separation existed between companies engaged in export and those catering to the domestic market. Recently, this separation has become less evident with export factories entering the local market. This change can be attributed to incentives provided by JNC and the more favorable distribution of EC export quotas (Hilton Quotas) to those firms engaged in both domestic and export trade. This incentive reflects the growth of supermarkets as meat retailers purchasing larger quantities with greater reliability than traditional butchers or middlemen. It is also due to the awareness of export enterprises that establishment of a sound domestic market is a prudent way to offset variations in external trade. 151. In 1988, the meat processing industries are far more optimistic than 3-4 years earlier and possibly more realistic than in the 1970s when high capital investment was commonplace. However, there are concerns. For exports, the concern is that the GOA will reimpose export constraints that will undermine the industry's new-found prosperity. The domestic sector is concerned that the export sector will attempt to dominate the local market through the changing market pattern (greatly increased sales in supermarketi. and their improved profitability from the currently good trading conditions in export markets. The intermediate sector (those firms with or without conditions close to obtaining EC/USDA export licenses but without processing facilities for cooked frozen beef, corned beef, etc.) is worried that the relatively small number of firms with advanced processing facilities are or shortly will be operating as a cartel. This group laments the absence of low-cost investment funds for construction of facilities to produce higher-value meat products--initially cooked frozen beef and more advanced products, such as frozen dinners. 152. Recently, initiatives have been taken by a large livestock farming group, Comega, which pioneered the concept of marketing branded meat in retail-sized vacuum packs through supermarkets. Backed by a successful , advertising campaign, this concept is gaining substantial acceptance from the consumers, and the company now intends to construct its own meatpacking plants so that it can enter the export market again based on branded meat. One firm, Campbell/Swifts factory at Rosario, is a survivor of the early multinational days of Argentine meat exports, having been built in 1927 to the enormous proportions reflecting outputs of those days. After the departure of Swifts in the early 1970s, this plant was taken over by local government and industry interests until being sold to Campbell Soups of the US in 1982. While this factory continues to export to world markets and to supply the local markets (mainly meat-based products), the primary emphasis ANNEX 3 Page 33 of 64 since the Campbell takeover is for Swifts-Rosario to act as an in-house supplier of meat products to the US parent company. This approach enables the factory to secure a tied principal customer. The parent clearly has faith in the future potential at Rosario, to the extent that a new project entirely to replace the exifting slaughter and processing facilities is at present in the detailed engineering phase, with an estimate cost of US$70 million. Sheepmeat Industry 153. Sheep production and sheepmeat processing are divided into two distinct zones, the temperate regions (e.g., Buenos Aires Province) and Patagonia. Argentina is FMD-free south of the 42nd parallel and this gives Patagonia the possibility of exporting boned lamb and mutton to EC countries, whereas any meat exported to the EC from the other areas must be boneless. At present, there are approximately eleven plants which export sheepmeat and these also supply the local market. Much of the slaughter for domestic consumption, however, is done in rural slaughterhouses or by the sheep producers on-farm (Table 6). Trada is highly seasonal (September to December in the temperate regions; November to February in Patagonia), providing annual capacity utilization problems for any facilities which cannot be used for other purposes at other times of the year. This is particularly important in Patagonia, where climate conditions permit few alternatives to sheep production. PiRmeat Industry 154. Pigmeat production in Argentina. like sheepmeat, has always been overshadowed by beef but is distinctive compared to other countries in that on average 902 of total production is used for processed products and not consumed as fresh pork. The primary problem for the pigmeat industry is access to export markets, not animal supply. Again, the EC countries cause the chief export problem, especially since Spain and Portugal joined the EC. Unlike beef and cheepmeat, no quotas are established for pigmeat exports from South American countries to the EC. Those exports that do remain go to places such as the Canary Islands and Hong Kong and then only in limited quantities. The hope is for GOA to negotiate import quotas from the EC; however small initially, it is important to secure a segment of this market for future exploitation. The industry considers that the Government has not been aggressive enough in this respect, viewing it as more concerned with beef and sheepmeat industries. 155. There are about nine companies that process pigmeat for both the domestic and export markets. A market leader is Frigorifico Minguillon. which has an excelleat, modern (5,000 head/day), integrated meatworks, constructed in 1980 using West German processing equipment. This company is also unusual in that it has its own fully integrated transport and distribution organization, which ensures that the cold chain is fully maintained up to delivery to the retailer. Poultry Industry 156. The poultrymeat industry was of limited importance until the early 1970s. With beef reasonably priced, in ample supply, of high quality, and enjoying consumer preferences and high demand, poultry production suffered. ANNEX 3 Page 34 of 64 A further problem was the generally inefficient and fragmented system in use. However, the structure ot the industry has evolved beneficially since 1975. with the number of integrated firms increasing from 31 to 99 over the period 1975-86 and non-integrated firms virtually disappearing. 157. Registered production is approximately 85? of the total. In 1986, there were 52 factories with SIPA registration, of which 41 were in operation. There are three Cominant firms sharing approximately 302 of the market. The top ten firms process around 60Z of the total. The majority of plants are located in the Provinces of Buenos Aires (432), Eatre Rios (332), and Santa F4 (92). In recent years, the leading producers have strongly promoted the sale of higher-valued poultry products (e.g., chicken portions, prefried breaded products) through supermarkets and the rapidly appearing fast-food chains. 158. Poultry meat has not been an important factor in Argentine trade, poultry meat exports being inhibited by: (a) overvalued currency rates and export taxes; (b) subsidized competition from other countries; (c) relative inefficiency of Argentine producers until recent years; and (d) the preference by the Argentine consumer for a yellow-pigmented (corn-fed) bird of higher carcass weight, compared to the smaller white broiler which is the international standard. Regarding imports, GOA made a disastrous attempt in 1985 to regulate meat prices by importing 40,000 tons of frozen broilers. These were reportedly of poor quality and for that reason were boycotted by local consumers. 159. As in other countries, poultry production is likely to be a susbstantial growth area, and the industry is showing considerable interest in future prospects for export markets. The major growth area for future poultry meat exports worldwide is portions and value-added products rather than whole birds. Food conversion rates for poultry meat range from 2.0 to 2.5 kg feed per kg bird. It is normally more economical to transport the required quantity of grain than the resulting quantity of poultry meat. For these reasons, the traditional poultry meat importing countries (e.g., the Middle East) have made efforts to become self-sufficient in poultry production. The strategy of Argentina, therefore, would be to supply 'nichew markets to possibly satisfy excess demand for various bird portions. Currently, there exists a considerable shortage of chicken breasts in the US and a surfeit of legs and drumsticks, while the reverse is true in Argentina. Health and trade barriers notwithstanding, this suggests good export potential for Argentina, possibly in the form of reciprocal trade to the mutual benefit of both countries. E. Capital Investment for Export Effectiveness 160. Lack of finance for capital investment at reasonable cost is cited as a major constraint by the industry (except for leading export firms). Most firms cannot enter the lucrative export market for cooked frozen beef or potential future markets for prepared foods. The reality of this reported constraint needs to be judged with caution. If capital investment were simply to increase the total market in the same proportion as capacity generated, then the investment would clearly be worthwhile. But if the effect were simply to increase competition within a steady-state market, then the result would be another economic crisis in the meat processing ANNEX 3 Page 35 of 64 sector. The generation of excess capacity in modern slaughter and boning facilities in the 1970s provoked the last such crisis, from which the industry has only recently partially emerged. One factor that should be underscored is that several companies within the sector are undertaking capital projects, either to upgrade their existing facilities or to add options using either their own resources or funds obtained from commercial sources. V. INSTITUTIONS A. National Meat Board (JNC) 161. The National Meat Board (JNC) was established in 1933 as an industry-funded government body -supervised by a president, vice-president, and eight directors, four appointed by government, two by farmers, one by the meat processing industry, and one by the livestock agents (consignatarios). One of its initial duties was to determine the extent to which the multinational meat companies were extracting monopolistic profits from the industry. The statutory functions of JNC are to "service and regulate the livestock and meat industry, and to ensure an orderly and continuous flow cf meat products to domestic and export markets". 162. At present, JNC undertakes the following main activities, working with an annual budget of around US$15 million: (a) provision of livestock and meat industry statistics (excluding poultry); (b) dissemination of data on livestock and meat market prices; (c) meat grading in packing plants with JNC inspectors present (approximately 752 of Argentine animal slaughter); (d) administration and distribution between national companies of meat quotas from importing countries (principally Hilton quotas to the EC); (e) organization of the sale and inter-company production of large meat orders from centrally-planned economies; (f) promotion of the sale of Argentine meat worldwide; and (g) operation of a limited intervention meat-purchase policy that at present is largely confined to the storage of Patagonian sheepmeat. 163. JNC's statistical services were universally admired by the industry until recent years, when budget constraints caused it to curtail them. Its meat-grading activities, which are based on carcass classification, are largely irrelevant to current meat marketing and are largely ignored by the trade. This labor-intensive activity took 60X of JNC's administrative expenses and employed about 300 of its 500 staff. ANNEX 3 Page 36 of 64 164. Its role in promoting exports has largely been undermined by lack of financial resources and by lack of potential orders from socialist economies and the developing world due to subsidized competition from the EC. JNC's role.in supporting sheepmeat production in Patagonia is believed to be a reluctant one, adopted as a means of preventing the government assuming JNC funds. An internal study is being done, the results of which will be presented to the GOA for action. B. Argentine Producers' Cooperative (CAP) 165. Meat exports in the early 1900s were controlled by a small number of North American and British firms which were strongly suspected of operating a cartel detrimental to both local farmers and the economy as a whole. The Argentine Producers' Cooperative (CAP) was created as the national competitor to these multinationals. Its initial strategy was based on an agreement with the UK that 15Z of meat exports to that country would be from government-operated firms or farmer cooperatives. This arrangement continued until the Second World War when the UK was intent on purchasing large meat supplies from Argentina. Subsequent transactions were carried out on a government-to-government basis rather than through the private sector. This organi-ation is now dormant. C. The National Committee for Milk Policy (COCOPOLE) 166. Perhaps the most important development in the dairy industry was the establishment of a stable pricing policy for milk. This was done by bringing dairy plant and farmer representatives together under the National Committee for Milk Policy (COCOPOLE) and by encouraging milk exports through the Fund for Promoting Milk Enterprise (FOPAL). 167. The operation of the Fund is as follows: Two periods are determined--the abase' period during which enough milk for the internal market is produced, and the Isurplus" period when milk production exceeds internal demand. Farmers and representatives from the dairy firms through COCOPOLE decide the level of the base price relative to internal costs. The administrative council of FOPAL then determines the surplus price based on international prices, the exchange rate, and the volume of surplus milk. The difference between the base and surplus price is what the industry deposits into the Fund. These resources are then distributed to exporters once they ship. If exports are not realized, the proceeds revert to the farmers. The cost of milk used for products sold in the domestic market is always above the cost of milk used for exports. The purpose of the system is to link the surplus price to international prices and to provide funds to offset the international subsidies. The system also attempts to reduce between-year cyclical variations in the domestic milk price. 168. Price stability favors domestic consumption because it allows consumers to depend on a product price throughout the year. This is especially important now since new products are constantly tested in the domestic market. Stability also helps farmers since milk overproduction will not mean an immediate drop in milk prices, as in the past. It also protects regional milksheds from having milk products dumped on them by the more powerful dairies located in the Humid Pampa. In essence, the system allows flexibility, provides a forum for setting prices and, with time, could improve the regularity of exoorts. ANNEX 3 Page 37 of 64 VI. RECOMMENDATIONS A. Meat Industry 169. Despite cyclical variations, the Argentine meat industry has expanded since the 19009. However, in the last 40 years the emphasis has changed dramatically from one of exports to domestic consumption. For the future, a rational approach would be to meet domestic demand both for beef * and for substitute meats but also to reestablish and expand the Argentine meat exporting sector. Policy 170. The essential ingredient for successful development of the Argentine meat export industry is government recognition that its growth must be an integral part of national economic development strategy. The key is to ensure that Argentine meat export remain competitive in world markets. Any future changes in export taxes on meat and in exchange rates must enable the industry to make a reasonable profit to enable it to develop in a more stable economic environment. GOA Trade Deleaations 171. Based on a renewed and sustained policy to develop meat exports, GOA should employ every possible official means to improve access to the markets of develop"d countries. 172. This approach is unlikely to achieve dramatic results quickly, but sustained efforts in conjunction with other South American countries where appropriate could yield worthwhile results in the medium or long term. Measures that should be taken include: (a) clarifications to those countries that prohibit the importation of uncooked meats from FMD-endemic countries (e.g., the US and Japan) that boneless meat produced under controlled conditions does not transit the disease. The example of the United Kingdom can be cited, which is FMD-free despite importing hundreds of thousands of ton of boneless meat from South America over the last 20 years; (b) appeals to EC countries for the restoration of pigmeat quotas; (c) solicitations to all developed countries for country and facility licensing for poultry meat exports; (d) request to EC countries to increase beef import quotas; and (e) representations for sheepmeat access to the US from the FMD-free zone if potential sheepmeat export supplies expand beyond the present EC quota. ANNEX 3 Page 38 of 64 Export Promotion and Marketing 173. Promotion is a key element in the future development of meat exports from Argentina since in prime beef ArRentina has a high quality product which, artificial constraints aside, is highly competitive in world markets. A promotion campaign should be based on prime chilled beef with . the objective of creating a quality image for all Argentine meat products. New Zealand (for lamb) and Denmark (for bacon) provide the best models for Argentina to follow in a nationally-based meat export promotion campaign. Of these, Danish bacon is the most striking, since with excellent promotion and stringent product quality control it became the market leader in the UK, selling at a premium price compared with bacon domestically produced. Centered primarily on prime beef and suitably implemented by marketing professionals, a similar initiative could achieve equally successful results for Argentina for its entire range of present and contemplated meat products. 174. JNC would be the obvious choice to coordinate such a campaign. To achieve success, however, will require the firm support of the export meat industry. The structure, organization and funding for expoi:' promotion activities should be discussed and agreed between JNC and meat exporters. Export marketing based on a national image created by this promotional activity should be the second phase of the development strategy. Domestic Commerce 175. As the result of the multiple channels available in Argentina for both livestock and domestic meat marketing, these markets possess a high degree of transparency but are expensive to operate, thereby providing a constraint to the future development of the industry. 176. Direct transfer of livestock from farm to the &eatpacking plant is the most efficient and cost-effective system. Any increase in the proportion of animals traded by this means would be to the overall national advantage. Means of achieving this objective include: (a) establishment by the leading processing companies of a self-regulated payments guarantee scheme for farmers; (b) authority given to meat sales agents (consignatorios de carne) to construct and operate properly organized, controlled, and inspected wholesale meat markets, which could also function as residual markets for surplus meat sales for meat processing companies companies; and (c) establishment of electronic markets for livestock which do not require the physical presence of the animals being sold. 177. These possibilities, together with the future prospects for the Central Liniers livestock market, the rural auction markets and the potential effects (stal"izing or otherwise) of a livestock/meat futures market in Argentina, shuuld be studied in cooperation with the various sectors of the industry to determine whe::her an effective industry consensus can be obtained to reduce livestock marketing costs. The vital role of public oversight of transactions and dissemination of price information should form an integral part of these studies. ANNEX 3 Page 39 of 64 178. As with livestock marketing, meat marketing is fragmented in Argentina with independent wholesale butchers until recently playing a dominant role in the distribution of meat. In recent years, the development of supermarkets and chains of butcher shops has reduced the role of wholesalers. In the short-term, no action is required in this sector and the various forms of ex-packing plant distribution should be allowed to compete without intervention. 179. As economic conditions permit, however, the Government through JNC and SENASA should encourage and, in the longer term, enforce the full chilling of all meat prior to its removal from the slaughterhouse as a means of improving public health standards, increasing protein yield, and reducing weight losses. For similar reasons, the gradual enforcement of an effective cold chain for meat (especially for pig and poultry meat) after it has left the slaughterhouse would be beneficial. 180. As conditions permit, the activities of the matarifes should be reduced. This will happen automatically if the meatpacking sector is permitted to make reasonable profits. Ultimately, the Government should exert pressure to close any slaughterhouse (municipal or private) with unsatisfactory sanitary and veterinary inspection conditions, especially where there is spare capacity in hygienically-designed and operated slaughterhouses. Meat Industry Capital Investment 181. While any meat processing company wishing to employ its own resources in capital investment to improve or extend its processing facilities should be free to do so, and while the availability of debt to equity conversion schemes for approved projects would appear to be of benefit to the nation as well as to the individual companies, it is recommended that a detailed study should be undertaken on potential cost-benefit ratios based on realistic future projections for the export market expansion prior to any commitment of any resources to the industry. B. Cattle Production 182. Table 1 shows how quickly stock numbers have fallen in Argentina. In fact, the number of cattle has fallen so low that Argentina now exports less than 10% of its production, despite the fact that the level of consumption in Argentina is considered low by Argentine standards. Argentina would export even less if: (a) its population continues growing; or (b) the demand for beef were to rise slightly; or (c) if cattle production were to remain stagnant. The population will probably continue to grow at about 1.62 per year; furthermore, consumption could easily increase 5 kg per person. This alone would cut present exports by half (150,000 tons per year). It is, therefore, critical that Argentina should increase its cattle production. 183. Cattle production in Argentina has two very different components: fattening and breeding. Fattening operations have increased their productivity in recent years but breeding operations have not. The bottleneck to improving Argentina's cattle production is in the performance ANNEX 3 Page 40 of 64 of the breeding herd. There are three principal areas of concern: the low reproductive coefficients, animal nutrition, and inadequate farm management factors which are all linked. 184. The reproductive coefficients of Argentina's cattle herd are low. This is even true for the Cuenca del Salado, the area with the highest coefficients. However, reproductive coefficients show moderate improvement even when some measures not requiring heavy capital investment are taken by the farmer. Some of these ares reduction of venereal disease by inspecting bulls before the mating season, reduction of the length of the mating season, and better timing for breeding so that calving coincides with the period of high pasture growth. In addition, a heifer's first service can be considerably advanced if female calves are weaned at the right time and put into good pastures after being dewormed. 185. The incidence of brucellosis is high, some veterinarians claiming 10OZ infection in the Cuenca del Salado. Even though it is a laborious process, this disease can be eradicated. Argentina should also consider increasing its efforts against FMD disease, if only because of the negative international marketing impact associated with the disease. 186. Animal nutrition on ranches depends almost entirely on pastures. Most breeding farms have less than 10Z of their area under artificial pasture, with the rest under native pastures. The management of these pastures has not received sufficient research attention. Management of native pastures is complex but rewarding, and Argentina would do well to improve its research on the subject as well as increase farmer exposure to the results of the research. Similarly, increasing the amount of pasture available through the use of artificial pastures or forage reserves, such as hay or silage, has a large impact on breeding farms, especially if timed to address the winter pasture crisis. 187. Farm management on many cattle breeding operations is deficient for reasons which are complex and difficult to change. Land-extensive operations and owner absenteeism explain part of the failure of extension in raising the productivity of Argentina's breeding herd. Cattle breeding farms or ranches are often quite large. The size of the farm helps the owner (who is often an absentee owner and manager) to be more risk-averse i.e., the owner makes enough money from the ranch without increasing farm investments. This greatly restricts management options. Additionally, the day-to-day management decisions often depend less on the owner (because he does not live on the farm) than on a farm foreman who usually has little formal education or little power/inclination to adopt productivity-enhancing measures. Furtthrmore, he is often not delegated enough authority to make significant management decisions. Within this environment the relative failure of extension is easy to grasp. Technological innovation cannot be adopted if managers ar not present. 188. Unfortunately, this situation will not change quickly or easily. The absent ownerimanager usually has sufficient income to live well and is undoubtedly wary of the unstable prices brought about by the beef cycle and precarious macroeconomic climate. His risk minimization and minimum-fixed- cost policies are understandable under these conditions. In short, there is no quick way to increase beef productivity. However, the matter is worthy of very careful consideration by the Government, meat packers, and ANNEX 3 Page 41 of 64 farmers (both fatteners and breeders). By facing the problem and seeking common points among the interested parties, a new way of promoting the adoption of new technology may surface. C. Sheep Market Transparency 189. A recurring problem in the sheep sector is the lack of transparency in markets, particularly the wool market, and in the various tariffs applied. For beef markets, the posting of daily prices at Liniers market is widely distributed, but the situation with wool price quotations is less clear. The basis of payment to producers varies appreciably, ranging from cash at point of sale to delayed payment. With high inflation rates considerable financial judgment is required to evaluate alternative bid offers. An informal futures market for beef and wool functions through the Bolsa; however, the market is thin and driven mainly by inflationary expectations. Private exporters hedge prices in international futures markets and an informal futures market on the austral-dollar exchange rate operates in Buenos Aires. 190. The marketing chain for wool in Argentina is especially long and expensive. Sheep are shorn using a very old clipping technique, which results in relatively high amounts of double-cut wool which discounts its value. Attempts to introduce modern shearing practices from Australia and New Zealand have not been successful. Only in the large flocks is wool sorted and classified by grade prior to sale and the trade must deal with a large volume of small, highly variable shipments. Various degrees of wool processing have been encouraged by a sliding scale of export taxes, with many intermediaries and traders involved. The result is that the producer receives about 50% of the final export price. In an attempt to rationalize the market chain and increase producer returns, wool-marketing cooperatives have been established. These are associated with a wool-testing laboratory run by INTA at Bariloche. These cooperatives provide a promising approach to improving the marketing system, but currently account for only 4Z of marketed wool. 191. The large and attractive potential for increasing sheep production in Argentina over the next decade centers on greater recognition of the priority of wool exports as a source of foreign exchange earnings, strengthening the wool marketing system, and providing more technical support to the industry. D. The Poultry Industry 192. The poultry industry is now highly integrated and over the last ten years has shown that it can respond to market forces and improve its productivity. There is still potential for improving feed conversion in the broiler industry, thus reducing further production costs. This would require the promotion of lighter broilers. The removal of beef export taxes, as well as other factors that would result in higher beef prices will permit higher prices for poultry and at the same time transfer some of the demand from beef. ANNEX 3 Page 42 of 64 193. As a major grain exporter with a low grain production cost structure, Argentina should be able to produce poultry as cheaply or cheaper than any competitor operating under open market conditions. However, major exporting countries are subsidizing their production, so that FOB prices for poultry meat are relatively low, even below production costs. Without significant changes in subsidy policies of the EC and the US, prospects for profitable pioduction for export are very limited. Even so, there might be a potential for export of selected cuts. E. Increasina Pia Production 194. As already mentioned, the main problem is the low level of productivity due to: (a) lack of knowledge by the farmer of modern production techniques; (b) lack of planning for the various steps of the production cycle partially caused by lack of on-farm recording systems; and (c) a primitive feeding system. Price instability caused by the oligopolistic processing industry does not promote intensification. Marketing by live weight, where price is not really dependent on carcass conformation and quality, is also a disincentive. 195. If potential gains in productivity and lower production costs could be realized, pork could compete with beef. With availability of on-farm investment credit, pig production could be developed to substitute partly for beef. This would require: (a) introducing a carcass-grading system and promoting sales on this basis; (b) developing extension activities to spread technology; (c) stimulating genetic selection of breeding stock; and (d) promoting a producers' association to encourage the production of improved breeding stock and balanced feed. F. Dairy Industry Investment 196. The fact that Argentina's dairy industry is structured such that farms have to produce milk year-around using pastures as their basic feed is probably the single most important influence on the industry. Although the percentage of milk produced during the winter period is steadily increasing, there is still much room for improvement. Moreover, most improvements for winter feeding require on-farm investments of some magnitude. The improvement of milk quality at the farm level is also crucial. The industry as a whole seems to be aware of this and has begun to take steps to encourage farmers to improve quality. This will become even more important as Argentina attempts to consolidate its export market. 197. There is also a need for investment in farm machinery as much of it is outdated. Some assistance may come from a recent Bank loan (para. 77), but farmers will continue to be reticent to invest if the financing costs remain high. Although extension has shown much promise, its benefits still have not reached many farmers. Extension and research both have important roles to play, especially for the small farmer, given that 50Z of Argentina's dairy farms only produce 300 liters of milk per day or less. Inevitably, small, inefficient farms will be forced out of milk production. In addition, in a few cases, owners of medium-sized farms with low milk production may have to consider giving up their share-milker and take over the milking themselves if they cannot increase production. ANNEX 3 Page 43 of 64 198. At the dairy industry level, the buying-out of small firms by larger firms is likely to continue. However, attention will have to be also kept ou the two large firms. SANCOR is said to be overstaffed, which could become a cost problem in the near future. La Serenisima is said to have suffered from overinvestment in industrial capacity that has not yet been fully utilized. There is also concern that a city as large as Buenos Aires should not depend so heavily on a single supplier of fluid milk. 199. Finally, over the long term, Argentina will have to lower its overall cost of production if it wishes to export an increasing share of its milk production. The US and EC stockpiles of dairy products, though gradually diminishing, will continue for some time, and both will probably retain some form of subsidy in the near-term. In addition, other countries such as New Zealand and Uruguay have lower costs of production. However, price reduction does not seem an impossible task given the tremendous potential Argentina has for milk production. G. Institutional Strengthening 200. Development of Industry Institutions. The meat industry institutions comprising JNC, SENASA, and the research bodies (INTA, INTI and the universities) all undertake activities designated by Government. Areas of duplicated effort and inefficient manpower utilization exist. A detailed study of the future roles of these institutions should include the following aspects: (a) export promotion in cooperation with the meat-processing industry; (b) the potential cost-savings and efficiency imprrovement that would result from SENASA taking over all necessary roles currently undertaken by JNC in livestock markets, slaughterhouses, and the inspection of export meat shipments prior to embarkation; (c) the possible abolition of the present carcass grading system on the grounds that it is seldom used for any effective purpose by the industry; it is possible to revitalize the system; if farmers can be persuaded to sell their animals on a carcass-weight/ carcass-grade system; steps should be taken to develop electronic livestock markets; (d) the revitalization of the formally-excellent but now out-of-date industry statistics system operated by JNC for red meats. This could include combination with the less-comprehensive system operated for poultry meats by SENASA; (e) whether the present role of industry financial support undertaken by JNC would be better undertaken directly by SAGyP; and (f) whether government-funded meat processing research i3 necessary, given the ready availability of information from research bodies in other countries (e.g., Australia, New Zealand, Denmark, the UK); and the possil-ilities of achieving cost savings and improving effectiveness by combining the activities of the four institutions now involved in this field. ANNEX 3 Page 44 of 64 201. Low Level of SENASA Resources. A major problem is the very low level of salaries and the lack of career development prospects in the civil service. The proposed new status of SENASA might help since most activities can be charged to beneficiaries, thereby generating income (e.g., from meat inspection, vaccine quality controls). In addition to the staffing problem, SENASA lacks resources: office equipment, computer and communication equipment, modern laboratories, and ill-equipped field offices. 202. Unsatisfactory Programs of Work. The interactions between SENASA, provincial services, INTA, and the producers are still too limited. The potential for joint action is illustrated by the Ayacucho pilot program. It is also clear that too much of the activity is still geared almost exclusively towards FMD control, particularly in the field. There are eight other on-going programs; apart from the tick control program, their actual importance is much more limited. The basic knowledge required to formulate medium- to long-term disease control plans is available. Indeed, such plans were part of a 1985 project, but only for FMD, ticks, and brucellosis. Obviously, there can be only limited interest in developing such plans if resources are unavailable. 203. Production of PMD Vaccine. The production of the oil-added FMD vaccine is progressing slowly and is a major c.nstraint to the development of a comprehensive control plan. The prospect of a reduced number of vaccinations per year and the possibility of eliminating vaccination all together in the longer-term are clearly not attractive to vaccine producers. .. Studies 204. The current situation with regard to the meat industry is outlined in a series of reports on industry development. Future studies should include: (a) determination of the most appropriate organization and funding system for meat export promotion; (b) investigations into the extent to which Argentina should produce finished rather than intermediate meat products for export and the extent to which investment in production facilities for advanced products such as ready meats would prove to be financially attractive; (c) in cooperation with government institutions, and the private. sector, formulation of definitive proposals for the development of reduced-cost systems of livestock and meat commerce; (d) appropriate roles for government institutions, with particular emphasis on avoiding duplication of effort by JNC and SENASA and on the most effective use of present staff; and (e) the need for and appropriate roles of nationally-organized meat process research activities in INTA, INTI and the universities. ANNEX 3 Page 45 of 64 VII. PROPOSED STRATEGY A. Overall Stage Is Additional Studies 2C5. Studies should be directed to provide detailed cost and potential benefits for each of the subsectors concerned, together with the most appropriate sources of finance. In the current Argentine circumstances, IICA may be the most appropriate group to undertake this work; moreover, domestic funding for this activity would be difficult to obtain. Stage II: Implementation of Promotional and Institutional Change Methods 206. In principle, additional costs of measures proposed should be funded by levies imposed on the meat industry or by the Government. Stage III: Meat Industry Capital Investment 207. While caution should be exercised when providing investment funds, success in export promotion and the capture of additional export markets could generate a substantial need for investment capital based on a strongly developed framework for overall industry expansion. B. Subsector Focus Enhancing Cattle Production 208. There is no special government policy concerning cattle production, although the problems are well known. External support can assist cattle production in two ways. The World Bank's Agricultural Credit Project II (Ln. 2970-AR) is providing investment funds. A proposed animal health project still would assist cattle breeders and should have a positive effect on productivity. When designing the project, thought should be given to how technical knowledge and practical advice will be passed along to the farmer an. even more to the point. his foreman. Sheep Industry: Wool Marketing and Investment 209. Three immediate opportunities exist: (a) giving wool the status of a major commodity in the current study of marketing arrangements; (b) supporting a regionally-based, wool-production investment project in southern Argentina; and (c) providing assistance to INTA to strengthen the support services available to the sheep industry. ANNEX 3 Page 46 of 64 Dairy Industry Funding 210. Argentina is developing its own basically sound strategy for strengthening.the milk industry, based on increased efficiency on farms and in plants. Over the long term, costs will have to be lowered even more to produce more milk for export. Above all, Argentina, within current macroeconomic constraints, must continue to reduce price volatility and maintain stable subsector policies. External support could be sought in three areas: (a) on-farm investment, especially in farm machinery and artificial pastures, is being encouraged by the Agricultural Credit Project II; (b) plant expansion, such as for new cheese-making facilities or plant rehabili,ttion, may be possible through an agroindustries project; and (c) a still-to-be-appraised small local project, such as financing the growth of regional milksheds, may be possible through a provincial agricultural development fund also at the identification stage. C. Institutional Strengthening: Technical Services 211. Support is needed to finance an Agricultural Services Project that would include a national animal disease control plan. Animal diseases are among the major factors that affect livestock productivity. More effective disease control programs can be designed on the basis of available information, particularly for FMD, brucellosis, ticks and control of other parasites. The various disease control programs should be designed by SENASA with the participation of the provinces, INTA, private veterinarians and the producers. Most of the costs could be recovered from the producers once they understand the commercial benefits of the programs. Improving the control of animal diseases might be the only practical way to increase livestock productivity and production without requiring on-farm investment. Prime targets will be cattle, but sheep, pigs, horses, and poultry would also benefit. 212. SENASA requires major strengthening to manage such programs in the form of improved physical facilities and equipment (laboratories for diagnosis, quality control of vaccines and pharmaceuticals, quality control of export products, quarantine facilities to prevent the introduction of exotic diseases; information and communication systems for epidemiological vigilance; field offices), training and technical assistance. 213. For operating the various disease-specific control programs, financing would be required to cover the start-up phase and afterwards for revolving funds that would be replenished through cost-recovery mechanisms. Private veterinarians should also be involved, and disease-specific programs could progressively evolve to include sanitary herd management. 214. Additionally, INTA has an established capability in several aspects of biotechnology and is now considering consolidating these activities in a new "Biotechnology Institute* to be created within the ANNEX 3 Page 47 of 64 existing overall framework of INTA. INTA would need valuable assistance to establish this institute. It will, however, call for equity financing and require new flexibility and innovation by the external donors in supporting this initiative. D. On-Going Preparation and Proposed Follow-Up 215. SENASA-IICA. An institutional development proposal to strengthen SENASA that would include investments in laboratories, quarantine facilities, information and communication systems, office infrastructure and equipment, and training and technical assistance, has been prepared by SENASA for external financing. 216. Proposed Central Laboratory. Canada (CIDA) is financing a two-step study of a new central veterinary laboratory that would probably be located next to CICV at Balcarce. ANNEX 3 Page 48 of 64 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 1: Evolution of Beef Production in Argentina, 1914-1988 Beef Production Consumption Human Domestic Export Total Domestic Export Per Capita Population Year ........(000 tons)....... z z per year (million) 1914 496 445 941 53 47 63 7.917 1915 487 451 938 52 48 60 8.072 1916 438 585 1023 43 57 53 8.226 1917 467 620 1087 43 57 56 8.374 1918 465 851 1316 35 65 55 8.616 1919 431 580 1011 43 57 50 8.672 1920 416 425 841 49 51 47 8.861 1921 488 407 895 55 45 54 9.092 1922 740 544 1284 58 42 79 9.368 1923 929 732 1661 56 44 96 9.707 1924 941 981 1922 49 51 94 10.052 1925 976 854 1830 53 47 94 10.358 1926 917 744 1661 55 45 86 10.652 1927 865 844 1709 51 49 79 10.965 1928 863 670 1533 56 44 76 11.282 1929 863 618 1481 58 42 74 11.590 1930 872 622 1494 58 42 73 11.892 1931 839 520 1359 62 38 69 12.160 1932 851 525 1376 62 38 69 1.400 1933 933 502 1435 65 35 74 12.610 1934 992 519 1511 66 34 77 12.800 1935 1008 524 1532 66 34 77 13.000 1936 996 587 1583 63 37 75 13.200 1937 1066 659 1725 62 38 79 13.400 1938 1081 609 1690 64 36 79 13.700 1939 1106 700 1806 61 39 79 13.900 1940 1095 595 1690 65 35 77 * 14.100 1941 1102 752 1854 59 41 77 14.300 1942 1003 722 1725 58 42 69 14.000 1943 972 631 1603 61 39 65 14.900 1944 1020 599. 1619 63 37 67 15.200 1945 1082 374 1456 74 26 70 15.500 1946 1239 443 1682 74 26 79 15.800 1947 1381 643 2024 68 32 87 16.100 1948 1486 472 1958 76 24 92 16.200 1949 1532 467 2003 77 23 93 16.400 1950 1615 429 2044 79 21 96 16.700 1951 1623 256 1879 86 14 95 17.000 1952 1513 275 1788 85 15 87 17.300 ANNEX 3 Page 49 of 64 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 1: Evolution of Beef Production in Argentina, 1914-1988 (Continued) Beef Production Consumption Human Domestic Export Total Domestic Export Per Capita Population Ye ........('000 tons)....... z z per year (million) 1953 1535 230 1765 87 13 87 17.641 1954 1684 231 1815 87 13 88 17.951 1955 1732 415 2147 81 19 95 18.266 1956 1873 602 2475 76 24 101 18.587 1957 1873 586 2459 76 24 99 18.913 1958 1894 647 2541 75 25 98 19.243 1959 1427 517 1944 73 27 73 19.583 1960 1508 385 1893 80 20 76 19.927 1961 1749 396 2145 82 18 86 20.248 1962 1834 545 2379 77 23 89 20.564 1963 1974 731 2605 72 28 90 20.885 1964 1435 584 2019 71 29 68 21.213 1965 1493 502 1995 75 25 69 21.544 1966 1735 586 2321 75 25 79 21.880 1967 1825 697 2522 72 28 82 22.221 1968 1954 607 2561 76 24 87 22.566 1969 2115 768 2883 73 27 92 22.917 1970 1956 668 2624 75 25 84 23.364 1971 1507 494 2001 76 24 63 23.778 1972 1485 706 2191 68 32 61 24.189 1973 1612 536 2148 75 25 66 24.612 1974 1857 306 2163 86 14 74 25.043 1975 2172 266 2438 89 11 85 25.481 1976 2277 534 2811 81 19 88 25.961 1977 2309 605 2914 79 21 87 26.420 1978 2434 712 3146 77 23 90 26.890 1979 2322 698 3020 77 23 85 27.370 1980 2391 448 2839 84 16 86 27.860 1981 2420 519 2939 82 18 85 28.380 1982 2031 520 2551 80 20 70 28.860 1983 1975 415 2390 83 17 67 29.350 1984 2308 250 2558 90 10 7 29.900 1985 2490 260 2750 90.5 9.5 82 30.400 1986 2620 250 2870 91.3 8.7 85 30.900 1987 2413 287 2700 89 11 77 31.400 1988 2268 300 2!68 88 12 73 31.900 AAiNEX 3 Page 50 of 64 „ ` r; v М М К S Ч М Ч й •• � .. .� < � s � � к � � м а � е � '�пв � g . �� � $ �S � � � $� $� �� ' �;� . , : � , . , . . . . . . ..... . . . . . . ... ... ... . � ~ � $ л R� У Ч а бi � � 1W � � � � �О 01 � W Ч� N V� � • .l и .• � 8 К S: в а = � � � � ��в�� � � � � � � ��� �6� ��� � � � � � � � � � � � � � � � � � � F � � $r О � О Ч � � � .. _ � < -f и � �� °8��������� $�� �$� ��b'�� � � уΡ рΡрΡ 8 � ь � � � V а0 � Ф� � W lФ � � � Ф Ф йD О О� О♦ М � • S Г н а � � = i ; $ О . � � � $ r � �w � � � � � � � � б � Ф � � � v � � � � -1 � � 4i 1+ • t � � � �и �'v о �� � � � 63 � 13 а �о� � �{� � � � � i � ы s� Ф Ф W N Ф в� Ф� � � � � � � iR Ф� О О� Ф•� � 10 � � • Ov • � �g � й ° �а о$vРй� � � � � R � 8�� SS� о $� _ :� � Go Чq �rрΡ�рΡ h ♦ ь� О$ а W Z V Q � � N Ф � bY � РУ � � � � М Ф � Vi W � М � � � � � � � : � S��9i� � � � � � � Ж � � Р�� ��� � . _� уΡ g� _ Ф р1 � Ф д Р N � � � � � 10 � (д •1 � � О 1У� О � � � И ANNEX 3 Page 51 of 64 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 3: Herd Size and Beef Production, 1976-1988 No. of Stock No. of Cattle Average Carcass Year (at 6/30) Slaughtered weight eef Production (millions of head) (kg) (thousands tons) 1976 58,2 13.9 203 2.811 1977 59.1 14,7 198 2.914 1978 58,4 16,3 194 3.146 1979 56.9 1512 198 3.020 1980 55.8 13.8 205 2.839 1981 54.2 14,6 200 2.939 1982 52.6 12,4 206 2.551 1983 53.8 11.4 212 2.390 1984 54,6 12,3 208 2.558 1985 54,0 13.7 200 2,750 1986 52.7 14,0 205 2.870 1987 51.0 12,8 211 2.700 1988* 50,5 12,0 214 2.568 Forecast Source: JNC AGRICULTURAL SECTOR REVIEW Table 4: Distribution of Sheep (million head) 1947 1969 1974 1977 1986 5 5 5 5 I REGIONS STOCK STOCK STOCK STOCK STOCK 1.1 PATACONIA 19.57 88.2 17.95 37.9 18.59 17.8 18.13 51.5 14.23 64.5 I.1 NeuquAn 0.69 1.7 0.68 1.4 0.65 1.9 0.71 2.9 9.57 2.2 1.2 Rio Negro 8.47 6.8 3.18 8.6 2.89 8.9 3.25 9.2 1.97 7.5 1.8 Chubut (*) 18.48 26.8 5.88 11.7 5.71 18.5 6.12 18.2 5.02 19.2 1.4 Sto. Cruz 7.91 11.6 6.98 17.6 6.29 17.9 6.19 19.9 1.6 T. del Fuego 0.69 1.7 0.72 1.5 9.08 2.5 9.73 2.1 0.74 2.8 II. BUENOS AIRES 16.80 31.8 19.04 89.3 10.69 80.8 9.42 26.7 6.80 22.2 11.1 C. del Salado G/d s/d 4.71 9.7 2.84 8.2 2.56 7.3 1.58 8.9 11.2 South of BA s/d s/d 10.78 22.2 8.65 19.2 5.82 16.5 8.58 18.6 11.8 Rest of BA s/d s/d 8.55 7.8 1.29 8.4 1.04 8.9 0.70 2.7 III. LITORAL 6.81 11.9 4.35 9.9 8.55 19.2 8.69 10.2 8.08 11.8 111.1 Corrientes 2.78 5.4 2.17 1.6 2.17 6.8 2.19 2.95 7.8 111.2 E. Rros 2.86 5.8 2.18 1.6 1.88 1.9 1.10 1.0 0.99 3.8 SUBTOTAL REGIONS 41.47 81.0 41.84 86.8 89.68 88.9 81.14 88.4 28.06 88.8 REMAINDER 9.71 19.9 7.11 14.7 3.86 11.1 4.08 11.6 8.98 11.7 TOTAL 61.17 199.0 40.45 199.0 84.89 100.6 35.22 199.99 26.11 100.1 OQ t Source: Consos Agropecuarlos, Informe mensual estad(stico, FLR MD (*) Includes the provinces of Chubut and Santa Cruz In 1947 0 1-h CA ANNEX 3 Page 53 of 64 ARGENTINE AGRICULTURAL SECTOR REVIEW Table 5: Indicative Data for the National Dairy Herd Number of milk cows 2.2 million Cows in lactation/year 65-702 Percentage of cows under artificial insemination 15% Calving interval Over 400 days Age of heifers at first calving 36 months Cow culling rate 20-25% Milk/lactating cowlyear 2000 liters Percentage of cows receiving concentrates About 90Z Argentina's total milk production in 1987 6300 million liters Source: Mission data, May 1988. ANNEX 3 Page 54 of 64 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 6: Canales de Comercialización del Ganado para Faena FRa, uRIFICO CARNE - SUPERMERCADOS U REMATE FERIA R A GRA MERCAOS e£ CAi CONCENTRACI10N MATARIFE - CARNICERO - VI EN DESR4ROLLO CO-4 PRESTiCIoi DE ERVIC§OS POR FRICORIFICO Y SUPERMERCADO (MARCA PROPIA) SOURCE: l(A ANNEX 3 Page 55 of 64 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 7: Evolution of Livestock Marketing Systems for Slaughter Cattle (Percentage of Total) CENTRAL LIVESTOCK MEAT AUCTIONS LIVESTOCK AUCTIONS DIRECT (CONSIGNACION UNREGISTERED PERIOD MARKETS (REMATE FERIA) SALES DE CARNES) SALES TOTAL 1960-54 34.9 27.2 18.8 - 19.6 1% 1955-59 27.8 28.6 83.9 - 12.8 100 1980-64 87.4 82.8 11.5 - 18.3 10 1965-69 386.7 32.5 10.2 8.0 17.5 10o 1970-74 25.2 86.1 18.2 8.1 22.1 100 1976-79 22.5 30.6 11.0 3.4 82.4 10 1980-84 24.8 80.4 18.8 5.0 23.2 le 1987 20.5 22.9 22.0 8.1 26.5 16o Source: Derived from JNC data AN~NEX 3 Page 56 of 64 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 8: Wool Clip by Fineness Fine Fine Cross Medium Coarse Total Year (tons) 2 (tons) I (tons) Z (tons) z (tons) 1970 50000 2.86 75000 42.9 10000 5.7 40000 22.9 175000 1971 48000 29.0 70000 42.3 9300 5.6 38000 23.0 165300 1972 44500 29.3 60000 43.4 8000 5.3 33500 22.0 152000 1973 47000 30.1 73000 46.8 7500 4.8 28500 18.3 156000 1974 48500 31.1 71500 45.9 7500 4.8 28300 18.2 155800 1975 48600 32.2 69000 45.7 7000 4.6 26300 17.4 150900 1976 50000 32.1 72000 46.2 7000 4.5 27000 17.3 156000 1977 48350 31.9 68000 44.8 7750 5.1 27650 18.2 151750 1978 51150 34.0 66500 44.2 7250 4.8 25550 17.0 150450 1979 62620 42.1 60605 40.7 8030 5.4 17480 11.8 148735 1980 60720 40.8 60605 40.8 8980 6.0 18360 12.3 148665 1981 60720 41.4 60005 40.9 8580 5.9 17360 11.8 146665 1982 53550 36.2 58140 39.3 19890 13.5 16292 11.0 147872 1983 51521 39.6 50187 38.6 15810 12.1 12662 9.7 130180 1984 56097 41.7 50920 37.8 15726 11.7 11934 8.9 134677 1985 45000 32.8 44400 32.4 25700 18.8 21900 16.0 137000 1986 53500 38.2 46500 33.2 23100 16.5 16900 12.1 140000 ANNEX 3 Page 57 of 64 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 9: Relative Producti.on of Greasy Wool, 1983-1986 Z of Total Production ('000 tons) Australia 27 815 USSR 16 480 New Zealand 12 370 China 6 183 Argentine 5 150 South Africa 4 105 Uruguay 3 71 Others 26 800 Total 2970 ANNEX 3 Page 58 of 64 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 1: World Exports of Frozen Sheep Meat by Orlain ('090 tons) 1945-49 1950-54 1956-69 1969-64 1965-69 1970-74 1976-79 1982-84 1985 New Zealand 259.0 223.0 280.0 849.0 398.0 415.6 403.0 495.4 496.5 Australia 6.0 67.5 62.0 74.0 108.0 176.0 12'.0 187.6 92.0 Argentina 94.0 49.0 48.5 32.5 40.6 22.0 64.8 13.6 7.4 Uruguay 6.0 9.7 8.6 1.2 11.2 7.8 4.5 11.9 5.7 UK 2.9 1.2 2.0 2.9 5.8 20.4 38.2 41.9 48.3 Bulgaria - - - - - - - 21.6 21.1 Irish Republic - - - - - - - 15.7 23.9 Others 18.1 82.8 19.9 80.4 50.4 84.5 133.7 128.3 123.1 TOTAL 480.0 408.0 408.0 490.0 8609.0 725.0 761.0 885.8 818.0 Source: FAD Trade Yearbooks ANNEX 3 Page 59 of 64 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 11: Exports of Sheepmeat (tons) Year Chilled and Frozen Processed Total 1970 37297 311 37608 1971 18237 539 18776 1972 14921 68 14989 1973 26215 85 26300 1974 19243 92 19335 1975 21988 31 22019 1976 27147 85 27232 1977 29686 150 29836 1978 25923 415 26338 1979 23754 61 23815 1980 11833 13 11845 1981 14244 83 14327 1982 16079 88 16167 1983 15523 22 15545 1984 10158 94 10252 1985 7438 85 7523 Source: JNC ANNEX 3 Page 60 of 64 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 12: Meat Coasumption (Kg per person per year) Cattle Pig Sheep Poultry Total 1935-39 78.0 7.9 9.7 NID 95.6 1940-44 71.0 12.0 7.4 NID 90.4 1945-49 84.3 9.3 8.4 NID 102.0 1950-54 90.8 7.4 7.2 NID 105.4 1955-59 93.2 8.1 6.4 N/D 107.7 1960-64 81.7 7.7 5.8 N/D 95.2 1965-69 81.9 8.6 5.9 NID 96.4 1970 84.0 8.7 5.7 7.5 105.9 1971 63.8 10.2 6.6 8.4 89.0 1972 61.9 8.8 4.7 8.0 83.4 1973 66.2 9.8 4.1 7.9 88.0 1974 75.8 9.5 3.5 10.6 99.4 1975 85.3 9.7 3.8 10.4 109.2 1976 87.7 9.2 3.4 10.0 110.3 1977 87.3 8.9 3.4 10.1 109.7 1978 90.5 7.9 3.3 11.1 112.8 1979 84.8 9.4 3.6 11.8 109.6 1980 85.8 9.5 3.3 14.0 112.6 1981 85.3 8.9 3.2 15.6 113.0 1982 70.3 8.0 3.0 15.8 97.1 1983 67.2 7.0 3.0 15.9 93.1 1984 79.0 9.5 3.0 16.9 108.4 1985 90.0 9.0 2.6 15.6 117.2 1986 78.6 5.9 3.2 16.0 103.7 Source: JNC and INDEC ANNEX 3 Page 61 of 64 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 13: Evolution of Poultry Meat Production in Argentina Year Population Per Capita Production (millions) (Kg) ('000 ton) 1970 23.364 9.4 226 1971 23.773 10.4 259 1972 24.289 10.4 259 1973 24.612 9.6 241 1974 25.043 11.8 300 1975 25.481 11.6 301 1976 25.965 9.9 267 1977 26.427 10.3 288 1978 26.897 8.0 218 1979 27.376 7.5 208 1980 27.863 7.9 223 1981 28.358 9.4 269 1982 28.863 8.4 245 1983 29.377 9.5 286 1986 30.900 11.5 355 1987 31.400 13.5 425 1988* 31.900 15.5 494 * Estimate Source: Derived from JNC data. Table 14: Evolution of Poultry Meat Production in Argentina Year Population Per capita Production (millions) (kg) (000 ton) 1968 22.566 5.7 129 1969 22.917 5.9 135 1970 23.364 7.5 175 1971 23.773 8.4 200 1972 24.189 8.0 194 1973 24.612 7.9 194 1974 25.043 10.6 265 1975 25.481 10.4 265 1976 25.965 10.0 260 1977 26.427 10.1 267 1978 26.897 11.1 299 1979 27.376 11.8 323 1980 27.863 14.0 390 1981 28.358 15.6 442 1982 28.863 15.8 456 1983 29.377 15.9 467 1984 29.900 16.9 505 1985 30.400 15.6 474 ANNEX 3 Page 62 of 64 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 15: Market Share of Dairy Products (Z of volume of processod milk) PRODUCT SANCOR LA SERENISIMA NESTLE SUBTOTAL a/ Fluid milk 30 50 - 80 Powdered milk 39 16 24 79 Butter 46 22 - 68 Milk jam 23 13 - 36 Casein 56 - * 56 Cheeses 23 7 - 30 a/ The three largest firms. Source: 'La Lecheria Argentina, Un Andlisis Econ6mico", FUNDECO-CONICET, 1986; and SAGyP data. ANNEX 3 Page 63 of 64 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 16: Milk Production (1000 of liters) Milk for Total Milk for Fluid Milk Year Processing Consumption Produce 1970 2,443 1,630 4,073 1971 3,040 1,640 4,680 1972 3,573 1,665 5,238 1973 3,404 1,660 5,064 1974 3,457 1,676 5,133 1975 3,841 1.639 5,480 1976 4,082 1,543 5,625 1977 3,612 1,537 5,149 1978 3,536 1,520 5,086 1979 3,650 1,538 5,188 a/ 1980 3,542 1,605 5,147 b/ 1981 3,547 1,573 5.120 c/ 1982 3,946 1,541 5,487 1983 4,125 1,514 5,639 1984 3,806 1,566 5,372 1985 4,153 1,584 5,737 1986 4,486 1,627 6,113 1987 4,690 1,700 6,300 Note: During years 1980, 1981 and 1982, 207, 145 and 28 million liters respectively equivalent were imported as powdered milk. ANNEX 3 Page 64 of 64 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 17: Milk Exports Year US$ Liquid Milk Equivalent (million) (million liters) 1975 28.7 163 1976 63.4 529 1977 55.3 320 1978 47.0 241 1979 22.0 68 1980 28.7 59 1981 33.6 40 1982 57.1 108 1983 51.9 107 1984 17.5 80 1985 17.2 72 1986 23.6 108 1987 17.3 60 Source: SAGyP ANNEX 4 ANNEX 4 ARGENTINA AGRICULTURAL SECTOR REVIEW HORTICULTURE SUBSECTOR Table of Contents Page No. I. BACKGROUND ................................................. 1 II. RESOURCE BASE .............................................. 1 A. Natural Resources ...................................... 1 B. Principal Crops ........................................ 2 Grapes ................................................. 2 Citrus ................................................. 3 Apples and Pears ....................................... 3 Stone Fruit ............................................ 4 Vegetables ........................................ .... 4 Speciality Crops ...................................... 5 III. TECHNICAL SERVICES ......................................... 5 A. Research .............................................. 5 8. Technical Needs ........................................ 5 C. Energy Resource Use .................................... 6 D. Human Resources Development ............................ 6 IV. MARKETING .................................................. 6 A. Location ............................................... 6 B. Marketing Economics .................................... 6 C. Domestic Market ........................................ 7 D. Exports ................................................ 7 E. Export Promotion ....................................... 8 F. Crops with Market Potential ............................ 8 V. INSTITUTIONS ............................................... 9 A. Cooperatives ........................................... 9 B. Trade Associations ..................................... 9 C. Industrial Institutions ................................ 10 VI. RECOMMENDATIONS ............................................ 10 List of Tables 1. Horticultural Crops Production, 1986/1987 ................... 12 2. Grape Production, 1986 ...................................... 13 3. Grape Crop Use, 1985 ........................................ 14 4. Per Capita Wine Consumption ................................. 14 5. Per Capita Fresh Grape Consumption .......................... 15 6. Premium Wine Grape Plantings, Argentina and California ...... 15 7. Fresh Citrus Consumption .................................... 15 8. Citrus Consumption .......................................... 16 Table of Contents (Continued) Page No. 9. Citrus Crops ................................................ 16 10. Citrus Production ............................ .............. 17 11. Production of Industrialized Products ....................... 18 12. Supply and Import from Selected Southern Hemisphere Countries ..................................... 19 13. Vegetable Production ........................................ 20 14. Fruit Producer Ecomomics: 1987 .............................. 21 15. Chile Grape and Fruit Returns 1987 Season ................... 22 16. Pro-Forma Export Consignment Table Grapes, December-March ... 23 17. Pro-Forma Export Consignment Apples, March-July ............. 24 ANNEX 4 Page 1 of 24 ARGENTINA AGRICULTURAL SECTOR REVIEW HORTICULTURE SUBSECTOR I. BACKGROUND 1. The horticulture subsector includes fruit, vegetables, and specialty crops such as tea and verba mate. The total value of horticultural crop production in 1987-88 was $1,063 million, or 23% of the value of all crops (Table 1). 2. Argentina has a long history of producing horticultural crops, mostly for the domestic market, but some crops have found export markets in Europe and the US. Sustained export growth of grapes, wine and apples has not occurred, although export of fresh citrus has been increasing since 1980. In general, Argentina has not taken advantage of expanding fruit and vegetable markets in the Northern Hemisphere, and market share in fresh fruit exports has been on the decline. Currently, growers, packers and marketers have expressed a desire to reverse this trend. 3. Horticultural crops are a small part of total agricultural production, but in certain provinces, represent a significant part of the local economy. For example, the surplus of common wine grapes in the Province of Mendoza combined with declining domestic wine consumption and a limited fresh grape export market for seeded varieties has created a severe economic problem, referred to locally as the 4grape crisis". Surplus wine results from as origins an inability to appreciate the transformation in the world grape and wine markets over the past 15 years and decreasing wine consumption in the domestic market. The result is that half of the 278,000 irrigated hectares of wine grapes in Mendoza and San Juan Provinces are superfluous to the domestic needs for common table wines. In contrast and over the same period, equ.valent grape-producing areas in Chile have been expanded to accommodate a rapidl7-growing, fresh grape industry. 4. Increased production opportunities also exist for crops such as fresh apples, pears, and citrus, as well as for processed products. Shortage of investment capital, exchange rate instability, limited access to international markets, and inadequate technology have combined to limit production expansion. The horticulture-based industries now need to invest to catch up in crops that typically have a 4 to 7-year production lag. Remedies include careful assessment of future market opportunities, determining comparative advantage, and mobilizing long-term investment capital. II. RESOURCE BASE A. National Resources 5. The soil and water, resources and climatic diversity of Argentina create both irrigated and rainfed production zones capable of producing a wide variety of fruits and vegetables. Low rainfall and low humidity ANNEX 4 Page 2 of 24 typical if arid zones combine with low-cost irrigation to create an ideal environment for fruit and vegetable production. The two risk factors are summer hail and spring frosts, particularly in Mendoza. 6. Location in the Southern Hemisphere is the principal comparative advantage of Argentina. Although about 90Z of the world's fresh apple, citrus and table grape production is produced in the Northern Hemisphere, the increasing market for year-round fresh fruit and vegetables provides a tremendous opportunity for Southern Hemisphere countries like Argentina. 7. The abundance of natural resources translates into a cost structure lower than many Northern Hemisphere countries. Irrigated land is available for US$500-1000 per ha, water cost is US$20-30 per ha per year, and agricultural labor costs range from US$4-7 per manday. However, the cost of pesticides, herbicides, and seeds is usually higher than in Northern Hemisphere production areas. In contrast, the growth in horticultural crops in Chile has dramatically increased irrigated land values as land and water constraints restrict expansion. The principal horticultural crops are listed in Table 1. Only major vegetable crops are listed; the category of vegetables encompasses a wide range of products that varies considerably from year to year. B. Principal Crops Grapes 8. The principal prouction area for grapes is irrigated land in the Provinces of Mendoza and San Juan (Table 2). Some 97Z of the crop is converted to wine (Table 3). The area has a long history of being the principal source of low-cost common table wine for the domestic market. Since 1970, per capita demand has gradually decreased, while demand for premium wines has increased. At the same time, per capita fresh grape consumption decreased from 12.59 to 2.28 kg in 1985 (Tables 4 and 5). 9. These is some indication of adjustment taking place in the wine industry, marked by the closing of obsolete bulk wine-making facilities and the construction of modern facilities for producing fine wine. On the other hand, there is little evidence of vineyard conversion from obsolete, seeded wine grape varieties to seedless table grape varieties, although limited Thompson Seedless planting have been made in the Province of San Juan. Industry sources estimate that half the 262,000 ha of grapes should be removed or replanted with new varieties. 10. New plantings of varietal grapes have been made by larger wineries interested in export, but there is still considerable replanting required, as both the domestic and export market now require higher quality fine wines. Table 6 indicates the difference in var!etal plantings in Argentina and California. Areas such as Rio Negro have excellent potential for increasing fine wine production, although it is reported than only one winery-in the region is doing so. Moet-Chandon, the large multinational wine producer, believes the Rio Negro Valley has excellent prospects for champagne-type and white wine varieties. 11. The almost exclusive focus on wine production has kept Argentina from participating in the rapidly expanding market for seedless table grapes. Chile, the principal supplier to the world market in the region, ANNEX 4 Page 3 of 24 is exporting over US$500 million of seedless grapes to the US and the EC. Although Argentina is behind, the market still shows growth potential and is large enough so that several suppliers could participate. Also, while fresh grape consumption in the local market has decreased dramatically (Table 2), this suggests that an opportunity may exist to increase local consumption by supplying a higher quality product. The current quality of fresh grapes sampled in the market was generally poor. Citrus 12. The principal citrus production area is in the Mesopotamia region (Entre Rios, Corrientes and Misiones Provinces). with 92,000 ha mostly under oranges and mandarins. This region produces two-thirds of the citrus crop, with the Northwest region (Salta, Jujuy and Tucumin) producing over one-fourth of the citrus, principally lemons and oranges from a total of 36,975 ha. 13. About 5,000 producers on 140,000 ha (approximately one-half of the producers farm 20 ha or less) market through 400 packing houses and 18 processing plants. Although the domestic market shows little sign of growth, with per capita consumption slowly declining. (Tables 7 and 8) export of fresh and processed fruit is expanding (Table 9). A large world market exists for processed products in the form of frozen citrus concentrate. 14. Fresh citrus from Argentina is well accepted in Europe and additional quantities of grapefruit and navel oranges are being sought by European buyers. Argentine's processed exports, while small in relation to Brazil, can find a market for blending with other low-color concentrates. Producers of concentrate have ready access to modern processing equipment and technology. 15. The citrus industry has excellent potential for expansion but is constrained by the availability of the correct mix of varieties and quality. In turn, producers lack the financial and technical resources to replant or use optimal culture care programs. ADples and ?ears 16. The principal production sites are in the Provinces of Rio Negro and Neuqudn. The industry began 50-60 years ago and reached its peak yields and export totals in the late 1970s (Table 11). A total of 70,450 ha of apples and pears are located in a long but concentrated production area irrigated by the Rio Negro river. The average producer farms 10-20 ha, although the larger growers may own several farming sites. Mendoza also is an important producer of apples, although climate and soil do not provide as suitable a growing place as is found in Rio Negro and Neuqu4n. 17. The larger growers have integrated forward. The production area is now serviced by 195 packing-houses, most with cold storage and a small number with controlled-atmosphere storage. Sixty percent of the packing houses are fully integrated. Packing capacity is estimated to be 25 million cartons per season in Rio Negro and Neuqudn. Many of the larger packing houses that export employ up-to-date sizing, grading, and pre- cooling facilities, for which the equipment was manufactured in Argentina. ANNEX 4 Page 4 of 24 18. A market exists for more pears than are available, as quality and size are considered superior to many production areas. The principal pear varieties are Williams (Bartlett). P. Triumph, and D'Anjou. A key constraint for the apple producers is the heavy dependence on the Starking variety of Red Delicious, which now has a limited export market. It currently represents 62Z of production, compared to 3Z in Chile. The other principal variety is Granny Smith, in demand in the export market and with local processors. Replanting has begun with new imported varieties. However, over the next ten years one-half of the plantings will have to be renewed because of age or variety. Yields can be doubled by new and improved plantings, improved trellis systems, better varieties, and appropriate cultural care. 19. In the principal production areas, 13 apple concentrate processing plants provide a market for culled apples. In an average production year (such as 1988), excess capacity exists. In 1988, producers bid-up the price of cull apples to US$60-80/ton. If growers are to maximize returns, processing 45-50% of their apple crop would be too great a proportion. In fact, a fresh market grower should only have about 20-25Z culled apples for industrial purposes (Table 12). The abundance of the Starking variety may continue to provide a good supply of processing apples, although the Granny Smith variety is needed to increase the acid content to acceptable levels. Stone Fruit 20. Stone fruit, which includes apricots, peaches, plums, cherries, and nectarines, is grown principally for the local market and for processing into concentrates or via dehydration and canning. Export is almost non-existent. Good production areas exist in the Mendoza region and plantings could be expanded. Yields are low, particularly for peaches. This may indicate a lack of cultural care or an inability to market the entire crop. Hail and frost are limiting factors, and production sites must be carefully selected. 21. An export market does exist for the new improved varieties of these fruits. The varieties are also planted in a way to provide a long extended production season. However, export of stone fruit is as yet an under-developed industry, although one with good growth potential. Vegetables 22. The principal production are for vegetables is located in the Province of Buenos Aires, which has expanded to supply the largest single market in Argentina. Estimates are that approximately one-half of the domestic market for perishable fruits and vegetables is in greater Buenos Aires. 23. A wide range of vegetables is available, with seasons extended by production from both northern and southern parts of the Province (Table 14). Most farms are small, with limited post-harvest facilities. Pre-cooling is not used and quality deteriorates rapidly, especially in leafy vegetables. A limited amount of grading is conducted, with supermarkets increasing the demand for prepackaged, graded products. 24. Tomatoes are grown for processing in Mendoza Province, and opportunities exist to produce raw material at low cost and expand ANNEX 4 Page 5 of 24 processing and production. A new plant for onion and garlic dehydration was completed in 1987, principally for export. Export of fresh garlic, particularly to Brazil, was an expanding business in the 1970s but expanding Brazilian production has continued to shrink its market for imported garlic. 25. A small industry has started in the production of white asparagus and strawberries to be exported by air to Europe. Exporters are anxious to establish cooling facilities at Buenos Aires Ezeiza airport, to increase flexibility and improve quality. Speciality Crops 26. Tea and Yerba Mate. Two beverage crops, tea and verba mate, have a value of US$125 million and are important to the economies of Misiones and Corrientes Provinces. Tea is already exported, and indications are that an expanding export market in Asia exists for verba mate--a popular beverage in Argentina, Uruguay and Southern Brazil. Expanding market for yerba mate may require an additional 20.000 ha. Retail yerba mate prices in Buenos Aires are similar to the prices of imported coffee. Export of tea fell from US$40 in 1985 to US$22 in 1986, due to the decline in world tea prices. 27. Perishable Crops. The distance from the US and European markets restricts exporting perishable crops such as cut flowers. III. TECHNICAL SERVICES A. Research 28. INTA is the principal source of agricultural research. Large research institutions are found in the principal irrigated areas, and provinces often are served by multiple facilities. Knowledge of new apple. grape, citrus and stone-fruit varieties is available but commercial planting of new varieties are minimal. Effective mechanisms to disseminate the results of research and integrated research/production plans are limited. B. Technical Needs 29. Technology and access to technology are not limiting factors, although diffusion is a constraint. Market research is usually not considered an important component of research; hence, no institution is organized to conduct market research that would be useful in formulating national policies. 30. New varietal trials and selection should be accelerated if exports are to be expanded. More emphasis might also be given to integrated pest control management and use of biotechnology to reduce the use of pesticides and herbicides, for cost as well as environmental reasons. Apple growers indicate that agricultural chemicals are their single largest expense (6-7 sprays per year). 31. Further identification of micro-climates and environmental risks will be required to provide guidance for the development of fresh fruit for ANNEX 4 Page 6 of 24 32. Since the cost of irrigation is low, new land and crops could be developed by using center pivot irrigation systems. Crops such as alfalfa and vegetables in Mendoza and potatoes in Rio Negro would be possibilities if the center pivot approach were used. C. Eneray Resource Use 33. The opportunity to combine the use of low-cost agricultural raw material and low-cost energy resources in food processing in Mendoza, Rio Negro and Neuqudn should not be overlooked. Argentina has a 70-year reserve of natural gas and good hydroelectric resources. Food processing, particularly freezing and dehydration, are very sensitive to energy costs. 34. In California for example, the equivalent prices would be US$0.08/kwh versus US$2.70/mbtu for natural gas. The cost of energy in Mendoza for agriculture was reported to be US$0.016/kwh versus US$1.80/mmbtu. D. Human Resources Development 35. Argentina has a well-educated labor force, but technical education has been emphasized at the expense of marketing and business management. Hence, seminars in farm management, export management, market research and quality control could help alleviate this problem. Institutions to provide these types of seminars need to be identified. IV. MARKETING A. Location 36. Argentina's Southern Hemisphere location is its principal markot advantage, which shares with New Zealand, South Africa and Chile. All of these countries have good temperate fruit and vegetable production areas. Historically, New Zealand and Chile have been very aggressive in developing markets for their crops. South Africa has a long history in supplying the turopean winter market. 37. If Argentina is to regain the market share lost in crops such as fresh table grapes, wine, and apples, it must carefully analyze the markets, determine comparative advantage, transportation economics, and quality standards, and develop an overall market strategy. Generic promotion and advertising will be required to compete with other suppliers in its hemisphere. 38. A lack of attention to both domestic and international market trends and emphasis on production predominate, but there are some positive developments in the private sector that harbinger stronger marketing awareness in the near future. B. Marketing Economics 39. Production costs for irrigated fruit and vegetables are lower than most Northern Hemisphere production areas. Land, water, and labor costs are low by US and European standards; moreover, irrigated land prices are ANNEX 4 Page 7 of 24 one-third to one-half of the cost of similar land in Chile. 40. Yields are low for several reasons. Agricultural chemicals and other inputs may not be used because of cash shortages, depressed markets, or both. But the primary yield problem can be traced to the use of varieties that are out-of-date, in low demand, or yield limited quantities. 41. Table 15 presents a summary of grower returns related to crop use. Fresh market returns for seedless grapes provide growers with net incomes four to ten times higher than traditional, seeded varieties. In Chile, the grower return per hectare for a seedless variety (Thompson Seedless) is double the return of a seeded variety (Rebier) (Table 16); a similar difference exists between premium and common wine-grape varieties. The economic benefit of new varieties is clear; the principal constraint to changing varieties or crops is the cost of investment. 42. The large number of small producers have relatively low production costs (excluding interest costs). Future investment decisions must be based on: (a) cost of capital, (b) availability of packing and processing infrastructure, and (c) world market trends. Reintegration of these elements is required in investment decisions. World market trends will probably be beyond the small farmers' ability to assess. C. Domestic Market 43. The domestic market contains a wide variety of fresh fruits and vegetables. The relatively low prices and year-round access to vegetables is likely to restrict a significant increase in canned or frozen vegetable production. Only one frozen vegetable plant services the local market. Fresh fruit and vegetable loss is high as there is no pre-cooling and limited in-store refrigeration capacity. 44. Estimates are that one-half of the trade in domestic fruit and vegetables is in the greater Buenos Aires market. Buenos Aires is serviced by a new central wholesale market in operation since 1984, after 23 small, local wholesale markets were closed. The market is well organized: space is rented to 350 permanent producers, commission agents or wholesalers and other mostly seasonal sellers. The market provides direct access to buyers for growers and cooperatives. 45. Supermarket chains are developing and are now believed to have a 302 market share in Buenos Aires, but local green grocers continue to dominate the perishable trade. D. Exports 46. The large and affluent domestic market has historically restricted consideration and interest in exporting fruit and vegetables. In a noticeable shift from the late 1970s, the private sector is now seriously considering export markets. Currently, a large percentage of the apple (60Z) and citrus (45Z) crops are already exported as fresh or processed products. Grapes and wine are the exception with exports of only 3-4% of production. To enhance wine exports, fine wine producers have joined together and obtained US$1 million from the government export promotion fund (FOPEX). A promotion program for Argentive wines is taking place in n ir v-~1 TTQ &41-4 a ANNEX 4 Page 8 of 24 47. Innovation in export development is best illustrated by the promotion of yerba mate. The largest integrated producer (Las Marias in Corrientes Province) has developed an export market in Syria and future promotions are planned with Malaysian and Japanese companies. The apple and pear packers trade association (CAFI) has organized a marketing program for the US and contracted exporters now allow refrigerated ships tc be chartered for US markets. But Argentine exporters will need to expend more effort in making direct contract with buyers. The traditional consignment of apples and pears to auction in Holland is a sure way to secure the least favorable price for these commodities. 48. In general, Argentina must consider diversifying its markets that now are concentrated in the US and the EC. Brazil already is an important market for Argentine apples and pears, and in the long run should be a very important buyer of Argentina's temperate crops. Recently, a duty-free bilateral trade agreement was signed for processed food products. If successful, this could lead to expansion of the overall fresh fruit and vegetable trade to Brazil. The Japanese and USSR markets also offer long-term potential. E. Export Promotion 49. Principal laws and regulations governing exports are designed to control and not promote exports. For example, a government system of minimum export prices lacks the flexibility needed for the export of fruit and vegetables since they are commodities of considerable price volatility. Legislation to promote exports includes: reimbursement of value added taxes, temporary admission of imported components used in exporting (such as cartons for fresh fruit), and a 7Z rebate on products produced in Patagonia. 50. In a further effort to enhance exports, quality-control inspection of horticultural products is being implemented at the national and provincial levels. F. Crops with Market Potential Specific crops with good market potential include: Immediate Require Further Study Apricot Medium Season Table Grapes Red Delicious Apples Raisins Early Table Grapes Processed Tomato Products Premium (varietal) Wines Fresh Nectarines Fresh Asparagus Processed Potatoes, Dried Fresh Grapefruit Processed Potatoes, Frozen Fresh Navel Oranges ANNEX 4 Page 9 of 24 Fresh Peaches (new-varieties) Concentrates, Grape Concentrates, Apple Concentrates, Fruit Pulps V. INSTITUTIONS 51. The driving force for horticultural production is provided by private sector enterprises. Most horticultural export crops are produced by a combination of large industrial-scale processors or packers, grower cooperatives, or individual grower packers. The Provincial Government of Mendoza did acquire a large winery (GIOL). Unfortunately, GIOL attempted to support the wine-grape price in a declining market to the extent that the winery became a severe drain on the local economy. By supporting an inefficient industry, the provincial government inadvertently delayed producers' decisions to switch to new products to meet new market needs. 52. A number of private sector entities is emerging, especially those dealing with export-oriented commodities such as apples, where producers have formed an alliance to build and operate facilities especially designed for export. There is evidence in Rio Negro and Neuqudn that growers are forming consortia, specifically to conduct export marketing, grading and packing, storage and also to provide technical assistance to members. Examples are PAI, S.A. and CAPRI, S.A., both of Rio Negro. These are energetic groups of growers (some with professional managers) that want to expand exports; however, the availability of financing represents a major constraint to this initiative. A. Cooperatives 53. Cooperatives are strong for many agricultural crops, although in most ef the irrigated areas cooperatives do not assume a key role. Grower cooperatives work well for basic commodities but generally find the fast-moving fruit and vegetable export industry problematical. Many growers belong to an apple packing or vegetable cooperative but sell a large portion of their crop to private companies because the price is higher or payment faster. CONINAGRO has several cooperative members that deal principally with horticultural products. The strongest of the cooperatives appear to be the Yerba Mate producers, reflected by their initiative in developing export markets in the Middle and Far East. A number of wine cooperatives exists but most use outdated facilities, possess little capital, and lack ability to move into new products or markets. B. Trade Associations 54. Established agroindustries such as wine, apple, and pear exporters, and citrus processors maintain active trade associations. Their principal role is to collect statistics, disseminate information, lobby the government, and coordinate their activities. The apple and pear exporters association (CAFI) has helped six groups of exporters charter ships to seek ANNEX 4 Page 10 of 24 the best price for carton boxes. These associations generally perform well although, as in most trade associations, budgets are small and thus limit the scope of their activities. C. Industrial Institutions 55. Several small, integrated growers have expanded and emerged as major fruit packers and processors that are oriented to export. While plant and equipment is generally up-to-date in export enterprises, the resource base (orchards and vineyards) is limited in varieties. productivity, and quality. 56. # Capital investment from other non-agricultural industries has diversified into horticultural production or processing, particularly export busiaesses. This has occurred in wine and apple juice concentrate enterprises. For example, a construction firm has used tax credits to build a 3,000 ha grape, fruit, and vegetable production and processing complex in Mendoza. This company, Cartellone, recently completed a modern vegetable dehydration plant for garlic, onions, and other vegetables to take advantage of inexpensive labor, abundant resources, and low energy costs. 57. Foreign investors also are actively evaluating and seeking investments in the food processing sector: General Foods plans a frozen vegetable processing plant in Mar del Plata; Cargill and Conagra are already established and seeking new business opportunities; Castle & Cooke expressed an interest in investing in fresh fruit exports; and Zumos Argentinos, S.A., the largest juice processor (100,000 tons per year), is owned by a large German-based company (Eckes). Argentina is considered to be a more difficult country than Chile or Colombia in which to establish a business; however, a stable business environment and consistent government regulatory policies should attract even more foreign investors. VI. RECOMMENDATIONS Primary Recommendations 58. These include: (a) Investment in Horticulture Industry. Equity and loan capital are unavailable in sufficient amounts and at competitive interest rates. Investment is required in new varieties and orchards, packing, storage and processing plants, and equipment. The past ten years have seen only modest investment in new fruit, orchards, vineyards, and processing facilities (apple juice is an exception). Farms require new investment to participate in export crops. Equity ana debt capital from local and overseas sources should be mobilized. (b) Export Markets, Technology, and Financial Package. Obsolete horticultural varieties are planted in the majority of orchards and vineyards and yields are one-half of the Northern Hemisphere levels. Argentina has allowed other countries with similar resources to capture Northern Hemisphere markets. Clearly defined export projects should be developed initially for the export market ANNEX Page 11 of 24 and translated into a production/processing investment. Part of the problem is a lack of export experience or export mentality. The paucity of medium-term financing mechanisms restricts interest or ability to plan and execute a new export project. A unified institution should be created to evaluate agricultural opportunities, conduct market studies, prepare plans, and establish demonstration projects. (c) Development of International Quality Standards. The need to provide uniform fruit, packaged to meet the needs of specific country markets is not fully understood. Premium wineries are only just beginning to present products to the international market. In addition, there is little availability of market research and market projections or institutions that can interpret market research, prepare, and promote production/technology and market identification packages. Production trials and research should be performed to test proposed packages. (d) Marketing Plan. Argentina's export market image is poor. A sustained market development and image-building plan should be undertaken over a period of 5-10 years to support the fruit and wine industries. (e) Diversification of Crops. Over-concentration of crops in specific geographical areas has now created localized economic problems. The dependence of Mendoza and San Juan Provinces on common wines is an example. The apple juice processors in Rio Negro are concerned about their dependence on the US for 90% of export sales. New opportunities and crops should be identified and promoted. (f) Procedures. Simplified export procedures will encourage increased exports. Export procedures should be designed to promote exports rather than control them. Brazil is a natural, export market for Argentina's temperate fruits and vegetables but desires to restrict entry. Maximum effort should expended to increase entry into the Brazilian market. Secondary Recommendations 59. These include: (a) Port facilities at San Antonio de Este, built in 1984, are crowded during the export season. Dock and cold storage facilities should be expanded as the export industry expands. (b) Integrated production plans should be devised for both fresh and processed products. Processing of culled fruit/vegetables maximizes the growers' return and minimizes the processors raw material cost. (c) Expansion of Horticultural Exports. The Government should set a goal to expand horticulture exports, to about US$300 million in ten years and agree on a market plan and market position for Argentine products. (d) Institutional Development. This goal and other development goals should be supported with the formation of a marketing institution that has both public and private financial support. Local ANNEX 4 Page 12 of 24 financial support could come from a promotional levy on exports, phased out gradually as exports increase. This institution would have a charter to do research, hold seminars, invest in demonstration projects, and conduct promotional c.ampaigns. This institution would also be required to compete with similar institutions found in Chile, New Zealand, and Israel. (e) Market Analysis. A commercially-oriented, prefeasibility study of markets and production is required to develop goals for the expansion of horticulture exports. The work should be undertaken during a crop cycle (October to April). Specialists with commercial experience in citrus, apple/pear, table grapes, stone fruits, premium wine production, tomato processing, and garlic/onion production shorld be used to shorten the analysis process. ARGENTINA AGRICULTURAL SECTOR REVIEW Table 1: Horticultural Crops Production, 1986-87 A. Selected Fruit Crops Area Yield Production Price Value Harvested Mt/Ha (000Mt) $/Mt Millions Crop Ha (1) (2) (3)* (4) (5) Apples 52,800 20,417 900 132 118.8 Pears 17,850 14,123 170 204 34.7 Peaches 43,100 4,849 200 361 72.2 Mandarin 22,950 10,606 250 84 21.0 Lemon 21,670 22,197 490 72 35.3 Orange 51,500 12,099 620 120 74.4 Grapefruit 11.950 14,887 200 132 26.4 B. Selected Vegetable Crops Area Yield Production Price Value Harvested Mt/Ha (000Mt) $/Mt Millions Crop Ha (1) (2) (3) (4) (5) Potato 100,000 20,000 2,300 50.4 115.9 Tomato 37,400 21,755 820 120 98.4 Peppers 6,220 9,003 90 192 17.3 Onion 4,430 20,214 300 134.4 40.3 Garlic 7,286 5,023 35 528 18.5 ANNEX 4 Page 13 of 24 C. Selected Industrial Crops Area Yield Production Price Value Harvested Mt/Ha (000Mt) $1Mt Millions Crop Ha (1) (2) (3) (4) (5) Grapes 281,850 13,089 3,689 69.12 248.4 Tea 36,800 5,295 173 138.7 24.0 Yerba Mate 105,450 3,467 135 764.4 103.2 Source: Columns (1) and (2): SAGyP data. Columns (3), (4), and (5): CONINAGRO data. Table 2: Grape Production, 1986 Province Area 2 (ha) Mendosa 199,134 70.20 San Juan 59,000 20.80 All Other 25,539 9.00 Total 283,673 100.00 Source: INTA EEA, Mendoza ANNEX 4 Page 14 of 24 Table 3: Grape Crop Use, 1985 Use 100 Kg Percentage Wine 21,905,057 97.23 Fresh market 465,578 2.07 Rasins 151,273 0.67 Export (fresh) 6,804 0.63 Total 22,528,730 100.00 Source: INTA, EEA, Mendoza Table 4: Per Capita Wine Consumption ('000 Hectoliters) Fine Wine Year Lt/Capita Common Wine & Others Total 1970 91.79 20,505 942 21.447 1975 83.68 19,865 1,259 21,124 1980 76.28 19,390 1,682 21,072 1985 60.05 16,082 2,470 18,552 Source: INV, Form 102 ANNEX 4 Page 15 of 24 Table 5: Per Capita Fresh Grape Consumption Year Kg Per Capita 1970 12,529 1975 5,380 1980 4,114 1985 2,278 Source: INDEC, Servicio Nacional de Economia y Sociologia. Table 6: Premium Wine Grape Plantings Argentina and California Variety Argentina California (ha) (ha) Chenin Blanc 2,500 14,000 Chardonnay 80 7,500 Sauvignon 6 3,200 Cabernet Sauvignon 3,500 10,036 Malbec 10,000 0 Pinot Noir 30 4,136 Source: INTA, 1984 Table 7: Fresh Citrus Consumption Year Kg per Capital 1970 60,864 1980 53,885 1984 43,980 1986 35,600 Source: Anteproyecto Subprograma Citricola Nacional, Secretaria de Estado de A r4 n-iil i- r'-"-A rs - D - ANNEX 4 Page 16 of 24 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 8: Citrus Consumption Year Kg per Capital 1973 57,806 1976 52,456 1979 49,151 1982 46,200 1985 41,662 Source: IICA Table 9: Citrus Crop Value (US million) Product Domestic Market Export Total Fresh Fruit 120 45 65 Citrus Concentrated 25 18 43 Citrus Oil 1 11 12 Other Products 6 6 Total 146 80 226 Source: Federaci6n Argentina del Citrus. ANNEX 4 Page 17 of 24 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 10: Citrus Production Ado Agricola Limon Mandarina Naranja Pomelo Total 1962/63 79,300 195,000 496,500 49,500 820,300 1967/68 179,000 134,000 682,000 84,000 1,079,000 1972/73 232,200 248,700 782,800 179,400 1,443,100 1977/78 280,000 255,000 670,000 145,000 1,350,000 1978/79 301,000 224.000 706,000 134,000 1,365,000 1979/80 396,000 214,000 704,000 164,000 1,478,000 1980/81 409,000 237,000 668,000 150,000 1,464,000 1981/82 384,000 255,000 606,000 147,600 1,392,600 1982/83 357,000 244,000 639,000 147,000. 1,387,000 1983/84 369,000 217,000 539,600 145,000 1,270,600 1984/85 460,800 283,500 620,800 173,700 1,538,80(1 1985/86 481,000 243,400 623,200 177,940 1,525,540 1986/87 a/400,000 260,000 700,000 160,000 1.520,000 a/ Foreign Agricultural Service (USDA) Estimate. Source: Secretaria de Estado de Agricultura, Ganaderia y Pesca. ANNEX 4 Fage 18 of 24 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 11: Production of Industrialized Products Production Process Industry Apples Pears Total Apples Pears Total Concentrate .(tn) (tn) (tn) (tn) (tn) (tn) (tn) (1) (2) (3) (4) 1975 387.000 60,000 447,000 81,370 8,769 90,139 4,614 1976 359,700 81,600 441,300 110,881 17.456 128,337 6,571 1977 570,000 121,000 691,000 168,264 27,446 195,710 12,399 1978 600,000 118,000 718,000 207,386 29,572 236.958 17,109 1979 682,000 115,600 797,600 296,201 26,072 322,273 22,577 1980 660,000 106,800 766,800 336,468 29.263 365,731 24,847 1981 648,200 83,000 731,200 213,594 13,967 227,561 19,346 1982 576,000 95,500 671,500 236,043 43,852 279,895 25,311 1983 533,000 134,200 667,200 266,595 50,889 317,484 25,776 1984 667,000 110,000 777,000 337,307 56,083 393,390 28,627 1985 628,300 142,800 771,100 284,538 41,969 326,507 25,292 1986 364,300 123,800 488,100 133,335 38,547 171,882 14,911 1987 1988 Source: CINEX - CORPOFRUT ANNEX 4 Page 19 of 24 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 12: Supply and Import from Selected Southern Hemisphere Countries (metric tons) Exports Country Year a/ Production Imports Fresh Processing Argentina 1984/85 192,500 0 79,800 40,000 1985/86 125,000 0 58,000 20,000 1986/87 200,000 0 85,000 40,000 Australia 1984185 139,000 0 31,000 90,000 1985/86 124,000 0 36,000 73,000 1986/87 146,000 0 35,000 84,000 Chile 1985/86 60,000 0 30,524 1,200 1986/87 70,000 0 45,000 1,800 1987/87 72,000 0 45,000 2,000 New Zealand 1984/85 12,844 360 2,550 3,500 1985/86 13,500 84 2,946 3,684 1986/87 14,000 500 3,250 4,000 South Africa 1984/85 147,993 0 48,361 77,625 1985/86 140,907 0 46,792 66,365 1986/87 150,000 0 47,500 70,000 TOTAL 1984/85 552,337 360 192,235 212,325 1985/86 473,407 84 188,738 164,849 1986/87 582,000 500 215,750 200,000 .a/ Harvesting and marketing occur entirely during the second half of the year shown; thus 1986-87 refers to the crop harvested and marketed in 1987. Source: US Agricultural Counselors and Attaches Reports (1987). ANNEX 4 Page 20 of 24 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 13: Vegetable Production Harvested Harvested Crop Area (ha) Kg/Ha Mt Area (ha) Kg/ha Mt Peppers 8,130 9,225 75,000 7,570 8,639 65.400 Lentils 10,500 655 6,880 15,480 793 11,500 Garlic 9,785 5,171 50,600 7,286 5,023 36,600 Asparagus 940 4,309 4,050 1,525 4,240 8,056 Melon 5,300 12,075 64,000 5,340 11,704 62,500 Source: Servicio Nacional de Economia y Sociologia Rural. SAGyP. ANNEX 4 Page 21 of 24 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 14: Fruit Producer Economics: 1987 (US$) Gross Operating Net Yield Revenue Costs Producer Crop m per ha Price/m per ha per ha a/ Return per ha Grapes Fresh Export 12.5 150-250 1875-3125 1000 875-2125 Fresh Local 15.0 57.6 1380 928 452 Chile Fresh Export 16.5 515 8497 2500 5997 Argentina b/ Fresh Export 16.5 450 7425 2000 5425 Wine Premium c/ 15 100-300 1500-4500 1200 300-3300 Common 25 79.6 1900 941 939 d/ Common (60% delivery) 15 79.6 1194 941 253 d/ Apples (Rio Negro) Fresh. Export 35 150 5250 2000 3250 Fresh. Local 26 90 2250 1500 750 Industrial 25 35 (1985) 875 1500 (625) 65 (1988) 1625 1500 125 Pears (Rio Negro) Fresh. Export 18 200 3600 1750 1850 Fresh. Local 18 170 3060 1750 1310 Industrial 18 65 1170 1750 (580) a/ Calculations based on established or orchard. minus interest costs. b/ Wide range in return due to many premium wine producers integrating or partial integration of the vineyard with the winery. Financial return is in price per bottle. c/ Growers' losses from 1988 crop. !/ Improved-crchard. high-density planting. Source: Mission Estimates. ANNEX 4 Page 22 of 24 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 15: Chile: Grape and Fruit Returns 1987 Season (US$) Net Kg FOB Price Packing a/ Return to Crop per Box per Box Cost per Box Grower Net/Mt Grapes Thompson Seedless 8.2 7.60 3.11 4.49 548 Flame Seedless 8.2 6.00 3.11 2.89 353 Ribier Seeded 8.2 5.20 3.11 2.09 255 Apples Granny Smith 20 7.00 4.23 2.77 138 Red Varieties 20 7.50 4.23 3.27 163 Pears 20 8.00 4.23 3.77 188 Stone Fruits Peaches 7.5 5.20 3.00 2.20 293 Nectarines 7.5 5.00 3.00 2.00 267 Plums 7.5 5.30 3.00 2.30 307 Source: Mission Estimates. a/ Estimated packing and export charges. Cost will vary. ANNEX 4 Page 23 of 24 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 16: Pro-Forma Export Consignment Table Grapes. December-March (US$) Thompson Seedless Variety Pack: 8.2 Kg Net. Pallet of 96 Boxes Box 9 US (East Coast) Wholesale Price by Broker $13.00 1.50 Less: Broker's Commission (9Z) $1.17 Import Duty 0 Freight (refrigerated) 2.50 Insurance .25 Port Charges. Handling. Inspection 1.75 (5.67) 7.33 0.894 FOB Argentina Port Less: Export Tax 0 Packing Material/Expense 1.00 Packing Labor .35 Cold Storage .30 Freight to Port .35 Port Charges. Handling. Loading. USDA Inspection .15 Export Sales (8%) .59 Interest on Shipment @ 15Z for 4 months .37 (3.11) NET TO GROWER 4.22 0.515 Source: Mission Estimates. Note: Price may vary from $9 to $35 per box. CIF Philadelphia. PA. ANNEX 4 Page 24 of 24 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 17: Pro-Forma Export Consignment Apples. Marcb-July (US$) Granny Smith Variety Pack: 18.2 Kg. Net. Pallet of 48 Boxes Box g US (East Coast) Wholesale Price by Broker $16.00 0.879 Less: Broker's Commission (9Z) $1.44 Import Duty 0 Freight (refrigerated) 5.00 Insurance .30 Port Charges. Handling. Inspection. USDA 1.75 (8.49) 7.33 0.894 FOB Argentina Port Less: Export Tax 0 Packing Material/Expense 1.75 Packing Labor .45 Cold Storage .40 Freight to Port .40 Loading. USDA Inspection .25 Export Sales (8Z) .60 Interest on Shipment @ 15Z for 4 months .38 (4.23) NET TO GROWER 3.28 0.180 ADD: Export Rebate on CIF @ 7Z (Port of San Antonio) 1.12 0.061 Source: Mission Estimates. Note: Price may vary from $12 to $24 per box. CIF Philadelphia. PA. ANNEX 5 ANNEX 5 ARGENTINA AGRICULTURAL SECTOR REVIEW FORESTRY SUBSECTOR Table of Contents Page No. I. BACKGROUND ............................................. 1 II. NATURAL RESOURCE BASE .................................. 1 A. Indigenous Forests ................................. 1 B. Plantations ........................................ 2 C. End Uses ........................................... 4 III. THE FORESTRY INDUSTRY AND ITS MARKETS ................. 4 A. Production.......................................... 4 Mechanical Wood Products ...................... 4 Secondary Processing .......................... 5 Pulp and Paper ................................. 5 Fuelwood and Charcoal .......................... 6 Tannin and Resin Production..................... 6 Mechanical Wood Products........................ 6 B. Markets and Marketing................................ 7 IV. INSTITUTIONS ... ....................................... 7 A. Administration...................................... 7 B. Legislation ........................................ 8 C. Fees and Taxes ..................................... 9 V. TECHNICAL SERVICES ..................................... 9 A. Research ........................................... 9 B. Environmental Concerns ............................. 10 C. Forest Management ................mt.... ........... 10 D. Human Resource Development ......................... 11 VI. RECOMSENDATIONS ........................................ 11 List of Tables 1. Distribution of Plantations by Province ................ 2 2. Distribution of Plantations by Species ................. 2 3. Age Structure of Planted Areas ........................ 3 4. Increments of Unimproved Planting Stock ............... 3 5. Industrial Wood Processing Units ...................... 4 6. Characteristics of Pulp and Paper Plants .............. 5 7. Mechanical Wood Product Output.......................... 6 8. Decline of Annual Production .......................... 7 Table of Contents (Continued) Page No. Appendices 1. Characteristics of Forest Types ......................... 14 2. Indicative Project Costs ................................ 15 List of Charts 1. Importations of Mechanical Wood Products Pulp and Paper 1975-1984 ....................................... 16 2. Production Mechanical Wood Products 1975-1984 ........... 17 3. Production of Pulp and Paper 1975-1984 .................. 18 4. Production of Wood Raw Material 1965-1984 ............... 19 Political Map ................................................. 20 Distribution of Forest Types .................................. 21 Distribution of Plantation Areas .............................. 22 ANNEX 5 Page 1 of 22 ARGENTINA AGRICULTURAL SECTOR REVIEW FORESTRY SUBSECTOR I. BACKGROUND 1. Argentina is a net importer of forest products, most of which originate in Chile. The yearly value of net imports (imports minus exports) is approximately US$100 million. Of this total, sawn wood comprises 422, paper 40Z, and pulp 182. 2. During the last ten years, the import of mechanical wood products has followed an erratic course, but the overall picture shows a decline in import volume, with current levels slightly below those of ten years ago. Pulp and paper imports show a similar pattern, with little change before 1982 followed by a downward trend. (Figure 1). 3. Other forest product imports are at low levels and occur mainly in border areas where neighboring countries (such as Chile) have a comparative geographical advantage. 4. Exports of forest products (most of which go to neighboring countries) are generally modest, with an annual value of approximately US$29 million, 58% of which is pulp, 31% paper, and 11% mechanical wood products. Forestry's contribution to the GDP remains small, averaging 0.2% since 1980. II. NATURAL RESOURCE BASE A. Indigenous Forests 5. No reliable data exist on the extent of forest resources in Argentina. Area with woody vegetation is estimated at 60 million ha, of which forested land is thought to extend to between 30-40 million ha. The area of potentially productive forest is estimated at 15 million ha. Of the forest area, 54Z is privately owned and the remainder is under State control. 6. Seven principal forest types are discernible: Parque Chaqueno (26.5 million ha); Selva Tucumano-Oranense (2.5 million ha); Selva Misionera (2.0 million ha); Bosque Subantirtico (2.0 million ha); Monte Occidental (2.0 million ha); Parque Pampeano-Puntano (1.5 million ha); Parque Mesopotimico (3.0 million ha). The productivity of these forests is extremely low. The largest area, Parque Chaqueno, is situated mainly in the semiarid zone where both stand quality and increment are low, the former having been reduced through years of uncontrolled selective cutting and overgrazing. Annual increments apply in other areas, which also are either poorly managed or not managed at all. With improved management, the L digenous resource would offer great potential. The present annual production is about 7.0 million i3. The characteristics of each forest type are shown in Appendix 1. ANNEX 5 Page 2 of 22 B. Plantations 7. The area of plantations is estimated at about 900,000 ha, most of which is privately owned. The distribution of plantations by province is shown in Table 1. Table 1: Distribution of Plantations by Province Area Location ('000 ha) Z Total Misiones 260 30 Corrientes 135 15 Buenos Aires 120 14 Delta Parand 100 11 Entre Rios 70 8 Rio Negro 48 5 C6rdoba 47 5 Mendoza 40 4 Other 80 8 Total 900 100 Source: IFONA 8. Planted areas consist mainly of conifers (usually pines) but more areas are being planted with eucalyptus, especially in Corrientes and Entre Rios. The approximate species composition of planted areas is shown in Table 2. Table 2. Distribution of Plantations by Species Area Species ('000 ha) Z Total Conifers 400 44 Eucalyptus 240 27 Salicacae 230 26 Other 30 3 Total 900 100 Source: IFONA ANNEX 5 Page 3 of 22 9. The age structure of planted areas is shown in Table 3. Aze Structure of Planted Areas 200,000 ------ I I 150,000 ------------- Area, ha I I | | 100,000 I | .I I I I--- I 50,000 1 | | | |- I I I I I I - - I---I----1-----I----I 0-5 6-10 11-15 16-20 21-25 +25 Age, years Soure: IFONA 10. The abrupt increase in the area of plantations below 15 years old is the result of the introduction of a planting subsidy in 1977. The earliest of these plantings will mature in the next 6-10 years, which will have the effect of trebling the raw material supply. 11. The principal conifers planted are P. elliotti, P. taeda, P. car4baea, P. oocarpa. In the case of eucalyptus, most planting is done with E. arandis and E. saligna. In areas planted with Salicacae, 70Z is planted with willows and the remainder with poplars. 12. Increments (i.e., annual volumetric growth rates) in planted areas are extremely high by international standards. Commercial plantations using unimproved planting stock have obtained the following increments: Table 4. Increments of Unimproved Planting Stock Species Increment Rotation (m3/ha/year) (years) Conifers 25 18-25 Eucalyptus 25 - 15-20 Salicacae 15 12-15 Source: IFONA 13. Due to the current tree improvement program, many institutions and growers firmly believe that annual increments in excess of 30 m3 per ha are well within reach. 14. No serious pests or diseases are known to affect the plantations. Fire is a possible threat, but in the most important producing areas annual Ino a - r o t ^ -11 ANNEX 5 Page 4 of 22 15. Costs of establishment vary between zones and topographical areas within zones. In the major producing area of the northeast (Corrientes and Misiones), total establishment costs of approximately US$750/ha were quoted. This includes land preparation after clear-felling of plantations. planting and weeding through the third year, and overhead costs. In flat grassland areas (which lend themselves to mechanization and require low levels of preparation) costs of US$500/ha were quoted. In Rio Negro, where small plantation areas have been established and -reeding is not required, establishment costs as low as US$250 have been incurred; however, this initial advantage is outweighed by a higher fire hazard, lower increments (15 m3 per ha), and longer rotation (35 years). 16. The government's present annual planting target is 70,000 ha; however, due to a shortage of funds for subsidies, annual totals have rarely exceeded 40,000 ha. C. End Uses 17. Principal uses for the indigenous forest resources include charcoal manufacture and the production of sawlogs, pulpwood, fuelwood, and tannin. 18. Plantation-grown pines are used for the production of mechanical wood products and pulp. In addition, resin, which is used in the manufacture of turpentine, disinfectants, adhesives and solvents, is produced by tapping P. elliotti. Current annual resin production is valued at US$10 million. III. THE FORESTRY INDUSTRY AND ITS MARKETS A. Production Mechanical Wood Products 19. The approximate number of manufacturing units of mechanical wood products is shown belowt Table 5: Industrial Wood Processing Units Installed Output Type Number Capacity Output (m3/annum sawn) (m3/annun sawn) Sawmills 2,500 2,100,000 1,150,000 Plywood/ blockboard veneer 51 137,000 50,000 Fiberboard 2 110,000 80,000 Particleboard 7 424,000 235,000 ANNEX 5 Page 5 of 22 20. The output of the industry is low in relation to its installed capacity. Many installations are old and poorly laid out, and low operator efficiency and weakness at middle management levels are often cited as constraints to higher productivity. In many cases, capacity may 'be overstated. 21. The percentage conversion varies from 332 in sawmills using small diameter softwoods (30cms) to 60% in sawmills and veneer mills using larger diameter hardwoods, such as Prosopis, Mellea, Cordia and Centrella. No comprehensive grading system is used; sawn wood products are simply sorted into 'first" and 'seconds" before sale. 22. The quality of sawn wood products is also low. This could be much improved with modernization and the installation of wood-treatment plants and kilns. At present, few mills have such facilities, most wood being sold untreated, green, or practically air-dried. 23. There is an urgent need to modernize and expand the industry. Much existing capacity is old and needs replacing. Expansion is also required in response to the threefold increase in the supply of raw material expected in five years. An absence of credit is frequently cited as the major constraint to improvement and expansion, but any investment in modernization will need to be accompanied by improvement in management. Secondary Processing 24. Information on the number of secondary processing plants (e.g.. furniture and box-making factories) is lacking. Estimates indicate that there are some 400 plants producing furniture for both export and domestic markets as well as cartons for the packing of fruit and vegetables, some of which are exported. The annual output of these units is estimated at 460,000 m3 per year. 25. The potential for expanding the furniture industry is unknown. The demand for cartons will depend on the market for fruit and vegetables. If horticultural production increases, additional carton-making capacity will be needed. Pulp and Paper 26. The number of pulp and paper plants together with their capacity is shown below in Table 6. Of the pulp plants, 662 are chemical, 28Z are chemo-mechanical, and 6Z are mechanical. The majority of pulp factories are over ten years old and will require investment in new machinery. Table 6. Characteristics of Pulp and Paper Plants Installed Output Type Number Capacity Production (tons) (tons) Pulp 21 792,500 550,000 Paper and cartons 80 1,186,000 942.000 ANNEX 5 Page 6 of 22 Fuelwood and Charcoal 27. The use of fuelwood and charcoal is declining due mainly to the extensive availability of inexpensive natural gas for both domestic and industrial use. The downturn in the economy also has led to a decrease in the consumption of charcoal by the steel industry, normally its principal consumer. Most production is concentrated in the north in the Parque Chaqueno. The export potential for charcoal is limited due to the low quality of production. Tannin and Resin Production 28. Both tannin and resin production are labor-intensive, with numerous small operators dominating the sector. Due to competition from abroad, the tannin industry has been in a state if slow decline for some years. Both industries are concentrated in the north: Chaco, Formosa, and Salta produce tannin and Misiones, resin. Mechanical Wood Products 29. The production of mechanical wood products (e.g., pulp and paper) increased substantially between 1975-1984 (Table 7). Currently, domestic production satisfies 75Z of the demand for mechanical wood products, 90Z for pulp, and 95Z for paper. In contrast, the production of fuelwood, charcoal, and tannin declined between 1975-1984 (Table 8). Table 7: Mechanical Wood Product Output Product Units 1975 1984 Z Difference Mechanical wood (m3) 0.98 1.51 + 54 products Pulp (tons) 0.30 0.65 + 116 Paper and cartons (tons) 0.45 0.94 + 108 Source: IFONA ANNEX 5 Page 7 of 22 Table 8. Decline of Annual Production Product Units 1975 1984 Z Difference Fuelvood (m3) 1.05 0.88 16 Charcoal (tons) 0.30 0.28 7 Tannin (tons) 0.07 0.06 15 Source: IFONA (Annual production data for all products for the period are shown in Charts 1-4 at the end of this Annex). B. Markets and Marketinit 30. No organizations exist specifically for forest product marketing. As a general rule, prices are market-determined; however, in some areas producers cooperate in price-setting. The internal demand for forest products remains firm, which can be inferred from the continuing high level of imports and a substantial increase in the production of forest products over the past ten years. Demand forecasts for forest products are no more than estimates. Even so, total demand for wood raw material should increase over the next 20 years (the approximate rotation period) from its current leel of 15 million m3 per year. Adding a modest 15Z for contingencies and exports, future demand could be about 40 million ms. To prepare for this, the industry will need to expand, and so will the resource base. 31. Existing plantation areas can produce some 18 million m3 per year. Even assuming that the entire area of potentially productive indigenous forest could be brought into production, which would contribute some 15 million m3 per year (present production is approximately 7.5 million m3), a shortfall of 7 million m3 per year would still occur by the year 2010 (the equivalent of 350,000 ha of plantations). IV. INSTITUTIONS A. Administration 32. The forestry subsector is administered nationally by the National Forestry Institute (IFONA), which reports to SAGyP. At the provincial level, the forestry administration of the provincial government has responsibility. 33. IFONA maintains an office in Buenos Aires and has 17 field stations. It is funded by the central government and has no revenue- earning capacity. Its main functions include policy implementation, law enforcement, planning, forest management, economics, administering the planting subsidy scheme, extension and publicity, forestry for social development, and, through its field offices, research and fire protection. It is also responsible for forestry in Tierra del Fuego. ANNEX 5 Page 8 of 22 34. The effectiveness of IFONA has been undermined by staff shortages (it now employs 77 professional and technical staff, 92 administrative staff, and 119 support personnel), low salaries, and a constant shortage of funds. Moreover, it is questionable whether a Federal authority should be engaged in the daily operations of research and fire protection. 35. Provincial forestry administrations are funded by provincial governments. Main functions include control of harvesting operations, collection of stumpage fees, administration of the planting subsidy scheme (on behalf of IFONA), fire protection, production monitoring, inspection, extension, and publicity. 36. In theory, provincial administrations can earn revenue from stumpage, the income of which is supposed to support a forestry development fund. However, stumpage fees are extremely low, and in most cases adequate resources never accrue. 37. As with IFONA, the effectiveness of provincial administrations is diminished by understaffing, low salaries and inadequate funding. B. Legislation 38. The principal legislation for forestry in Argentina is Law 13,273 of 1948 (La Ley de Defensa de la Riqueza Forestal). This law established the National Forest Committee and gave it the responsibility for conservating forest resources. Subsequently, by amendment (Law 20,531/73), IFONA was created in 1973. 39. In 1977, Law 21,695 (Crddito Fiscal para la Forestaci6n) was enacted to introduce a tree planting subsidy. This law enables private individuals to claim a 70% subsidy on tree planting costs, provided planting is undertaken according to a plan approved by IFONA. Of the subsidy, 60Z is paid before planting, with the remainder paid over the following three years. The plantings which qualify for subsidy depend on area and species. 40. Law 13,273 is fundamentally weak in the substantive areas such as protection, conservation, and management of natural forests. In contrast, Law 21,695 has been quite successful. Since its introduction in 1977, plantings have increased dramatically, so that today 80? of the plantation area (700,000 ha) is less than 15 years old. 41. The weakness of forest legislation in Argentina is compounded by institutional weakness. Frequently, the resources (staff, funds, transport) are not available to implement beneficial legislation. This applies particularly to control of natural forest exploitation and the administration of the subsidy scheme. Logging operations are uncontrolled and success rates in some subsidized plantations are unacceptably low due to poor planting techniques. Underfunding and tardy funds also make planning difficult and serve to undermine confidence in the subsidy incentive. 42. To improve subsidy administration, an amendment to Law 21,695 has been proposed by IFONA that, if ratified, would permit payment only after work has been done, instead of before. Further proposed is an annual planting subsidy of US$20 million, to be raised through import taxes on forest produce, plus a 12 tax on the first commercial use of locally ANNEX 5 Page 9 of 22 43. There is need ) review the forestry laws to ensure that responsible authorities have the power needed properly to manage and administer forest resources. However, such an exercise will have no impact if the institutions concerned are not strengthened to implement the law effectively. C. Fees and Taxes 44. Forest fees and taxes in Argentina take three principal forms: a stumpage tax on raw material, and export and import taxes. These taxes are in addition to general taxes imposed by the federal and provincial governments. 45. Stump!-je fees vary by species and province. Generally, they are extremely low and in some areas negative, so that occasionally they fail to cover the cost of collection. For example, in Misiones stumpage fees in plantations are imposed at the rate of 202 of standing va.Lue with a 95% rebate if the produce is processed in the province. Stumpage fees in Salta within natural forests are levied at the rate of 0.01? of the value of the produce loaded on a truck, whereas in Rio Negro stumpage varies between 16-202 of the standing value. 46. In most provinces, there is provision for the payment of stumpage fees into a Forestry Account which is supposed to be used for forestry development. In most cases, however, provincial accounts are unified and stumpage fees become part of general revenue. 47. At the time of -he review mission, import taxes on forest produce were levied at the rate of 10? on produce originating inside the Asociaci6n Latinoamericana de Integraci6n (ALADI) and 40? for produce originating elsewhere. Export duties are levied at the rates of 16? for roundwood, 14.5? for wood simply worked or rough sawn, 10? for ground wood and chips, 5Z for charcoal, and 0 for other products. V. TECHNICAL SERVICES A. Research 48. Formal research programs are conducted by both public and private sectors. In the public sector, the principal agencies are: IFONA, INTA, the Wood Technology and Research Center (CITEMA), and the Argentine Arid Lands Institute (IADIZA), together with several universities. In the private sector, research is conducted by the larger companies and organizations, an example of which is the Forestry Research and Experience Center (CIEF), which is industry-financed. Although forestry research covers a wide spectrum of activities, most work concerns site and species selection, forest tree improvement, and wood technology. 49. All public sector institutions suffer from a shortage of resources. The most efficient appears to be INTA which, through its field stations, is carrying out a very useful program of applied research. CITEMA, which is responsible for research on the use of mechanical wood products, has achieved limited success. IFONA conducts its own research, including the areas of entomology and pathology. ANNEX 5 Page 10 of 22 50. Unfortunately, much research effort and resources are dissipated through duplication of effort. Too many institutions seem to have the same objectives. Thus, there is need to rationalize the research focus of the organizations involved. Operational research should be concentrated in INTA and the specific industry, with IFONA performing a coordinating and directing role, possibly by guiding the selection of research topics and by providing financial incentives. 51. Priority research areas should include: forest tree improvement to increase yields from plantation-grown species; forest management to identify optimum management regimes in areas of natural forest; and wood technology to identify uses for the lesser-known species of the mixed semi- tropical forests of the northwest. B. Environmental Concerns 52. Forests cover approximately 16Z of the land area of Argentina, much of which is situated in ecologically-fragile areas, such as the semiarid Parque Chaqueno, the steep slops of Misiones and the southern Andes, and the subtropical areas of the northwest. 53. Traditionally, there has been a lack of public awareness of the value of forests in Argentina--with the important exception of the financial value associated with their exploitation. Lack of control is widespread, but the results of this are most apparent in the overcut and overgrazed Parque Chaqueno of Salta and Jujuy. In these provinces, the effects of erosion are alarming. Gully and sheet erosion are common; in the dry season, river beds appear as vast rubble-strewn expanses, whereas after heavy rainfall they turn into a mudflow. Flood damage to infrastructure (roads and bridges) is extensive, the repairs to which cost US$30 million in 1987. The need to contain this situation is urgent. 54. In Misiones, localized erosion problems have also occurred as a result of shifting cultivation on steep slopes, this being the result of uncontrolled settlement from neighboring Brazil and Paraguay. Although this problem is not yet serinus, it is indicative of what could happen if deforestation continues unchecked. 55. Fortunately, pressure on the forests of the southern Andes is not intense; however, fire is an ever-present threat during the dry season and large areas of forest are sometimes destroyed. With the arrival of the rains, erosion of unprotected soils commences. 56. There can be little doubt that forestry also plays an important part in the social stability of rural communities. It is estimated that some 150,000 persons are employed in the subsector, most of whom reside in rural areas. Alternative employment in these areas is scarce and without forestry many would be obliged to move to urban areas in search of work, thus adding to the already-serious social problems caused by migration from rural to urban areas. C. Forest Management 57. Forest management on state lands is the joint responsibility of IFONA and provincial administrations. To control deforestation in ANNEX 5 Page 11 of 22 Argentina, it is necessary to enhance the capacities of these organizations to administer, manage, and protect the forest resources. Such a step would show positive economic, environmental, and social returns. In theory, IFONA prepares forest management plans and provincial administrations implement them. In practice, few plans exist and provincial administrations merely issue licenses which permit holders selectively to log overmature trees of certain diameter. Logging operation supervision is poor and loggers frequently overexploit easy areas and avoid more difficult terrain. 58. Privately-owned natural forests of less than 300 ha are worked by permission from Provincial agencies. Areas in excess of 300 ha must be worked according to a management plan prepared by the owner. In most cases, this means rotational felling of trees above a specified cutting limit over a cycle of 20-30 years, but conditions for felling vary from province to province. In Misiones, an owner is obliged to plant three seedlings at 5 am by 15 m spacing for every m3 removed from the forest. Generolly, these conditions are not met due to inadequate field supervision. Permission is required from the provincial authority prior to felling in plantation areas established through GOA subsidies. 59. Natural forest policy in essence is simply to maintain the resource base. Before a landowner can convert an area of natural woodland to plantations or agriculture, permission must be obtained from the provincial authority. However, land-use policy at the local level is weak because there is no clear strategy for land development. This results in forest areas that not only are poorly managed but also are subject to indiscriminate encroachment from cropping activities. D. Human Resource Development 60. Forestry education for professionals is offered at four universities: La Plata, Santiago del Estero, Misiones, and Formosa. The program lasts five years, with a total annual output of approximately 200 graduates, 50Z of whom normally enter the public sector. Institutions offering this program could benefit from additional equipment, teach-ing materials, and advice on curriculum development. 61. Subprofessional training is offered at five institutions: Centro de San Martin de los Andes, Centro de Educaci6n Agricola de Villa Rarancicito, Junin de los Andes, Navajas in Corrientes, and El Dorado in .Kisiones. Student output data are not available, but the scarcity of trained personnel at the subprofessional level indicates that it needs more attention. Additionally, vocational training is neglected, with few courses available for those working in the industry. VI. RECOMMENDATIONS 62. Forestry in Argentina has considerable potential since land is available for planting and conditions for tree growth are extremely favorable. Thus, this subsector could allow Argentina to become self- sufficient in forest products and capable of developing a surplus for export. The following recommendations should enable this potential to be realized, implementation of which should be in two phases. Page 12 of 22 Phase One 63. (a) Forest Management. Inadequate information is available on the extent and composition of forest resources, especially indigenous forest resources. For purposes of long-term planning, an inventory of selected forest areas should be carried out. (b) Demand. A detailed, up-to-date demand fsu..cast for all forest products is not available. A demand forecast to the year 2015 should be prepared, to include mechanical wood products, pulp, paper, fuelvood and charcoal. (c) Fees. Since fees are inadequate, the levels of stumpage fees should be reviewed; also, the introduction of annual capacity- related licenses for wood processing plants need to be considered. Revenue from these sources could then be used to finance forestry development through planting subsidies, for example. The introduction of the processing plant licenses will also promote more effective harvesting control. (d) Institutions. The capacity of public institutions properly to administer forest resources is limited. Inadequate fiscal and human resources are serious constraints to effective management. This situation is exacerbated by low salaries, weak legislation, overlapping responsibilities, and lack of public concern/awareness. To address these issues, Argentine forestry laws should be revised to provide the federal and provincial bodies responsible for the subsector with the necessary legal mandate to administer forest resource/awareness. (e) Forestry Industry. The capacity of the industry to re-equip and expand is limited by lack of credit. This constraint is likely to become more serious in the near future when additional raw material becomes available. To assess the demand for credit in the industry, a credit facility should be established. Phase Two 64. (a) Research. Inadequate funding and duplicatlon of effort are undermining the effectiveness of research efforts. Research organizations should be restructured and a research agenda established, e.g., in the fields of tree improvement, forest management, and wood technology. This will enhance the capacity, the protection and management of forests as well as research and training activities. (b) Training. Inadequate vocational training facilities for middle management and shop-floor workers constrain the quantity and quality of industrial output. Improvements should be made to professional and subprofessional training facilities to enhance productivity of personnel. ANNEX 5 Page 13 of 22 (c) Plantations. The development of privately-owned, subsidized plantations has been mnderately successful. To achieve self- sufficiency, planting will have to be accelerated. To achieve self-sufficiency, support should be given to an expanded plantation program, with the planting subsidy reduced from 70 to 50%. Partial or complete recovery of the subsidy could be achieved through the increase in stumpage fees recommended above, together with the issuance of annual licenses for wood- using industries. (d) Expansion of Credit Facility. Uptake of credit by the forestry industry is sufficiently high, consideration should be given to expanding the credit facility established under Phase One. ANNEX 5 Page 14 of 22 Appendix 1 Characteristics of Forest Types Tvge Climate Principal Species Stocking Increment a3/ha m3/ha/year Parque Warm Quebracho colorado 100 1.0 Chaqueno 600-1,000 mm Quebracho blanco rainfall per Lapacho negro year Selva Warm, humid Roble criollo, 50 N.A. Tucumana 1,000 mm rain- Urundel, Palo blanco, orandense fall per year Lapacho rosado Selva Sub-tropical Araucaria 190 1.6 Misionera 1,600-2,000 mm Entamba rainfall per Cedro year Bosque Cold Nothofagus 100-300 15 SubantArtico 650-4,000 mm Algarrobo rainfall per Astrocedrus year Monte Warm, dry, Retama 3-4 N.A. Occidental 200-400 mm Algarrobo rainfall per Espinillo year Qv:ebracho Parque Temperate Calden 7-8 N.A. Pampeano- Algarrobo puntano Chanar Parque Humid Nandubay 10-40 N.A. Mesopotdmico 900 mm rainfall Algarrobo per year Espinillo ANNEX 5 Page 15 of 22 Appendix 2 Indicative Proiect Costs (US$ millions) 1. Inventory 10.0 2. Demand Forecast, Law Revision 0.1 3. Institutional Strengthening IFONA 3.0 Provinces of Misiones, Corrientes, Entre Rios, Buenos Aires, Salta Jujuy, Chaco, Formosa, Rio Negro 15.0 Training 4.0 Research 1.0 4. Plantations 160.0 5. Forest Industries Development 120.0 313.1 ARGENTINA FORESTRY S~CSE0TOR REVEW IMPORTATIONS OF MECHANICAL WOOD PRODUCTS PULP AND PAPER 1975 - 1984 0.0 0.8 0.7 MI&WCA. WOOD PRODUCTS (m 0.8 as 0.5 0 .4 0.4 2 ~PAPER AND CARTONS Gn 0.3 -....••••• • 0.1 -' *---.-.- . - ' 0.11 m. . ..anlm .............. * PAP os) ~d.-t- 1975 76 77 78 79 80 el 82 83 1984 YE AR ARGEN1 INA FORESIRY SUBSECTOR EVEW PRODUCTION MECHANICAL WOOD PRODUCTS 1976 - 1984 1.7 1.6 1.6 1A; -E.. - 1.2 197?5 7677 78 79 e0t8 82 8319"4 YEAR ARGENTINA FORESTRY SUBSECTOR REVIEW 1.0 PRODUCTION OF PUL.P AND PAPER 1975 - 1984 0.9 0.6 4 0.4. 0.3 " 0 - - - - - -- 0 957 7-a7 0a 8 318 IVLAR り . ffJ . JJJ ARGENT曲NA fo日ESRySUBSECてOR日EVEW FgODリCTION 0トWOOD RAW MATERIAL 1965-1984 に・― AfflX 5 Page 20 of 22 BOLIVIA Jujuv PARAGUAY CHILE %. -0 SALTA BRAZIL TUCUMAR CHACO > lp i i SANTIACO i *OSAR ESTEI&O ICORRIENTES I LA R101^ SANTA FE SAN JUAN If 0 ENTRE CORDOBA i i % Rios URUGUAY SAN LUIS emftm Ams GUENOS MIM -1 LA PAMFA NCUQUEN ATLANTIC OCHAN RIO NECRO ----------- -- CHUBUT CHILE A R G E N T l N A FOROTRY SUSSECTOR REVIEW SANTA CALIZ POLITICAL MAP TIERRA 061. Futco ANNEX 5 Page 21 of 22 A R G E N T l N A FORESTRY SUSSQCTOR REVIEW DISTRIBUTION OF FOREST TYPES ........... .,. GeSsque sugace. - senus eem-e e..... ANNEX 5 Page 22 of 22 70 - sso0 XIIh, 25 CHACI! ATAACA SANTIAGO Z. DEL, 0 ...---- - ESTERA LA ROJA\MP 10 * .r SJUAN, GUEE SA IUD N 'MENDOZA . 1 'I PY.ANTA TIONS .' t cenmfer SANTA ARGENTINA CRUZ FORESTRY SUBSECTOR REVIEW o DISTRIBUTION OF PLANTATION AREAS TIERso ANNEX 6 ANNEX 6 ARGENTINA AGRICULTURAL SECTOR REVIEW FISHERIES SUBSECTOR Table of Contents Page No. I. DEEP-SEA AND CONTINENTAL OPERATIONS .................... 1 A. Fishing Zones..... ................................. 1 B. Vessels Used ........................................ 2 Coastal Fishing ................................. 2 Deep-Sea Fishing ................................ 3 C. Ports .............................................. 3 II. NATURAL RESOURCES ...................................... 5 A. Yields ............................................. 5 B. Categories of Commercial Species ................... 6 C. Potential Yields ................................... 7 III. INSTITUTIONS ........................................... 7 A. Subsecretariat for Fisheries ....................... 7 B. National Fisheries Research and Development Institute (INI8EP) .............................. 8 C. National Consolidated Fish Market of the Port of Mar del Plata ....................... D. Provincial Institutions ............................ E. Othez Institutions ................................ 9 IV. MARETING .............................................. 9 A. Domestic Market .................................... 9 B. Exports ............................................ 10 C. The Processing Industry ............................ 11 V. FISHING LEGISLATION .................................... 12 A. Fishing Legislation Principles ..................... 12 B. International Agreements ........................... 13 VI. TECHNICAL ASSISTANCE AND RESEARCH ...................... 13 A. Design of Ports and Land Facilities ................ 13 B. Preservation of Maritime Resources ................. 14 C. Continental Resources .............................. 14 D. Human Resource Needs ............................... 14 E. Institutional Contribution ......................... 15 Table of Contents (Continued) Page No. VII. RECOMMEND TIONS ........................................ 15 List of Tables 1. Production and Exports from the Argentine Fleet ....... 2 2. Fish Catches by Ports ................................. 4 3. Principal Species Caught .............................. 5 4. Export of Processed Fish .............................. 11 5. Fish Exports and Feoreign Exchange Generated ........... 11 AMEX 6 Page 1 of 16 ARGENTINA AGRICULTURAL SECTOR REVIEW FISHERIES SUBSECTOR I. DEEP-SEA AND CONTINENTAL OPERATIONS A. Fishing Zones 1. The South Atlantic, with its very axtensive Continental Shelf (2.7 million km2), is one of the few prime fishing areas in the world where abundant resources of potentially great commercial value remain virtually unexploited. 2. Commercial operations in this area began as recently as 1978, when overseas fleets from Argentina, Japan, and Poland began catching squid, southern pollack, and other ocean resources not exploited before then (FAO, 1974-89). The total commercial catches in the area stood at 100,000 tons in 1970; however, by 1983 a peak catch of 848,000 tons was attained as a consequence of greatly intensified commercial activity. 3. Argentine fishing on the Continental Shelf takes place in two zones: (a) the exclusive "economic zone" (EEZ), which extends out 200 nautical miles from the coast, is 4,000 km long (between the 34th and 56th parallels), and has a surface area of about 1 million km2: and (b) the remainder of the Continental Shelf, which is open to other commercial fishing enterprises as well as Argentine. Another zone formerly fished. out historically representing a small percentage of total catches, is contained with a 150-mile belt around the Falkland Islands (Islas Malvinas). For Argentina, the best concentration of fishing resources of commercial value stands primarily off the coasts of Buenos Aires, Rio Negro, and the Chubut Provinces and to a lesser extent off the coasts of Santa Cruz and Tierra del Fuego. 4. The maximum yearly catch was obtained by the Argentine fleet in 1979 at 550,000 tons but production declined to 300,000 tons by 1984. In recent years, the average catch approximated 410,000 tons (Table 1). ANNEX 6 Page 2 of 16 Table 1: Production and Exports from the Argentine Fleet 1979 :.983 1984 1985 1986 1987 Catches (millions of tons) 550 402 305,5 396.9 411,7 450,6 Exports: millions of tons 249 200 126,5 150,3 202,5 241,1 US$ (millions) 214 177 155,7 152.2 219,0 267,3 Percentage of Total Catches 45 49 41 37.8 49.1 53.5 Source: Subsecretariat of Fisheries According to government statistics, catches vary by 13,000 :o 14,000 tons per year, but little systematic information exists about yields nor are there any overall statistics on species caught or definitiun of the zones where they were caught. Real catches may be much higher, possibly as much as 10,000 additional tons per year (FAO 1985). Commercial exploitation of continental resources is concentrated in the basin of the Rio de la Plata, into which flows the Paran& (90Z of catches) and Uruguay rivers. Commercial enterprises generally fish in the Andean-Patagonian lakes. Argentina's continental waters mostly yield shad, freshwater catfish, and boga, which combined represent 73.82 of all freshwater species caught. There also is subsistence fishing especially in the northernmost and poorest *zones around the ParanA, Paraguay, Bermejo, and Uruguay rivers. B. Vessels Used 5. The Argentine resource exploitation primarily comprises two distinct types of fishing: (a) coastal small-craft fishing, using boats that are owned either privately or by small companies; and (b) deep-sea fishing, with operations carried out by corporations. A third type of vessei is chat ased for zommerciai and subsistence fisaing in continental waters. Coastal Fishing 6. There are two types of coastal boats: (a) 230 launches (open boats, 8-14 meters long) and small boats (closed cabin, 14-19 meters long), most of which have an average age of 30 years; and (b) 64 larger vessels, mostly trawlers, 25 meters long with 450-hp engines, a refrigerated hold of 145 m3, and average age 14 years. These vessels make 15-day voyages and are used for deep-sea fishing. 7. The coastal vessels combined contribute 18% of all land deliveries, catching a variety of species destined generally for domestic fresh-fish zonsumption and for the canning industry. The fleets also contribute to the fresh and frozen whole-fish export market. ANNEX 6 Page 3 of 16 8. High operational costs for all coastal vessels result from the poor state of maintenance, the need to make repairs (compounded by a shortage of spare parts), high fuel consumption, and general obsolescence of the vessels and operating procedures. 9. Eighty percent of the coastal fleet anchors at the port of La Plata, followed in importance, but at much lower relative percentages, by the ports of San Antonio Oeste, Comodoro Rivadavia, and Bahia Blanca. Deep-Sea Fishing 10. There are three types of deep-sea vessels each having distinct purposes: fresh-fish boats (traditional deep-sea), freezers, and factory ships: (a) the fresh-fish fleet comprises 112 trawlers of 25-63 meters, with engines from 300-1,900 hp, and holds cooled to 000. These boats on average are at sea six days and mostly operate out of La Plata where the shipowners also have land-based processing plants. This fleet consists of old, inefficient ships (average age more than 20 years) which remain idle for long periods because of a general state of disrepair and the need for costly maintenance. (b) the freezer and factor fleets in 1987 operated 27 freezer trawlers and 12 factory ships (processing onboard products such as fillets and fishmeal). These are large-scale vessels occasionally exceeding 100 meters in length and with 800-2,500 hp engines. Most of these vessels register to sail south of the 40th parallel, using as base the ports from Bahia Blanca to Puerto Deseado. The companies that own these vessels also operate land-based industrial plants or chambers onboard ship to keep the frozen products that have already been processed. This fleet also experiences very high operating costs. 11. The vessels used for commercial as well as subsistence fishing are normally small launches not exceeding one ton. An exception is the area of the Rio de la Plata, where commercial fishing is more developed and motorized launches are used up to 14 meters between 5-20 tons. These launches are based in the vicinity of Buenos Aires, since production is intended primarily for that market. C. Ports 12. Argentina has sixteen fishing ports with the largest concentration in the north. In fact, the three ports in the province of Buenos Aires (Mar del Plata, Quequdn, and Bahia Blanca) in recent years received over 801 of fish brought to land, at Mar del Plata the most significant at more than 70% of catches (Table 2). Five ports of the Province of Chubut- -Puerto Madryn, Rawson, Caleta C6rdoba, Comodoro Rivadavia, and Bahia Camarones--unload approximately 9Z of all catches from fishing boats. The ports in the south of Patagonia (Province of Santa Cruz) receive approximately 4Z, almost all at Puerto Deseado. The only fishing port of the Province of Rio Negro, San Antonio Oeste, represents less than 1% of catches. At the Port of Ushuaia, in the National Territory of Tierra del Fuego, only small-craft fishing occurs. ANNEX 6 Page 4 of 16 Table 2: Fish Catches by Ports (tons) 1984 1985 1986 1987 Buenos Aires (BA) Buenos Aires -- 60 -- 472 Mar del Plata 218,052 252.045 299,135 323,703 Quequdn 14.553 20,150 23.552 32,940 Bahia Blanca 23,222 32,683 30,895 34,790 Rio Negro (RN) San Antonio Oeste 3,101 5,313 251 96 Chubut (CH) Puer - MAdryn 16,783 35,305 31,197 23,010 Rawson 30 6,264 -- 30 Caleta C6rdoba 193 961 -- -- Comodoro Rivadavia 3,349 5,638 2,026 2,443 Bahia Camarones 3,967 8,386 2,074 1,661 Santa Cruz (SC) Puerto Deseado 17,605 24,340 16,777 26,152 Puerto San Julian -- -- 184 58 Puerto Santa Cruz (P. Quilla) -- -- -- -- Tierra del Fuego 0.8 0.9 0.8 0.5 Ushuaia 270 348 336 226 Brazil 1 0.2 -- -- Rio Grande 3,258 60 5,338 5,076 TOTAL 155 397 412 4,506 Source: Subsecretariat of Fisheries ANNEX 6 Page 5 of 16 II. NATURAL RESOURCES A. Yields 13. Data used to determine fishing potential include: maximum sustainable catch (CMS) and catches that are incidental t- the primary species. Fishing is done not only by the Argentine fleet out also by the fleets of Uruguay and overseas fleets operating in the same resource zones. 14. Although some of the most exploited species are subject to careful monitoring, data about resource depletion are not comprehensive enough to arrive at definitive conclusions about the effect on resources. Nevertheless, the work and experience of the National Fisheries Research and Development Institute (INIDEP) and information from FAO I make it possible to outline a sufficiently broad and reliable overview. 15. Argentine fishing is carried out primarily on the basis of exploitation of hake (Merluccius hubbsi), the most significant species representing approximately 65Z of total catches during recent years (304,000 tons in 1987). The other principal species caught, in order of weight, are: squid, (Illex argentinus), Argentine anchovy (Engraulis anchoita), cuskell (Gyneptorus glacodes). sea bass (Acanthiatius patagonicus), striped weakfish (Cynoscion striatus), croaker (Micropogon opercularis), prawn (Pleoticus muellari), small hound Mustelus schmiti), and shark (Squalus sp.). Table 3: Principal Species Caught 1984 1986 1986 1987 (COMe (M (loom0 ( (10een (N) (CeOeT) (M 1. Hake 183,2 60,0 260,7 66,0 272,8 6a,0 304,0 68.0 2. Squid 29,0 9,5 21,5 5,4 12,5 3,0 28,6 6,5 3. Anchovy 9,7 3,2 12,S 3,1 15,7 4,0 19,4 4,3 4. Cod-fish 3,9 1,3 9,2 2,8 14,4 3,4 15,1 3,4 5. Grouper 8,6 2,8 0,0 -- 11,9 2,8 11,5 2,5 6. Whiting 3,5 1,1 8,1 2,0 12,8 3,s 10,3 2,3 7. Bass 5,3 1,7 4,9 10 11,s 2,6 8,9 2,0 8. Prawns 2,3 7,5 9,8 2,5 6,8 1,6 7,9 1,7 9. Gatozo 1,6 O,5 6,s 1,5 7,2 1,7 7,1 1,5 10.Shark 0,7 -- 5,5 1,3 5,0 1,2 4,2 1,0 Source: Subsecretariat of Fisheries ANNEX 6 Page 6 of 16 B. Categories of Commercial Species 16. The prospects for resources are grouped into seven categories reflective of the prospects of large commercial fishing fleets. 17. Hake. The CMS of hake (Merluccius hubbsi) was estimated before 1985 at 380,000 tons per year. In 1979, the largest catch was recorded at 445,000 tons. Over the period 1981-85, the average catch totalled 326,000 tons, 240,000 tons of which devolved to Argentina. 80,000 tons to Uruguay, and 6,000 tons to other countries. In the case of hake, little possibility exists to expand total catches. 18. Other deep-sea and coastal catches include: cuskell (Gynepterus Rlacodes), sea bass (Acanthiatius patagonicus), small dogfish (Galeorkinus vitaminicus), croaker (Micropogon furnieri), and striped weakfish (Cvnocion striatus). Together these species represent 240,000 tons per year. Argentine catches averaged 77,000 tons over 1981-85. For the same period, Uruguay caught approximately 50,000 tons and overseas fleets more than 2,000 tons of the few species in this category available to them. 19. Shellfish: includes different species of mollusks and crustaceans, among which are the mussels (Mytilus platenis), snails (Zidoma angulata). small mussels (Aulacomya magellanica), scallop (Peclen tehuelche), southern king crab (Lithodes antarctidus). other crabs (various species), and octopi (Octopus tehuelchus). It is impossible to make any estimate except for southern king crab (caught off Tierra del Fuego) and the scallops found in the Gulf of San Matias, which are in demand internationally. Projections suggest approximately 3,000 tons. 20. Southern deep water catches include species found principally in the vicinity of the Falkland Islands--to the north of which are hake and other species--but also in southern waters available to the Argentine fishing fleets. These species are prominent because of their biomass, and include pollack (Micromesistuis autrales), the grenadiers (Microurus willsoni). and tailed hake (Microronus magallanicus), southern cod (Salilota australis), southern hake (Merluccius australis), and black hake (Dissostichus eleginoides). These species can support catches of 450.000 tons per year in the total area. .n its best year. Argentina caught only 7,000 tons in the vicinity of the Falkland Islands. Average catch of overseas fleets stood at 166,000 tons for 1981-85 around the Falklands. Fishing centers almost exclusively on pollack. In the general group, some species (for example, skates and silversides) live in the waters off the Falklands on the continental shelf. This subgroup could support an additional 180,000 tons per year; and present catches fall somewhat short of potential. 21. Argentine fishing for crustaceans primarily focuses on prawns (Pleoticus muelleri) and shrimp (Artemisia longinaris), which are coastal resources. However, other crustaceans remain unexploited. Catches have been extremely variable. In 1983, catches amounted to 20,000 tons but declined to only 8,000 tons in 1987. 22. Squid (Illex argetinus) and common squid (loligo sp.) continuously float in large l migrations. Catches range between 20,000 and 30,000 tons per year. In 1987, the overall catch approximated 29,000 tons, of which 27,960 tons were caught by the Argentine fleet and 300 tons by Uruguay. ANNEX 6 Page 7 of 16 23. This heterogeneous group of pelagic species includes tunas, Atlantic bonito (Sarda sarda), and mackerel (Scomber iaponicus), which are of great interest to foreign fleets. Argentine catches typically do not exceed 6,000 tons. Pelagic species commanding a high price include bank anchovy (Pumatomus sallaliex) and amberjack (Seriola rivoliana) with catches at nearly 400 tons per year. 24. The Argentine anchovy (Engraulis anchoita) represents an immense resource, with potential yields calculated at 450,000 tons per year and . some projections as high as 1 million tons. Actual Argentine catches range between 15,000 and 20,000 tons per year. C. Potential Yields 25. The annual report of INIDEP for 1988 (para. 31) estimates that of 19 commercial species comprising the seven sets just surveyed (excluding squid), the CMS approximates 1.6 million tons per year. This includes only yields obtainable from Argentine ports inside and outside the EEZ. 26. If potential catches of every principal resource were totalled, the yield could rise to between 1.9 and 2.45 million tons per year. Even these figures provide no firm estimate of resources since the predictably large sardine and krill assessments are not included. Krill show an enormous potential catch, but technology and the market are inhibiting factors. 27. In the 1960s, the southern species represented no commercial value, and even hake and the coastal species were earmarked for catch reductions. However, in the early 1970's, squid and pollack showed preliminary signs of economic importance which are now fully realized. An increase in the catch of the pelagics and other southern-water fish is very likely, although attempts by many fleets to exploit krill could represent significant yields. III. INSTITUTIONS A. Subsecretariat for Fisheries 28. The Subsecretariat for Fisheries (Subsecretaria de Pesca) reports directly to the Secretary of Agriculture. Livestock and Fisheries (SAGyP)). The main responsibilities of the Subsecretariat are: (a) to define the objectives, policies, planning, and programs related to research, development, and exploitation of renewable natural resources of the sea, continental fresh water, and aquaculture; and (b) to implement and control compliance with regulations to obtain a sustained development of fisheries compatible with preservation of resources. 29. The structure of the Subsecretariat consists of two national administrative offices: (a) Office of Maritime Fisheries, Algae, and Sealing, with the departments of: (i) Exploitation; (ii) Classification, Characterization and Quality Control; (iii) Legal and Regulatory Control; (iv) Marketing; (v) Mar del Plata District; and (vi) Bahia Blanca District; and ANNEX 6 Page 8 of 16 (b) Office of Continental Fisheries, with the departments of: (i) Fish Culture; (ii) Fresh Water Commercial Fisheries; and (iii) Sports Fisheries. 30. The Subsecretariat suffers from insufficient staffing to accomplish its complex and difficult functions. There is a need for: (a) institutional strengthening, especially with regard to technical personnel that can plan, evaluate, and implement components of a development program for the fisheries subsector; and (b) systems to obtain and process sectoral information and statistics quickly and accurately. B. National Fisheries Research and Development Institute (INIDEP) 31. INIDEP is an established and well-equipped institute for fisheries research. INIDEP is required by law to report the CMS of the main commercial species to the Subsecretariat at the beginning of each year as a means to control the amounts caught by the fishing fleets. The decentralized offices are the National Institute is the Investigation and Development of Fisheries (INIDEP) and the National Consolidated Fish Market of the Port of Mar del Plata. 32. INIDEP's resources include laboratories, three research ships, 300 employees (including the ships' crews) and a computing center to support stock monitoring. Besides biological studies and monitoring main fishing stock, INIDEP investigates new fish products and engages in the cultivation of prawns, salmon, and bivalves. It also is developing training programs for crewmen and fish processing technicians. These should be increased in coverage and number of persons participating. 33. INIDEP has budgetary constraints and inadequate facilities relative to its research and monitoring agenda. The budgetary constraints limit action in the areas of training, technology transfer, and control and monitoring of fish stock. C. National Consolidated Fish Market of the Port of Mar del Plata 34. The Consolidated Fish Market controls and executes the daily market bids for fish caught by coastal boats that dock in the port of Mar del Plata (with the exception of frozen hake and squid). All fresh fish is subject to market pricing regardless of whether it ends up in the domestic market or used by the fish processing plants. Although the market is well staffed, support is needed for better handling efficiency and means to rationalize procedures. D. Provincial Institutions 35. F,-!h provincial government has a secretariat-level agency in charge c. actions related to the fishing subsector. These organizations posse, power and administrative mandates that vary according to provincial legislation. To coordinate federal and provincial activities and decision- making, the Government created the National Fisheries Council. This organization should be strengthened and properly staffed to avoid duplicating actions of central and provincial authorities and to simplVfy ooverment interArt4on with nr4v-i ' n rnr4- ANNEX 6 Page 9 of 16 E. Other Institutions 36. The other institutions directly involved with the activities of the fishing sector include: (a) National Animal Health Service (SENASA), under the authority of SAGyP, oversees the sanitary quality and fitness for human consumption of the fisheries products; (b) General Port Administration (AGP), under the authority of the Ministry of Public Works and Services, is responsible for construction and operation of the main fishing ports; (c) The Magistrate of the Argentine Navy, under the authority of the Navy Department, controls, registers, and flags fishing boats, authorizes the crews to work on board fishing ships, and prevents illegal catches in Argentine waters; (d) National Center at Patagonia, under the authority of the National Council for Scientific and Technical Research, and the Center for Research in Fishing Technology under the National Institute of Industrial Technology, conduct research in fishing products and technologies, sometimes overlapping and duplicating the lines of research of INIDEP. IV. MARL1KETING A. Domestic Market 37. Estimates suggest that the domestic market absorbs approximately one-third (150,000 tons) of the fish caught in Argentine waters from continental fishing (13,000 tons) and maritime deep-sea fishing (137,000 tons). Most freshwater fish are sold domestically. Exports of freshwater fish (approximately 2,000 tons of shad) are registered for Nigeria. its only overseas market. National dish consumption per person per year stands at 4.8 kg (31.1 million), low when compared to beef consumption (70 kg/yr). The large center of national consumption is Greater Buenos Aires where approximately 50Z of the population lives and where the greatest purchasing power per inhabitant is concentrated. 38. The domestic market is supplied essentially from La Plata. Hake comprises more than 80Z of domestic sales, followed by croaker, squid, mackerel, and other fine species such as cusk-eel, trout, and sole. These species are principally sold fresh in fillets. Primary sales occur at the National Consolidated Fish Market of Mar del Plata since all catches of the coastal fleet must pass through there, including catches of fine species (excluding hake) caught by the ocean-going fleet. Domestic wholesalers are supplied from this source. The city of Buenos Aires operates a Wholesale ANNEX 6 Page 10 of 16 Consolidated Fish Market under the jurisdiction of its municipal government, with wholesale distribution mandatorily funneled through it. Since fresh fish is highly perishable, distribution takes place primarily in large urban centers that have adequate refrigeration. Lat4ly. demand for frozen fish has won wide acceptance (sticks, fillets, tubes of squid and other shell fish) in the supermarkets of Greater Buenos Aires. Consumption of canned fish (e.g., processed mackerel, sardines, small anchovies, and tuna) equals about 25.000 tons of fresh fish with 96Z of total production destined for the domestic market. 39. There are several reasons for the relatively-low consumption of fish including little consumer knowledge of the nutritional properties of fish, lack of shelves designed for fish products, preference for beef, and higher cost relative to other protein products of animal origin. B. Exports 40. The growth and development of the Argentine fishing subsector is closely linked to the export market. In 1987, fish exports reached 24,000 tons or a total value of US$267 million, which is higher than meat exports. Fishing product exports over the past five years show a somewhat irregular but generally upward movement. Relative increases in revenue are due to shrimp exports and changes in international prices. Table 4: Export of Processed Fish a/ 1964 1985 1986 1987 (C00n (US$ M) ('000T) (US4 M) ('000T) (US$ M) (S00T) (USS M) Frozen Hake 74.6 K' 44.4 b/ 73.6 47.4 102.9 81.8 137.3 131.7 Other Frozen Fish - - 3e.1 34.1 58.5 55.9 49.8 568.2 Frozen Squid 19.9 14.3 14.5 10.1 10.4 10.0 32.2 38.8 Frozen Prawns 21.5 J7.0 12.5 49.4 11.4 52.8 2.3 19.0 Other Frozen 1.0 1.8 2.3 2.3 4.9 4.9 7.1 7.8 Frozen Mollusks 1.4 1.8 0.8 3.7 1.8 2.1 2.0 3.6 Dry Salted or 3.3 4.0 2.8 3.5 5.3 8.7 5.0 9.7 Smoked Fish Preserved 0.3 1.0 0.7 1.2 0.2 0.6 0.4 1.9 Fish meal and oil 0.9 0.2 0.6 9.1 0.7 0.2 0.4 0.1 Alga* 0.4 0.1 0.4 0.4 5.2 8.1 0.2 0.3 Other 2.9 1.3 - -- 4.5 g 1.3 4.4 c/ 1.6 Total 126.5 155.7 160.3 152.2 202.5 219.0 241.1 219.0 ./ Whole and fillet. b/ No separation of hake from other species C/ Plan Barrido (1988-87) ANNEX 6 Page 11 of 16 Table 5: Fish Exports and Foreign Exchange Generated 1983 1984 1985 1986 1987 '000 tons 200 126 152 202 241 US$ million 177 156 152 219 267 Source: Subsecretariat of Fisheries 41. Argentina exports fish products to more than 50 countries; however, on average 70% by volume and 75% by value went to only seven countries: Spain (whole hake, prawns, and frozen squid); US (blocks of hake fillets); Italy (frozen prawns and hake--refrigerated products sent by air); Japan (whole fish, prawns, and squid); Brazil (frozen fish or fresh refrigerated fish, and salted and canned products); France (hake fillets and prawns); and the Federal Republic of Germany (blocks of hake fillets). 42. The most important export category is frozen fish (whole, fillets or blocks) representing 78% by weight and 70% by value. Hake contributed 50% by weight and 50% by value. Frozen squid is the second most important exported product (approximately 14% by weight and value). Prawn exports reached 21,500 tons and US$87 million in 1984, but this category steadily declined to 2,300 tons and US$19 million in 1987 because of a drop in production. 43. Fish exports in a dry-salted/dry-smoked form in recent years have not e,eeded of the total. Great potential exists for processing small anchovies in brine since yields have been estimated at up to 1 million tons per year. 44. The development of canned fish exports (e.g., small anchovies has been impeded due to the high cost of containers. 45. Development of fishmeal exports has been irregular because the domestic price is higher than the international price and because the fish meal industry operates by using residues from the plants. The potential of small anchovies in the zone of the Rio de la Plata and potential catches of deep-sea species currently of low commercial value is now being considered. C. The Processing Industry 46. The processing infrastructure in Argentina for fish and shell fish is based on the export of frozen products. The frozen-fish industry has 160 units with a capacity of more than 800,000 tons per year. The salted- fish industry (salted-moist and smoked) has 45 plants, with 14 canning plants including those for wet, salted products. The 14 fishmeal factories process residues available from the frozen-fizh industry. Total installed processing capacity exceeds 1 million tons per year but only one-third of ANNEX 6 Page 12 of 16 this capacity is used. Most of the plants are located in ports of the Province of Buenos Aires. Installations exist in all Argentine ports with a possibility of establishing plants in Patagonian ports. 47. Processing plants almost always belong to the integrated companies that also have fishing boats and export marketing channels. Notwithstanding the high number of establishments (mostly small plants). about 20 generate between 70-80Z of production. The processing subsecto- is developing dynamically in two directions: (a) concentration of large plants in the hands of holding-type financial groups with capital participation; and (b) foreign "management" of the importer country's plants, through the purchase and rehabilitation of bankrupt plants. Plants of medium or small size are built by shipowners, either as individuals or a consortia. 48. Another indicator of the dynamism of the processing industry is the effort by entrepreneurs to diversify yields, generally toward sophisticated products that should increase local aggregate value over and above the common species (e.g., dry squid using Japanese technology), or to upgrade species of low commercial value (production of surimi, fish nsausages," etc.). For that purpose, Argentine companies favor supporting technologies from importer countries or public research institutions such as INIDEP. V. FISHING LEGISLATION A. Fishing Legislation Principles State Ownership of Resources 49. Live resources in the maritime zone under Argentine sovereignty are the property of the National Government, which grants exploitation of them in conformity with the specific legal sanction. Jurisdiction Shared between the Nation and Provinces 50. Prevailing legislation establishes jurisdiction over the Argentine Sea, stipulating that the Nation has sovereignty up to 200 nautical miles, but reserves to the provinces administration of resources up to three miles offshore as well as gulfs and bays up to the line joining their mouths. For example, exploitation of prawn resources in the Gulf of San Jorge is subject to the respective provinces granting fishing permits and establishing guidelines pertaining to operating rates for use of local resources and installing land-based processing plants. Moreover, the provincial governments have established their own enterprises for some of these activities. Prior Permit for Fishing 51. The Subsecretary for Fisheries grants fishing licenses and assigns catch limits by type of boat to regulate exploitation of the principal species. These procedures proved misleading and were subject to distortion in the real numbers of navigable boats. Higher boat totals were allowed for larde companies even though their vessels stood idle in drydock or were Oon-the-books" as a speculative venture, in case more boats were needed. Recently, the SSP took measures to correct this situation by rescinding a significant number of permits for boats that were not actually in ANNEX 6 Page 13 of 16 Principle of Reserving Exploitation to Boats flying the National Flag and Using Araentine Crews 52. Joint ventures created between Argentine and foreign companies are subject to Government approval. They oblige the foreign company to purchase Argentine products, pay a customary fee and to hire a minimum of 10Z Argentine crewmen. B. International Agreements The Agreement Framework with Russia and Bulgaria 53. These agreements were ratified by Laws Nation Nos. 23,493 and 23,494 which granted access to a specified zone of the EEZ for a limited number of boats from those two countries for two years (1986-88). The agreement with Russia authorized use of up to 18 "Super-Atlantic"-type boats with an annual maximum catch of 180,000 tons, including a provision for catching crustaceans, and allowing accidental catch of hubbsi hake not in excess of 10Z of the total. The agreement also establishes a reserve zone within which the boats may not operate during the months of September and October (to protect southern hake). There is a clause stipulating purchase by the Soviet enterprise of an amount of fish equal in value to 30% of the total catch of the Soviet fleet. This means buying them from Argentine processing plants. In addition, the Soviets must pay a fee representing 3% of the total production value of the ships. The agreement with Bulgaria authorized fish totals at 80,000 tons, with the Bulgarians obliged to acquire an amount equal to 40% of total catch from Argentine companies. Agreements with the Republic of Uruguay 54. There is a joint Argentine-Uruguay fishing zone. Coordination involving establishing quotas and allocating access to those resources is carried out under a Joint Commission created within the framework of the Rio de la Plata Treaty and its Maritime Board. VI. TECHNICAL ASSISTANCE AND RESEARCH A. Design of Ports and Land Facilities 55. Fishing port deficiencies basically reflect problems of vessel entry and draft limitations, extreme variations in high and low tides, and inadequate facilities at the wharves. Other significant infrastructural problems in some localities include lack of energy and water for industrial processing. In Patagonia, no facilities exist for the developing of new industrial activities precisely because of these infrastructural needs, with the additional need for housing. 56. The chief reason is lack of public investment, which in recent decades has not kept pace with the sustained development of the fishing subsector. Not only is port infrastructure insufficient, but shipbuilding companies are faced with no ports for their specific activitiesor inadequate ports and even greater maintenance expenses. General needs include drinking water, sufficient electrical energy, docks for small repairs, and docks for inactive boats. Lack of docks and urban services, esns*ct:11y in 1-he norte nf P;atAonr4- mp-nc th t tho f1a-4hi4tV imnl4melV ANNEX 6 Page 14 of 16 B. Preservation of Maritime Resources 57. Except for prawn caught in the Gulf of San Jorge, no fishing resources exploited by the Argentine fleet represent serious problems for research or Government action. In fact, most resources are still underexploited: estimates suggest that the exploitation of species could double without affecting their sustainability; however, croaker, striped weakfish, red porgy bream, and hake can sustain fewer increases since they are exploited at close to CMS. In general, commercial exploitation of these and other species is restrained more by social, economic, and technical reasons than resource limitations. 58. Natural resources that need special attention are those shared with Uruguay and exploited in the joint Argentine-Uruguay fishing zone. Research in this joint zone should be enhanced and greater effort made to agree on maximum exploitation levtls. 59. One source of particular concern in terms of conservation of fishing resources in the Patagonia region is fishing carried out by foreign boats over the edge of the Continental Shelf and slope. If adequate measures of priority-setting and oversight are not adopted, fishing carried out by foreign fleets in this zone could jeopardize the stability of important fishing resources for Argentina such as southern hake, tailed hake, southern cod, squid, pollack. cusk-eel, and others. C. Continental Resources 60. The information available on the many rivets and extensive lakes indicates that potential yields are considerable and potential could be between two and ten times greater than currently realized. INIDEP now is carrying out an extensive assessment program of lakes and other reservoirs. Under the program, a physical description of lakes and principal reservoirs and the first limnological survey in central, northern and the southern regions have been completed. D. Human Resource Neeas 61. The fishing subsector employs approximately 30,000 people most of whom have had limited on-the-job training. The development of the subsector has been faster than the increase in capacity of existing training facilities or the development of technical schools to prepare specialists. Because of this lack of specialized training, the fleet and the processing plants are working at productivity levels lower than the expected average, although the work force generally has received a good primary education and thus is able to grasp sufficient new concepts to enhance their competent as fishermen. 62. The only school that triins crews for the fishin, fleet is the National School of Fishery at Mar del Plata. It has limited capacity and should be enlarged and strengthened to meet the needs of an expanding subsector. Also, there is no special training center for the shore workers. This is done by on-the-job training by respective fishing enterprises. To fill this gap and conserve fiscal resources, special courses for fisheries specialties might be established in existing technical or vocational schools. ANNEX 6 Page 15 of 16 E. Institutional Contribution 63. Although INIDEP is well staffed and enjoys a well-defined research program, its physical facilities are in disrepair. There is a need for new buildings and equipment. INIDEP also will have to reinforce its monitoring of fish resources and research into new industrial products and marine and fresh-water aquaculture developments. Both actions will require institutional strengthening and specialized technical assistance. 64. Duplication of effort exists among research institutions that need to be rationalized. To obtain better coordination, there is a need for institutional strengthening of the SSP to establish an adequate information system and enforce working agreements among the research institutes involved. Technical assistance will be required to carry this out. INIDEP also will need institutional strengthening to develop schemes for tiansferring new technologies it develops and training personnel in the use of these innovations. VII. RECOMMENDATIONS 65. To develop and increase production and productivity the following measures should be taken: (a) the Subsecretariat of Fisheries (SSP) should be strengthened so it can carry out more effectively its prescribed functions, systematically develop plans and programs to strengthen the fisheries industry, and prepare and evaluate better investment programs; (b) catches of the coastal fleets should be diversified to develop new products and use underexploited species like anchovies --which are used as raw material for fishmeal and are caught using purse seiners, which are not yet available in Argentina; (c) personnel training and applied research should be undertaken, which will require new buildings and installations; (d) modernization or purchase of equipment for shore-based plants should be done as quickly as possible; and (e) the fishing industry should update or modify its fleet to reflect the types of vessels most suitable for fishing in Argentina's waters. 66. Accomplishing the latter two measures will require resolution of two issues: (a) lack of investment credit for financing the purchase of needed boats, equipment, parts and gear; (b) customs duties and import taxes on needed equipment should be rationalized. The present high levels tend to restrain the in-flow of necessary equipment and modern technology. ANNEX 6 Page 16 of 16 67. To achieve an integrated, rationalized use of resource potential, an overall strategy should be oriented to support private sector initiatives. To accomplish this, the GOA should set clear and simple guidelines and develop regulations to support the subsector. This will require coordinated planning of resource use and avoiding overly complex bureaucratic procedures to facilitate private sector expansion. ANNEX 7 ANNEX 7 ARGENTINA AGRICULTURAL SECTOR REVIEW AGRICULTURAL PRICING AND TRADE POLICY Table of Contents Page No I. BACKGROUND ................................................ 1 II. INDIRECT INTERVENTION IN AGRICULTURAL TRADE ............... 2 A. The Import Regime and the Exchange Rate ............... 2 B. Agricultural Inputs ................................... 3 III. DIRECT PRICE AND TRADE INTERVENTION IN AGRICULTURAL NAREETS ................................................ 5 A. The Trade Regime for Exports .......................... 5 Cereals and Oilseeds ................................ 5 Meat and Wool .................,.................... 6 Fruit and Vegetables ................................ 9 B. Price Controls ........................................ 10 C. Agroindustry .......................................... 11 IV. IMPACT OF TRADE AND PRICING POLICIES ON AGRICULTURE ....... 14 V. CONCLUSIONS AND AN AGENDA FOR REFOR ...................... 21 List of Tables 1. Argentina's Share of World Agricultural Exports, Selected 2 Commodities and Years .................................... 1 2. Import Tariffs on Agricultural Inputs, 1981-1988 .......... 4 3. Export Taxes on Cereals and O1seeds ...................... 7 4. Average Price and Export Regime for Prepared Meat Products. 8 5. Export Taxes on Wool ...................................... 9 6. Export Regime for Selected Fruits and Vegetables .......... 10 7. Agroindustrial Exports by Sector, 1973-1986 .............. 12 8. Share of Exports in Production of Agroindustry by Sector, 1973-1986 .................................... 13 9. Real Effective Exchange Rate Index for Selected Agro- Industrial Products, 1977-1987 .......................... 15 10. Prices of Principal Agricultural Products, Relative to the Non-Agricultural Price Index ......................... 16 11. Nominal Protection Rates of Principal Agricultural Products ................................................ 17 12. Effects of Direct and Indirect Price Intervention on Relative Prices of Principal Agricultural Products ... 18 13. Changes in Output in the Absence of Price Discrimination .. 19 14. Reduction of Producer Surplus as a Percentage of ANNEX 7 Page 1 of 22 ARGENTINA AGRICULTURAL SECTOR REVIEW AGRICULTURAL PRICING AND TRADE POLICY I. BACKGROUND 1. Before the 1930s, the pricing and trade policy of the Government of Argentina (GOA) towards the agricultural sector could be characterized as benign neglect. The sector responded to this policy environment with high rates of growth of output and exports, as investment in infrastructure opened up the Pampas to cultivation. In the 1930s, the conditions that had been favorable to agriculture's growth began to deteriorate. The external relative prices of agricultural products fell, and this trend was reinforced by policy-induced shifts in the internal terma of trade, such as increases in tariffs and exchange controls, that had the effect of protecting domestic industry. World War II magnified this effect, as Argentina was isolated from international markets, further depressing prices of agricultural products, which were mostly exportable, relative to those of industrial products, which were mostly importable. After the War, with normal international transportation links re-established and commodity prices high, the prices of agricultural exports should have made a strong comeback, while industrial importable prices should have fallen. Instead, the GOA effectively consolidated the war-time terms of trade by various interventions, and embarked upon the import-substitution policy that has characterized the economic strategies of almost all successive governments until very recently. The effect of this policy has accumulated over time, gradually reducing incentives to invest in the sector and squeezing Argentine agricultural exports out of their previous shares of world trade (Table 1). 2. The interventions used to shift the terms of trade of agriculture vis-a-vis industry can be broadly divided into direct and indirect. In the former category are measures such as internal price controls and export taxes or restraints that act on the domestic prices of agricultural products, depressing them below the level of the international prices of comparable products. In the latter category are measures that either change the prices of agricultural inputs or alter the exchange rate, both of which indirectly affect the incentive structure of agricultural production. Sections II and III describe these two aspects of the pricing and trade policy regime, and are intended to be descriptive rather than analytical. Section IV analyzes the net impact that these policies have had on the sector, and Section V draws inferences from this analysis to make recommendations regarding future policy in the area. ANNEX 7 Page 2 of 22 Table 1: Argentina's Share of World Agricultural Exports, Selected Commodities and Years., (as Percentage of Total Volume) Commodity 1924/83 1937/8 1948/52 1958/60 1981/65 1988/70 1971/75 1978/79 1980/82 Wheat a/ 18 23 9 8 7 6 3 5 4 Corn 65 $4 24 18 18 15 18 8 8 Sorghum 6 9 0 9 17 19 25 38 29 Sunflower / n/a n/a 82 n/a 94 S/ 6s 6s 25 64 Linseed k/ 78 79 n/a 57 88 61 44 43 62 Soybeansa/ 9 0 0 a 6 0 a 5 8 Beef s s 8 37 29 20 9 10 7 Wool 2/ 12 12 11 9 8 7 4 7 7 I/ Excludes wheat fleur. / Mostly meal, after the mid-1940s. c/ 1959-683 d/ Bean exports only, but in recent yea s, soybean meal have increased. g/ Greasy and washed wool. Source: M. Mielke, "Argentine Agricultural Policles in the Crain and Olseed Sectors, USDA, Foreign Agricultural Economic Report No. 208, Sept. 1984. II. INDIRECT INTERVENTION IN AGRICULTURAL TRADE A. The Import Regime and the Exchange Rate 3. Apart from their impact on agriculture through raising input prices, import-substitution policies in Argentina have had an important effect in indirectly suppressirg output prices. Any policy that artificially reduces the volume of imports also reduces the demand for, and the price of, foreign exchange. Consequently, exporters receive less domestic currency for the foreign currency they receive; that is, the domestic price of exports is depressed by the resulting over-valuation of the domestic currency. This over-valuation has been reinforced over the years by massive foreign borrowing. There is good evidence (Section IV, below) that the negative impact on the sector from over-valuation of the currency has been at least as important as the more traditionally defined agricultural policies in suppressing agricultural development. 4. Recently, the GOA has begun to change the basic orientation of the economy away from the import-substitution policies of the past. During 1987, it reduced the list of products subject to quantitative restriction (QRs) from a coverage of 62.3Z of domestic manufacturing production to 36.8Z. It did this without taking any compensating measures (e.g., raising tariffs on the products removed from QRs). Nonetheless, tariffs remain significant, with a production-weighted average tariff of 43Z (including a 15% surcharge applied under the Plan Austral). Surcharges and exemptions under various industrial promotion plans introduce numerous distortions, though the net effect of these does not seem to be to increase over11 ANNEX 7 Page 3 of 22 B. Agricultural Inputs 5. Agriculture in Argentina is relatively extensive, using smaller volumes of manufactured inputs than in many countries. Nonetheless. mechanized inputs are obviously important for extensive agriculture, and the importance of other inputs has been increasing over time.1 Consequently, the treatment of these products in the trade regime has been of some importance in establishing the overall treatment of agricultural production. 6. In general, trade policies toward agricultural inputs have served to raise their domestic prices, reinforcing the anti-agricultural bias created by the direct interventions in product pricing (Section III). The import-substitution policies that were initiated after World War II were applied stringently to agricultural inputs, with the import of most items subject to outright bans (e.g., low-horsepower tractors before 1979) or prohibitive duties. Before 1977, representative tariffs were 60% for seeds, fertilizer and tractors and 65Z for agricultural chemicals.2 However, beginning in the late 1970s, the GOA has steadily reduced these high rates of protection. By the early 1980s, tariffs fell to 13Z for most seeds and averaged 20Z on farm machinery other than tractors. Fertilizers and pesticides not produced locally entered duty free, while urea imports were taxed at 28Z. Tariffs on tractors averaged 29Z. Since 1983, there have been few changes in the tariff regime, except that since December 1985 all products not exempt from the tariff (and even pesticides and herbicides that are exempt) have been subject to a 15 surcharge under the Plan Austral. The evolution cf th- import regime for inputs is summarized in Table 2. 7. Until recently, export-oriented industries such as agroindustry were given some concessions through a scheme to rebate duties paid on imported inputs, but the paperwork was burdensome and the schemes were not universally used. Now, however, most of these exporters are eligible to participate in the "temporary admissions regime" for intermediate inputs. This means that they can import such inputs duty-free for use in export production. This is not, however, a free trade regime, since capital goods are ineligible and duty-free inputs must be exported after processing. Two separate schemes offer some opportunity for duty-free entry of capital goods. Furthermore, not all imported inputs can be imported automatically. Some imports must be, in effect, approved by domestic producers, though once approved they can enter duty-free. Nonetheless, this program has undoubtedly reduced the anti-export bias coming from tariffs on imported inputs. Under the IBRD Trade Expansion Loan a study is currently underway to estimate protection rates and the magnitude of the bias in the industrial sector, including agroindustry, but it is not yet complete. 1/ Sturzenegger has estimated that the share of seeds, oil, fertilizers, herbicides and insecticides in value added increased from 1O% in 1960 to over 20Z in 1985 for the five main crops in the Pampas. 2/ Mielke, "Argentine Agricultural Policies in the Grain and Oilseed Sectors," USDA, Foreign Agricultural Economic Report No. 206, Sept. 100" ANNEX 7 Page 4 of 22 Table 2: Import Tariffs on Agricultural Inputs. 1981-1988 a' Tractors Ag. Machinery Fertilizer Insecticides 16HP 15-35HP 36-14UHP >140HP P.D. N.P.D. Parts Ursa P.D. N.P.D. P.D. N.P.D. Nov./80 30 0 80 0 27 a 0/18 15 15/29 9 10/20/ 29/32 0 May/81 48 5 48 5 44 5 6/35 28 28/40 0 23/28/ 33/40/43 0 Nov./81 48 5 48 5 44 5 5/35 28 28/40 0 23/28/ 33/40/43 0 Mar./81 48 10 48 10 43 1 10/35 26 28/40 0 23/28/ 33/40/43 0 Dec./82 38 10 a8 10 38 10 10/31 25 25/35 a 21/29/ 35/38 0 Apr./83 38 10 38 10 38 10 10/31 25 25/35 0 21/29/ 35/38 0 Apr./84 38 10 38 10 38 10 10/31 25 25/35 0 10/21/ 35/38 0 Apr./85 38 10 a8 10 38 10 10/31 0 25/35 0 10/21/29 35/38 a Dec./85 38-15 10-15 38-15 10-15 38-15 10-15 10/31-16 0 26/35-5 0 10/21/29/ 85/38-15 0-15 Apr./86 38-15 10-15 38-15 10-15 38-15 10-15 10/31-15 0 25/35-5 0 10/21/29/ 35/38-15 0-15 Dec./88 38-15 10-18 38-15 10-15 38-15 10-15 10/31-15 0 25/35-5 0 10/21/29/ 35/38-15 0-15 Apr. 38-15 10-15 38-15 10-15 38-15 0-15 10/31-15 0 25/35-5 0 10/21/29/ 35/38-15 0-15 May./88 38-16 10-15 38-15 10-15 38-15 0-15 10/31-15 0 25/35-5 0 10/21/29/ 35/38-15 0-15 a/ P.D. denotes produced domesticaily; N.P.D. denotes not produced domestically; / Indicates range of tariffs; - Indicates temporary surcharge under the Plan Austral. Source: SACyP ANNEX 7 Page 5 of 22 III. DIRECT PRICE AND TRADE INTERVENTION IN AGRICULTURAL MARKETS 8. Argentina ie almost self-sufficient in agricultural products, and agricultural imports represented only 3.6% of total imports in the period 1980-84. Consequently, apart from legal controls on domestic prices of specific food products (see Section III.B below), direct intervention that affecting the prices of agricultural products operates through the export regime. A. The Trade Regime for Exports Cereals and Oilseeds 9. As tools of direct intervention in the market for grains, the GOA uses regulation of the market by the National Grain Board (JNG), export taxes and authority to set the registered price at which grain exports must be reported (and foreign exchange remitted). 10. The JNG3 was established in the 1.930s as the State's regulatory presence in the grain markets. Since its inception, it has at times held a monopoly in the export market and at other times (e.g., 1973-75 has also been the sole purchaser of wheat from domestic producers. Currently, private exporters are by far the largest purchasers of grains and oilseeds on the domestic market, with JNG operating a support price program (mainly for wheat but also in sorghur , corn, and oilseeds) by purchasing crops in distant production areas where private traders cannot profitably purchase the crop at the GOA-established support price. 11. There are around 100 registered *exporters,, though of these only about 15 actually export. This is at least partially an artifact of the registered price system, which effectively requires that any actual exporter must sell to an offshore affiliate. The other "exporters" are, in reality, middlemen. Exporters' positions in the market are protected by their allotment of fixed shares of the overall export quota set by JNG. JNG is also active in the international market, being the GOA's agent in government-to-government sales, which in recent years have been 10-20% of all exports. In the wheat market, it uses primarily its own supplies purchased for its support price program, while in other crops, it purchases from private traders. From the viewpoint of the trade regime, probably the JNG's most important role is to establish the wheat export quota, which is intended to reserve *sufficient* grain for domeAtic consumption. The quota is enforceable by JNG's authority to suspend exports at any time. The quota, along with explicit export taxes, are the tools by which domestic prices have frequently been depressed below international levels. 12. Export taxes on grains have historically been quite high, reaching 56Z in 1976.4 In addition, they have occasionally been changed during a crop year, changing domestic prices and creating havoc with contracts. Under the 1986 IBRD Agricultural Sector Loan export taxes were reduced below the levels in effect in May 1985, but their reduction to zero (in the case of grains) or to low levels (in the case of oilseeds) was made necessary by the fall in international price levels to historical lows (in 3/ The JNG is discussed at greater length in Annex 2, "Grain Marketing". ANNEX 7 Page 6 of 22 real terms). Table 3 shows the movements in export tax rates between 1981-1988. After the Spring Plan of August 1988, a dual exchange was introduced specifically to discriminate against agriculture. With the introduction of a unified rate in May 1989, explicit export taxes were reinstated at high levels.5 13. The "registered price* is the quantity of foreign exchange that must be remitted to the Central Bank by a private exporter for each ton of grain exported. The JNG sets this price on a daily basis, supposedly on the basis of actual market conditions, though some traders argue that the price is consistently greater than true market prices, leading to a small extra tax when averaged over a long period of rising and falling markets. In the short run, however, the registered price system causes a much greater divergence between market prices and prices actually received by exporters. The registered price for a given shipment is established at the time the sale is registered; that is, at the time the exporter 4-.uforms JNG that he has a contract with a buyer. The contract will generalj be for future delivery, so the actual sale may not take place for some time after the sale is registered, and it is at that time that the exporter actually receives payment. The fact that the registered price is not set on the basis of the price prevailing on the day of the sale means that the system may either impose an added tax or provide a subsidy. It also creates an incentive for strategic behavior by the exporter. If he expects the market price to fall, he has an incentive to delay registering a sale to reduce the registered price, and conversely when he expects the market price to rise. This system also creates a de facto requirement that any true exporter must sell to an offshore affiliate so that the gains or losses (created by the difference between the sales price and the registered price) stay within the firm. The staff required to coordinate with the offshore operation is reported to create a costly burden on the exporting firms. Meat and Wool 14. The National Meat Board (INC) plays a somewhat less active role in the export market for meat than does JNG in the grain market. It does not intervene in the domestic market, and participates in export transactions only when requested by the buyer, as a broker or a guarantor. It does not actually consummate the sale except in those cases where the private exporter defaults on a contract. Its other roles include hygienic inspection and certification of exporters' meat processing plants, jointly with the National Animal Health Service (SENASA); distribution of quotas to import certain high-quality cuts of beef; promotion of Argentine exports in the world market; and setting reference prices, which, like those set by the JNG, define the minimum foreign exchange that must be remitted per unit of exports. 15. The major instrument used by the GOA to change the incentive structure in the beef market is the export tax, or on occasion subsidy. Table 4 summarizes the taxes and subsidies on different types of beef and also shows an index of the real effective exchange rate to exporters after 5/ Export taxes per se are the primary, but not the only, levy on exports. Since 1984, there has been a 1.5Z tax earmarked for INTA, the agricultural research institution. Other fees and duties--including the JNG inspection fee but excluding handling costs, port charges, and Table 3: Export Taxes on ûrains and OilseeJs a ----------- Søy--------- -------- Sunflower ------- --------- Lins~e------ Wheat Maizø Sorghum Bean Oil Subproducts Seed Oil Subproducts Seed Oil Subprodmcts 08/04/81 0 0 0 0 (10) (10) 0 (10) 0 0 (10) 8 08/0/81 0 0 0 0 (10) (10) a (10) (6) 0 (18) (6) 12/24/81 10 10 10 10 (10) (10) 10 (10) (6) 10 (10) (6) 06/0/82 10 10 10 10 0 0 10 0 6 10 0 6 07/06/82 25 26 26 26 10 10 26 10 16 26 10 16 12/1/83 18 26 26 26 10 10 26 10 16 26 10 16 01/04/84 18 26 26 26 13 13 26 14 17 26 10 16 05/24/84 18 26 26 26 13 13 33 22 17 26 10 16 06/02/84 18 26 25 25 19 13 33 22 17 26 10 16 07/02/84 18 26 25 26 19 7 26 22 17 26 10 15 08/24/84 18 25 26 26 10 10 26 14 15 25 10 16 10/29/84 24 31 31 31 16 16 31 20 21 31 16 21 11/23/84 24 31 31 31 25 13 31 28 23 31 18 21 12/07/84 18 31 31 31 16 18 31 20 21 31 16 21 01/09/85 18 31 31 31 16 16 26 18 0 31 16 21 02/07/86 18 26 20 26 10 10 26 14 16 31 16 21 08/04/86 18 21 20 25 10 10 26 14 16 31 16 21 06/11/86 28.6 29 28 32.6 19 19 32.5 23 23.6 38 24.5 29 10/10/85 16 29 18 32.5 19 19 32.6 23 23.6 38 24.6 29 11/07/86 16 29 28 32.6 19 19 32.6 23 23.5 27 13.6 18 ø1/10/86 16 29 28 32.6 19 19 27 17 22 27 13.6 18 02/22/88 16 21 20 32.6 19 19 27 17 22 27 13.6 18 03/20/86 16 21 20 27 16 16 24 15 20 27 13.5 18 07/08/86 6 21 20 27 16 16 24 16 20 27 13.5 18 09/17/86 6 21 20 27 15 16 24 16 20 16 1.6 6 OQ z 01/0/87 6 15 16 16 3 3 15 8 11 16 1.6 6 (t Harvest-.;4 1987/88 0 0 0 11 0 0 10 0 0 12 0 0 a/ In percentage. Parentheses denote subsidy; others are tax. After 4/9/84, all exports taxed an additional 1.6% earmarked for INTA (not included in chart). Source: SAGyP. ANNEX 7 Page 8 of 22 adjusting for these. The table also shows the average price received for exports and it is worth noting that the taxes and subsidies have tended to move to off-set changes in the world price. 16. Since they are considered a traditional export, meats have been included in very few export promotion programs. Sporadically, some prepared meat products and cuts have been included in programs of preferential financing or credit against the profits tax, but this has never been true for chilled or frozen meat. Processed meats are eligible for the duty drawback scheme that rebates import duties paid on inputs, but are ineligible for temporary admission status, whereby eligible exporters import inputs duty-free, thereby avoiding the burden of applying for the rebate. All meat products are ineligible for rebates of indirect taxes, though prepared meats are eligible for certain subsidies under the Special Export Program; this program, however, is currently being phased out. Table 4: Average Price and Export Regime for Prepared Meat Products Quarter Cut, chilled and Cooked frozen International Chilled, bone-in frozen, bone-in and prepared Year Price a/ Tax b/ REER c/ Tax b/ REER c/ Tax b/ REER c/ 1970 498 14.2 100 8.8 100 3.3 100 1971 736 5.8 99 0.0 99 0.0 95 1972 835 29.8 79 17.8 87 15.2 74 1973 1,195 30.7 63 20.3 68 4.6 138 1974 1,144 17.6 75 1.4 85 (5.6) 132 1975 765 18.2 85 (6.7) 129 3.6 113 1976 705 13.8 137 1.3 145 (5.4) 95 1977 801 15.0 103 1.3 115 (10.0) 73 1978 828 7.5 94 0.0 96 (12.4) 67 1979 1,417 0.0 75 0.0 71 (5.7) 79 1980 1,649 (2.4) 69 0.0 65 (2.2) 110 1981 1,523 (1.0) 85 0.0 80 0.0 140 1982 1,199 15.0 102 (2.4) 101 (0.2) 113 1983 1,162 20.0 125 (1.0) 126 2.1 1984 1,208 14.8 114 11.7 110 6.0 1985 1,11.5 11.5 129 15.0 126 6.0 1986 1,288 15.5 11.1 110 1987 15.5 3.5 141 Al Median price fob, bone-in. b/ Figures in parentheses show subsidy. c/ Real effective exchange rate index, adjusted for internal price level and tax (or subsidy) 1970 = 100. Data for 1986-87 from SAGyP. Source: Tables 3.2.5, 3.3.1, 3.3.2, 3.3.3, 'Diagn6stico Sobre el Comercio Exterior de Carne Vacuna en la Repfiblica Argentina,* SAGyP and IICA, April 1987. ANNEX 7 Page 9 of 22 17. As a traditional export, wool has also been taxed heavily, though exports of yarn and thread, with a higher value-added, have frequently escaped taxation and have even been subsidized at times. The rates of taxation have been high and variable. As indicated in Table 5, rates since the end of 1987 have been at their lowest levels in recent history. Fruit and Vegetables 18. Since there is no governmental regulatory agency analogous to the JNC or JNG in the fruit and vegetable market, direct interventions have occurred through manipulation of trade taxes, subsidies, and rebates. As indicated in Table 6, exports of these products have usually been taxed, though the rates have varied greatly over time and across crops. 19. Exports of fruits have been eligible for rebates of indirect taxes on inputs since the end of 1985. Before that, only dried fruits and vegetables were eligible. They*are also eligible to participate in the duty drawback and automatic temporary admission schemes for inputs. Until recently, this was apparently not the case, as local manufacturers of packing materials were reported to be blocking imports by some processors. At the time of the mission GOA assured that the admission of imported inputs now is completely automatic. This can be quite important for fruits and vegetables, as the cost of inputs other than raw materials can be 50-70Z of the fob export value, and domestic inputs, especially packing materials, are reported to be less desirable than imported inputs on the grounds of price and or quality. Citrus fruits exports, but not others, are eligible for concessionary financing. Table 5: Export Taxes on Wool a/ (Z ad valorem) Greasy Date Greasy Washed Combed Classified Yarn Thread 4/9/84 22 15 10 18 0 (5) 10/1/84 18 12 5 18 (5) (10) 10/29/84 24 18 11 24 1 (4) 6/11/85 32 26.5 20 32 11 6 9/30/85 28 20.5 14 24 5 0 9/8/86 19 11 7 15 0 0 11/9/86 17 9 5 13 0 0 9/1/87 9 3 0 5 0 0 a/ Excludes 1.5% earmarked for INTA; figures in parentheses show subsidy. Source: SAGy2. ANNEX 7 Page 10 of 22 B. Price Controls 20. Legal controls on prices of agricultural products (processed or raw) are neither a necessary nor sufficient condition for depressing prices since virtually all such products are tradeable, with their prices therefore determined by trade controls. Nonetheless, price controls throughout the world are used as an adjunct to trade controls as a means of altering relative prices in an economy, frequently suppressing food prices. and are sometimes capable of introducing at least temporary distortions on their own. Consequently, it is worthwhile monitoring their use in Argentina. 21. Price controls in Argentina have a long history, but in the recent past have been used extensively since the introduction of the Plan Austral. Currently, they are administered from a sub-secretarial post in the office of Domestic Trade Secretariat. This sub-secretariat is divided into two groups, one of which'analyzes requests for authorization of price increases and one of which (with a staff of about 400) enforces the controls. Sanctions for violators can range from fines through temporary closure to confiscation of assets. Table 6: Export Regime for Selected Fruits and Vegetables a/ Grapes, .Plums, Date b/ Lentils Garlic Asparagus Peppers Citrus Peaches Melons 1980-82 -- 7 7 -- -- -- -- 07/06/82 (10) (10) (10) (25) -- -- -- 11/29/83 n.c. 0 n.c. n.c. (10) (10) (10) 06/15/84 n.C. n.c. n.c. n.c. 0 n.c. n.c. 10/29/84 (16) (6) (16) (31) (6) (16) (16) 11/27/84 n.c. n.c. n.c. n.c. n.c. (6) n.c. 03/15/85 n.c. n.c. n.c. n.c. 0 0 0 06/11/85 (10) (15.5) (10) (10) (10) (10) (10) 02/19/86 n.c. (8) n.c. (5) (5) 0 0 07/08/86 0 n.c. (5) n.c. 0 n.c. n.c. a/ Figures in parentheses denote taxes; others denote subsidies. -- denotes no data; n.c. denotes no change. b/ Date of decree establishing rates of tax or subsidy. Source: "Evaluaci6n de los Instrumentos de Promoci6n de Exportaciones Utilizados Tradicionalmente en la Argentina,* SAGyP and IICA, p. 15-17. 22. Under the Plan Austral, prices of virtually all products (except fruits) were initially frozen, and later allowed to rise only with previous authorization. In March 1986, some primary agricultural products-- including grains, oilseeds, beef, and pork--were exempted from the controls. Other a-ricultural or fooi nrodnet--stih a drnep- ai ANNEX 7 Page 11 of 22 cookies, and dairy products--were put under a more flexible system that automatically (every 30-45 days) authorized increases, rather than fixing absolute ceilings. However, as general inflation accelerated in 1986 and 1987, producers began to pressure for more frequent adjustments, with a subsequent decline in enforceability of the system. Recently, most products, including all foods, agricultural inputs and outputs, and livestock products and veterinary supplies,6 have been completely removed from price controls. The prices of some industrial products, representing 20-25% of the wholesale price index, remain controlled. 23. The way in which price controls have been administered since the Plan Austral argues that they have been more an instrument of macroeconomic policy than a tool to depress agricultural prices, as has been the case elsewhere. Nonetheless, the experiences of this and other countries indicates that such controls are not effective anti-inflationary tools in the long run, and their use runs the risk of introducing, perhaps inadvertently, distortions into the economic incentive structure. Experience also indicates that when political pressures mount for price controls, agricultural prices are generally the first to be suppressed. C. Agroindustry 24. Exports of food, beverages, and tobacco have historically accounted for 50% or more of all manufactured exports (52.42 in 1986), with textile and leather products accounting for about another 10Z (12.4% in 1986) (Table 7). Both of these sectors are export-oriented, with the former exporting about 14% of its production in 1986 and the latter 112, compared to an average of 8Z for all manufacturing sectors (Table 8). They are also major users of primary agricultural products as inputs. 25. The incentive structure for agroindustrial exports is shaped by some of the same forces that determine the incentives for primary exports, though the effect of some policies is different in each case. From the perspective of agroindustry, which processes primary commodities, taxes or restraints on exports of these inputs lower their prices, thereby increasing the protection for the value-added in processing. Protection from this source is quite important for some industries; for example, it is doubtful whether substantial quantities of oilseeds would be crushed domestically were it not for the still-significant taxes on their export. Other policies, such as overvaluation of the currency, affect primary and agroindustrial exportables across the board. 26. Before 1987, the most important export promotion program was a scheme under which certain targetted businesses could receive direct subsidies for incremental exports (PEEX). This scheme is now being phased out. In the future, the most important export program will be a general scheme for rebating indirect taxes (mainly taxes on imported inputs and the value-added tax) for exported products. This has been supported by the World Bank under a Trade Policy and Export Diversification Loan (Ln. 2815-AR). The rate at which the rebates are set for each product category was established by an input-output exercise on a sample of products representing 65% of manufactured exports. There is not a consensus that the rates are a true reflection of the actual taxes paid, but the new system seems a clear step in the direction of removing the 6/ The only exception is a veterinary nharmacert4ri nrniet whoea nicp i, Тв►1в 7: Auroiпdw�jвl ЕаоогЧ br 8кfvr. 1У79-14ав 1978 19)+ 197в 1916 1977 197в 1979 19в0 19в1 19вп 19&1 19В� 19вS . 199в wм�г.сwгвг. воопвв.+ +аэвllо.о певаеы.9 +ооовlп.а ыытьа.l в79rкв 1 вэооыа.v ьввтюl п вsпвп9п.а +99sввв.r вгв•r�та.7 ввгпаво.о +9гvпое.в +ввооы.т г-о.+. ыУлk .ва тол.«о alaaan.l пааепавs lмавw.п пlnазе v г9в+э+1.• svovla►.a а+n9ап.в п9вlпх.а п++впlе.о ппаавеи.а п+зsо9г.s saaen9.o ппвтои.о sавсюыя Fooo аоыова.9 п+ы9ав.п 1+апы.+ пов9тsо • пvозгао.а sвиие.l аэеаье7.а пвы9и.1 пвоооов.в п1о9а9в.а гзv�Ьв.а пыптао.о впьпов+.7 п+апlм.а миа 19та7ав.в 9пвтвв.е вваопа.е 9воsао.е ипееоз.+ 1атвlо в 179ивп.в 1sa9r)а.в lизепа.7 ев+ав9.т sseeoo.9 +пы++.о ю►9ва.ь впп+ао.е и3гr лтеев.+ ы9та.1 ы71п.е 111впп.+ и+па.а rlегв.п аэоlт.а эв+ее.v a71Ta.v авеs9 п ььаы.Т vaaa.o tт17+.9 п+sоа.ь Fгuiб м+ VеввtвЫи 7es+s.1 1soz1T.• ва�пко.9 9пlав.v lэзавl.п 1+епв9.о 1+оsоея 1оlвво.+ e191+.s ввв7+.в твlео.а 7па17.о пвз1.7 ееов+.е FY.b а7+7п.7 вваоо.9 saoss.s евв9 9 иаее.а епав.l т9ввs.т 1ево7.а авs+п.в 1ы1:..в иоою.7 lьооsв.о 1salss.a иы19s.1 ос1. ме F.a аавsво.п во1в79.е юsovo.s ивп+9.е аапг7.в евв9а7.п v9еоы.9 вввиа.в ввевпl.а 7вs1v9.v Тав7ат).ь lsaor9a.o 1+ввооs.е 1+апеи.о Иi11вд Ргдис4iм l8 0.7.в 1+вв97.о 17+вп9.6 п7в'�па.9 УЮ777.О lв7ов7.6 1770в1.1 /ава7п.б 1ов9Е1.о 98172.b 11860в.0 tJ9779.0 9+091.6 94пц.L ввМЧ Ооодв +от.б п811.9 6вв.1 1&И в 3020.8 ав8в.7 вввв.8 +177.1 58вв.1 +1ов.6 авв7.! 1+07 А 160т.9 2В16.В sw.• пТопев.а ат+ввв.п поlоа9.в 1аsв7ь.е ssa9aa.s аеч+т.7 sв99s.r sse9a7.e т99ьпо.9 авееv.l Тезотl.+ lоппм.о s7ert.т пвви.s сосо. asvs.в ssls.t +9в1.7 евsп.т 1паа.п 1ппа9я lвовв.а 1оо99.7 ьпlв.в vaoe.7 м7r.о ,�эв.о ьыо.• 7sse.s w7a.. т.., .со. +a7s.e авnl.т +ови.7 +еоаа т 79see.a вг+и.а вsеов.l вгеэs.n +всы.в asosa.s ео9зп.7 п+9в.о ++ьав.в +пивя Ввlмсвд Fи1 StuH ЧВ.а 7.0 О.+ +0 в Lво.1 п7а.в Ьбп.в S9b.+ аа0.0 а?9 i 1+в.9 в99 А 71.а Впп.7 огь.ьв а+овв.1 втвтв.l +оовlо.в +вып в т9амs аооев.а 9+п7+.9 тат в w1a.e sw9s.e апио.+ пвы+.о пп7втя lessв.o Alcohol вп/ lyfвitв 1авОв.в aWS5.1 1паВв.В l19в0 8 пп981.п 02в0.1.8 +в196.9 ++ООв.1 97Jв7.9 �5в97.9 18019.8 17+7в.0 166t0.+ 109в9.в r3м вв+ сы.г т+пв.в 9и1s ваlа.п tы9т.s ss92a.1 аиео 1 пиоа п 1ыав.а 1a+e1.s 1sleo.z еэ+о.• еlав.о в1а7.+ и1о.п вмг 1юп.е uaav.9 19пе9.1 19овп.9 ат+п.а ssasll п7ыв.в /aeos.l zэап.а 1ве7.1 ыа.9 1.о 1т.1 77т.о 1ы-лlстрlь. мьвьв 1.п ав.е 19.а ц.s so+.e ю.е о.о а.о а.1 1+.а s.+ а.о з.о 1.п толксо lsaeo.a певвs.а 1пап.в а7в.1 17в7.1 1oe7.s ипо.в swt.a 1os о о.о 9вв.в а+а.о sta.• п+1.9 ��: •1o+uвWYвlYsвeidn у Евуог4сiбn Ов NвоиlвсWгм м 1в МвмСiпв°Evo1ue16w ЕвЬгrсWгв) у Аувrfлств Евргtвдогв (1978-19вв).� Савiвlба Есопбвiсв 1ив Ав[,гiсв Lвtinв. Вимов Аiгвв. Осб. ]9в7. R7 � � OG fD l � F�' и.1 о м и и 4 в в г ТаЬ1в 9: �аге оР Е■оогls,Sn Ргодие0iоп of Аогоiлдиsl;.гч Ьу Sector. 1973-1988 af �х� 1979 1974 1975 1976 1977 197В .i79 1980 1981 1992 1985 14р4 1986 Ргомдiо Manutacturero 8.17 8.85 4.56 8.о1 9.Э7 8.92 • 8.95 6.73 7.SB 9.89 9.39 9.87 9.42 9.02 Food, Driпk апд ТоЬвссо 18.'20 12.69 9.44 16.В4 17.57 14.41 11.еВ 9.24 9.69 14.68 19.27 18.88 17.93 14.12 Food 20.41 18.11 11.60 18.81 20.94 17.91 14.Ь5 11.97 11.9Э 16.51 22.41 22.02 21.74 17.27 MesC 26.91 19,74 12.12 19.09 1В.2В 18.15 34.51 9.98 11.94 13.68 13.05 7.88 10.26 14.Ь3 Dairy Ь.ц 9.27 Ь.16 12.49 7.i5 6.00 1.65 1.71 1.5В S.4a 4.25 1.15 2.12 1.35 Fruios епд УвреW0lи 18.08 18.98 11.03 19.28 9Э.99 47.16 30.12 26.44 29.Э9 4в.18 ц.13 33.15 32.29 26.54 РiвЬ 23.56 б2.27 24.01 17.94 В.в0 22.Ы 43.65 9.78 41.60 -- -- -- '- 86.7в Oi1s впд FaOS 60.43 69.42 24.84 �.85 ЬВ.69 b5.97 b7.79 48.20 44.02 60.63 77.96 В9.В2 -- 61.05 Ni11ad Produotioл 13.Э4 15.14 Z6.27 41.А2 22.09 10.7В 12.11 7.75 4.92 6.92 16.17 22.В5 15.24 16.b8 8aked Соодо 0.04 0.21 0.05 0.2В 0.92 0.28 0.23 0.21 0.20 0.52 0.87 0.:5 0.27 0.25 5ираг 17.77 48.98 18.43 15.81 24.66 9.56 8.08 21.90 19.74 10.73 52.98 16.14 6,19 19.11 Сосоа 2.54 2.$9 1.65 9.71 3.51 9.21 2.39 1.Ч7 1.70 3.48 3.17 2.р5 2.В2 д.69 CoiPea, Тев, Mate, etc. 7.89 9.Э0 4.61 11.24 i0.2в 8.4� 4.7Э 4.18 8.89 7.98 10.29 7.14 4.66 7.27 8slanced Fевд SOuf/ O.fO 0.00 0.00 0.02 O.OS 0.08 0,10 0.07 0.08 0.08 0.07 О 33 0.30 0.10 Ariпk• 1.11 1.71 1.В7 3.38 8.53 9.84 2.3Э 1.67 1.64 2.72 2.56 1.76 1.22 2.41 А1соЬо) впд SpirlOв 2.9В 4.ЬВ 8.29 3.68 10.06 12.99 9.72 10.47 10.05 20.49 15.16 11.59 Ь.04 9.19 Мiпв впд Сiдвг 0.48 О.бб 0.68 2.18 4.96 2.28 0.8б О.В1 0.86 1.32 1.15 0.94 0.91 1.21 Веег 7.Ы 8.9Ь 13.58 91.82 1В.В2 29.29 18.94 7.55 1.52 2.24 8.89 0.00 0.85 1Э.Об Иое-А1ео1ю1iе Driпks 0.00 0.01 0.00 0.00 0.06 0.01 О.ОО 0.00 0.00 0.01 0.00 О.ОО О.Ор O.D1 W� ry ТоЬассо 1.33 1.93 0.19 0.14 O.16 0.07 0.06 0.01 0.01 0.00 0.12 0.05 0.р3 U.31 ry 1�т 9С 1- W w .. �� О М а/ E.cludinp 1985 for Lack oi DsEв. N N 5oufcq: •Evalwcidn де 1оа Instruмntos да Рготосiбп де Eaporiac�wias Utiliтad.,a Tradicionalвwпf.e еп 1а Arpenбina.e SАСУР хпд 11СА, р lS-l7. ANNEX 7 Page 14 of 22 anti-export bias of the system and creating a neutral incentive structure. For !.he first eight months of 1987, the realized rate of reimbursement (including any direct subsidies still in effect) was 0.7Z for primary products, 0.4Z for processed food, 1.6Z for leather goods. and 10.4Z for all other manufactured exports. Net of export taxes, the rates were -7.8Z, -3.9Z. -8.02, and 8.82, respectively. It is clear that relative to other manufacturing sectors, agroindustry is still discriminated against. Nevertheless, it is also true that in 1986 and 1987 the incentives for agroindustrial exports were the highest in a number of years. Table 9 shows an index of the effective exchange rate, including taxes and subsidies, for selected food and beverage sectors since 1977. On average, this rate was almost a third higher in October 1987 than in 1977. 27. The other important export promotion policy in effect is the temporary admission regime for imported inputs. and a program (ARGEX) to allow duty-free import of capital goods for expo-ters. This latter scheme has not been widely used so far, at least partially because duty-free capital goods status is available under various industrial promotion programs. 28. There are other export promotion programs that may remain in place, but their impact on agriculture and agroindustry is likely to be minor. The one exception is the special subsidy paid on exporti from Patagonian ports, which are the ports of embarkation for most wool exports.7 IV. IMPACT OF TRADE AND PRICING POLICIES ON AGRICULTURE 29. The devastating impact of the trade and pricing policies toward agriculture have been well-documented by Sturzenegger for the principal crops and beef production. This impact can be measured in several dimensions. 30. First, the most direct measure is the price of each agricultural crop relative to an index of non-agricultural prices (Table 10). The index of internal agricultural prices relative to non-agricultural prices cannot, of course, show in a meaningful sense how farm products have been taxed by trade and pricing policies. Even if the products were not discriminated against, their level and movements in the index would be dictated by movements in international prices. Consequently. a more meaningful measure of the impact is the level and movements of the nominal protection rate (NPR), tha-. is, the price of each product (deflated by the price of non-agricultural prices) relative to its level if it had been determined by its International price, converted to domestic terms at the actual exchange rate.8 Table 11 shows the NPRs for the five major cereals and beef since 1960. With very few exceptions, every product has been significantly taxed every year, at very high rates in some years. It is possible that the effect of this taxation on output prices might have been counteracted by subsidized inputs or differential indirect tax treatment. That is, the disprotection to value-added might be smaller than the disprotection of the final output. However, estimates of the effective protection rate indicate that there is no significant difference betwaen the protection to output and the protection to value added. .Z/ Purcell, AGSAL, Working Paper No. 1. 0/ Urirp.,- r -nnrnnri, r 1v - diit i- d fnr en t nf Table 9: Real Effective Exchange Rate Index for Selected Aaroindustrial Products, 1977-1987 June Oct. Sector 1977 1978 1979 198 1981 1982 1983 1984 1985 1986 1987 1987 Prepared Meat 106.06 87.65 66.76 82.19 99.12 94.680 96.21 95.8 116.72 16.49 118.51 . 126.42 Milk Products 106.66 84.71 83.17 68.60 96.76 191.06 161.94 97.29 .42.46 08.01 111.40 128.16 Prepared Fruits and Vegetables I 166.6 87.65 64.48 69.32 98.97 101.79 1e6.60 161.63 116.48 16.49 113.66 129.62 Prepared Fruits and Vegetablee II 196.96 86.79 68.97 68.78 96.24 181.46 18.89 100.09 168.95 164.58 111.92 128.67 Prepared Seafood 100.66 88.79 67.32 88.63 117.64 111.84 112.45 167.88 127.28 117.68 122.96 138.60 Vegetable Oil 100.00 86.12 S4.76 A1.94 98.77 92.41 97.07 93.08 100.31 98.28 114.64 129.42 MIlling 160.00 90.94 67.74 62.60 192.72 98.11 106.62 96.01 164.76 101.91 123.01 138.87 Bread Products 166.66 86.79 83.97 69.24 96.75 194.64 166.81 100.27 169.56 162.6 114.24 131.12 Sugar 160.6 85.79 63.97 64.65 94.14 112.26 120.78 164.80 169.39 98.75 119.96 136.42 Miscellaneous Food 10.6 88.66 80.15 83.48 166.45 184.11 106.46 161.78 16.70 111.47 120.1% 137.26 Ethyl Alcohol 166.66 86.79 83.97 68.78 96.24 183.82 1P4.87 164.80 120.37 166.32 319.96 135.42 Wines 16.66 809.98 84.98 69.61 160.71 162.90 166.96 102.06 109.79 164.21 18.84 128.06 Seer 166.00 86.79 68.97 59.75 99.60 98.03 93.$3 88.92 92.34 85.94 111.56 126.94 Alcoholic Beverages and Soiled Water 166.00 85.79 683.97 69.75 164.78 93.44 908.82 94.22 168.72 103.69 119.88 142.19 Unweighted Average 100.0 87.62 65.68 81.22 100.44 161.49 164.76 99.67 199.07 103.19 118.69 132.37 00 S. FiL4 0 Source: Fundsci4n de Investigaciones Econ6micas Lat.inoamericanas. ANNEX 7 Page 16 of 22 Table 10: Prices of Principal Agricultural Products Relative to the Non-Agricultural Price Index Wheat Corn Sorghum Soybean Sunflower Beef 1960 0.85 0.77 0.60 1.64 5.17 1961 1.00 0.77 0.47 8.10 4.31 1962 0.86 0.93 0.74 1.37 4.08 1963 1.10 1.14 0.73 2.14 4.15 1964 1.13 0.86 0.51 1.98 6.15 1965 0.74 0.84 0.60 1.33 1.45 5.70 1966 0.66 0.73 0.48 1.18 1.17 4.52 1967 0.89 0.70 0.84 1.41 1.11 4.18 1968 0.81 0.69 0.58 1.67 1.09 3.82 1969 0.85 0.83 0.60 1.57 1.34 3.48 1970 0.77 0.73 0.49 1.47 1.53 4.58 1971 0.74 0.64 0.48 1.53 1.78 6.69 1972 0.63 0.75 0.52 2.16 2.21 6.68 1973 0.88 0.72 0.53 2.07 1.58 6.08 1974 0.88 0.79 0.66 2.00 1.69 5.51 1975 0.85 0.57 0.48 1.31 1.3C 3.18 1976 0.90 0.63 0.54 1.90 1.66 3.81 1977 0.85 0.83 0.641 3.21 2.69 4.18 1978 0.74 0.73 0.50 1.63 1.39 3.46 1979 0.55 0.40 0.34 1.02 1.08 4.47 1980 0.61 0.45 0.33 0.61 0.51 3.54 1981 0.48 0.32 0.26 0.71 0.83 3.11 1982 0.74 0.50 0.36 1.15 1.22 4.68 1983 0.79 0.65 0.54 1.20 1.16 4.87 1984 0.65 0.61 0.42 1.38 1.98 4.38 1985 0.48 0.53 0.40 0.98 1.19 2.94 Source: A. Sturzenegger, "A Comparative Study of the Political Economy of Agricultural Pricing Policies: Argentina," mimeo. January 1988. ANNEX 7 Page 17 of 22 Table 11: Nominal Protection Rates of Principal Agricultural Products Wheat Corn Sorghum Soybean Sunilower Beef 1960 -37.89 -31.29 -30.39 -37.89 1961 -88.47 -16.30 -36.24 -38.20 1962 -21.78 -2.27 6.72 -40.39 1963 -13.29 4.72 -7.29 -32.16 1964 -1.79 1.02 -19.19 -17.71 1965 -18.74 -8.73 -6.95 -30.66 1966 -6.88 10.57 -22.19 -17.88 1967 7.29 -34.50 -28.80 -31.13 1968 -87.00 -20.39 -19.41 -31.31 1969 -17.78 -0.98 -4.20 -30.43 1970 -18.33 -15.10 -21.96 -11.26 1971 -12.23 -17.15 -26.00 -1.58 1972 -49.23 -28.65 -37.91 -23.17 1973 -43.11 -24.91 -28.55 -29.17 1974 -64.25 -27.74 -19.92 -29.18 1975 -60.18 -45.56 -35.16 -26.55 1976 -40.55 -58.32 -53.38 -1.81 1977 -13.12 -20.21 -24.65 -17.61 -23.15 -22.76 1978 -19.43 -10.02 -12.34 -15.35 -33.33 -2.99 1979 -12.16 -12.08 27.63 -12.11 -21.76 11.92 1980 -9.74 6.19 -9.18 -4.76 -24.26 1.99 1981 -3.09 -15.98 -19.39 -11.60 -9.05 -33.07 1982 -14.54 -15.86 -17.35 -16.35 -27.82 -27.40 1983 -28.72 -29.13 -28.40 -30.23 -34.80 -27.95 1984 -24.88 -23.92 -30.72 -26.15 -24.42 -14.26 1985 -29.79 -22.66 -31.22 -27.02 -26.84 -9.89 Source: As for Table 10. 31. Discrimination against agriculture has not come about solely because of policies that depress domestic prices below international levels, converted at the official exchange rate. In addition, agriculture and other traditional exports have been penalized by over-valuation of the currency (under-valuation of the exchange rate), which depresses the price of tradeables relative to non-tradeables, and by import duties that raise the prices of non-agricultural tradeables. Measurement of these effects requires estimation of the magnitude of distortions to prices of non-agricultural tradeables and of the sustainable exchange rate that wouid prevail in the absence of any trade interventions and over-valuation. The ratio of the actual relative prices (each product's price relative to the non agricultural index) to hypothetical relative prices that woul. have prevailed in the absence of these interventions (i.e., interu;tional prices converted at the sustainable exchange rate) shows the total impact of all direct And indirect intprvontinno nn thpap nrndiieta - 1Ah I how th ANNEX 7 Page 18 of 22 Table 12: Effects of Direct and Indirect Price Intervention on Relative Prices of Principal Agricultural Products Wheat Corn Sorghum Soybean Sunflower Beef 1960 -48.40 -43.34 -42.68 -48.55 1961 -45.54 -41.20 -55.73 -54.89 1962 -39.21 -24.55 -17.99 -53.10 1963 -26.03 -10.73 -21.32 -41.96 1964 -19.76 -18.17 -35.09 -32.20 1965 -44.40 -37.88 -37.14 -51.17 1966 -39.44 -28.28 -49.75 -44.94 1967 -14.89 -48.24 -43.92 -45.37 1968 -45.53 -41.09 -40.76 -48.69 1969 -41.88 -30.71 -33.88 -51.03 1970 -36.61 -34.38 -40.31 -31.71 1971 -30.02 -34.12 -41.49 -21.38 1972 -48.09 -27.22 -36.37 -21.71 1973 -45.83 -28.71 -31.93 -32.58 1974 -66.31 -31.55 -23.87 -33.58 1975 -68.15 -56.75 -48.70 -49.65 1976 -37.93 -56.69 -51.30 5.81 1977 -17.61 -24.00 -28.06 -22.08 -27.21 -26.18 1978 -39.32 -32.14 -34.68 -35.23 -49.10 -26.94 1979 -44.10 -45.42 -22.84 -42.58 -48.96 -28.51 1980 -58.06 -53.22 -61.10 -56.40 -65.17 -51.60 1981 -55.07 -61.94 -64.30 -57.35 -55.91 -66.47 1982 -37.94 -39.64 -41.31 -38.95 -47.20 -47.88 1983 -44.93 -45.28 -44.90 -45.74 -49.28 -43.86 1984 -49.08 -48.80 -53.89 -49.29 -47.87 -41.11 1985 -51.51 -46.41 -52.63 -48.54 -48.17 -36.40 Source: As for Table 10. ANNEX 7 Page 19 of 22 total tax rate for each product for the period 1960-1985. The total disprotection rates to the agricultural products are generally higher in absolute value than the rates coming from direct intervention alone, indicating that the direct and indirect interventions have been mutually reinforcing in discriminating against agriculture. The total disprotection rates are less variable from year-to-year than are those from direct intervention alone, because changes in direct measures have been used to some extent to off-set the changes in the indirect measures. For example, in years when the degree of over-valuation of the currency has increased, the rates of direct export taxes have tended to fall, thus stabilizing to some extent the net effect. 32. This discrimination has translated into significant reductions in production. Table 13 shows for each crop and each five-year period the percentage by which production would have increased in the absence of both direct and indirect interventions. Estimates of supply response. of course, rely on a number of assumptions, and so are generally suspect. In this case, however, the methodology was carefully conceived, and the end result compared with similar studies. They are, therefore, to be taken seriously. What they show is that: (a) the interventions have had dramatic resUts in suppressing production overall; (b) in any given year, the effects vary significantly among-crops; and (c) with the exception of oilseeds, the average production effects among the different products showed much less variation than the effects in any given year. The long-run effect seems to be much more to discriminate against the sector as a whole rather than against any particular products. Reduction in production also implies reduction in profitability of agriculture. Table 14 shows estimates of the reduction in producer surplus (profits) for each period, as a percentage of agricultural GDP. This is true producer surplus, including the classic "Harberger" rectangle and triangle, not transfer, as Sturzenegger labels it. 33. By reducing prices received by producers and paid by consumers, these interventions have decreased exports. Most of the reduction in exports comes about through a reduction in production, though some of it also comes from increases in domestic consumption. Estimates of yearly averages of the value of these foregone e .ports are shown in Table 15. Table 13: Changes in Output in the Absence of Price Discrimination a/ (yearly averages) Quinquenium Wheat Corn Sorghum Soybeans Sunflower 1960/64 50 23 66 -- -- 75 1965/69 25 15 84 -- -- 73 1970/74 50 28 56 -- -- 49 1975/79 98 50 7 7 30 23 1980184 63 82 76 52 134 60 1985 42 52 91 47 59 67 a/ Percentages. Source: "Evaluaci6n de los Instrumentos de Promoci6n de Exportaciones ANNEX 7 Page 20 of 22 Table 14: Reduction of Producer Surplus as a Percentage of Agricultural GDP Total Crops Boef Total 1960/64 8.9 32.2 41.1 1965/69 11.4 33.9 45.3 1970/74 10.7 11.1 21.8 1975/79 20.6 11.0 31.6 1980/84 29.0 32.8 61.8 1985 36.3 16.7 53.0 Source: As for Table 10. Table 15: Net Increases in Foreign Exchange Earnings (yearly average, US$ million) Quinquenium Wheat Corn I*>rghum Soybeans Sunflower Beef Crops 1960/64 180.7 44.6 29.7 -- -- 1037.2 255.1 1965/69 104.4 46.1 57.4 ** -- 1261.8 208.0 1970/74 386.8 154.3 160.8 -- -- 1199.6 701.0 1975/79 974.9 416.8 28.4 62.9 227.3 980.1 1548.7 1980/84 921.2 879.5 601.2 477.7 509.1 3414.5 3387.7 1985 579.2 558.2 461.2 514.7 385.3 2864.8 2498.6 Source: As for Table 10. ANNEX 7 Page 21 of 22 V. CONCLUSIONS AND AN AGENDA FOR REFORM 34. As the above analysis implies, Argentina in the recent past has already taken the first steps toward establishing a more outwardly-oriented economy. Such policies improve the efficiency of the economy as a whole, but are particularly beneficial for expoit sectors, such as agriculture. The most beneficial strategy the GOA could follow towards agriculture would be the continued reduction of protection for import-substitutes and other macroeconomic policies that will sustain the real exchange rate at a competitive level. More specifically, the high protection rates of the past for agricultural inputs should be reduced. While some steps in this direction have been taken, including the removal of quantitative restrictions on tractor imports, much remains to be done. 35. In terms of direct intervention in agricultural product markets, the agenda for future reforms is long. Reductions made in 1986 in export taxes on major agricultural and agroindustrial products and the high real effective exchange rate persisted only as long as the international prices of commodities remained at depressed levels. The unpredictable mixture of overvalued currency, multiple exchange rates and explicit export taxes which has persisted since the Spring Plan has seriously affected producer's confidence and their ability to plan and make investment decisions. The production response to the low export tax/high real value of the currency has therefore been low, and producers have clearly and correctly interpreted them as mere stabilization measures and not as the first stage of a long-term effort to improve agricultural incentives. 36. In the grain and oilseeds market, the key item on the agenda apart from export taxes) must be the role of the JNG. The most urgent reform at this point is the elimination of the export quota system. Export quotas can be used as effectively as taxes to create a distortion between international and domestic prices, and for this reason are inconsistent with the GOA's intention to improve incentives for exportables. Removal of quotas would send an important signal about the credibility and permanence of the reform effort. It would also eliminate the need for the current practice of allocation of market shares among the exporters by JNG, a practice which is guaranteed to institutionalize inefficiency. 37. In the longer term, more major reforms should be considered in the role of JNG. In particular, JNG should be phased out of its domestic trading. The need for this activity in wheat would disappear if the quota system were abolished and the millers were forced to compete with exporters for grain supplies. The willingness of the millers to hold wheat stocks on their own account would depend, of course, on the Government agreeing to relinquish price intervention in the market for finished products. The trading function of JN0 in other grains is mainly related to support for so-called marginal producers. This support could almost certainly be fulfilled more efficiently by an alternative scheme, such as providing a direct subsidy to transportation in these areas, or a direct supplemental payment to growers. At the very least, if JNG is to act as Government agent in this activity it should do so under conditions of contract (see Annex 2). 38. The role of the JNG _n the international market also needs to be carefully reviewed. A continuing role in government-to-government trading, esneciAlv of whpt. an nrnEhly hl iiet4fiad -nd Tr will t-nntiriv to ANNEX 7 Page 22 of 22 need access to financial resources on this account. However, it is clear that much of this trade could be contracted to private traders with JNG acting as broker and guarantor, as does JNC in the case of meat exports. 39. JNG also involves itself in the international market in order to counter perceived non-competitive behavior by private exporters. This role is also highly questionable and needs to be very carefully examined. Tax evasion and capital flight through under-invoicing by exporters should be preventable through the export registration system. Furthermore, the threat of collusion by exporters to lower FOB prices, if it exists at all, would be significantly diminished if export quotas were removed. The most powerful constraint on non-competitive behavior by incumbent firms in the export business would be the threat of entry into the market by both national and multinational firms. 40. With respect to other exports, in particular meat, and fruits and vegetables, it will be important to maintain export taxes at low levels and to include these products in any "quasi-free trade" programs for exports. This would imply the automatic inclusion of any of their imported inputs in the recently-expanded temporary admission regime, as well as the program to rebate indirect taxes for exports. In the medium-term, these programs should be extended to grains and oilseeds as well. Export promotion programs, however, should concentrate on removing artificial barriers rather than creating artificial incentives (e.g., subsidized financing). The latter type of scheme can easily turn out to be a costly way of promoting relatively inefficient exports. 41. In summary, recent changes in both the Amport and export regimes augur well for the future of Argentine agriculture. These reforms must now be consolidated and carried forward in such a way that the private sector will find them credible and make their investment decisions accordingly. Only in this way will the structure of the economy come to reflect its true comparative advantage and maximize its growth. The lesson of other countries is that when the credibility and permanence of reforms are in doubt, they are slow to generate the desired shifts in the economic structure. Taking this lesson, Argentina should now seek to make its commitment to the reforms credible by continuing to move toward a more open economy. This will require consistency in macroeconomic policy and export taxes, as well as some true institutional changes, such as the proposed restructuring of JNG's role in the market. A N NEX 8 ARGENTINA AGRICULTURAL SECTOR REVIEW STATISTICAL ANNEX Table of Contents Page No. MACRO ECONOMY Table 8.1 - Gross Domestic Product by Sectoral Origin, 1970-1987 ............... ... ........... 1 Table 8.2 - Value Added in Agriculture by Subsector, 1970-1987 ..................... ... 2 PRODUCTION AND LAND USE A. Agriculture Table 8,3 - Production of Principal Crops, 1970-1988 ....... 3 Table 8.4 - Area Planted in Principal Crops, 1970-1988 ..... 4 Table 8.5 - Area Harvested in Principal Crops, 1970-1988 ... 5 Table 8.6 - Yield of Principal Crops, 1970-1988 ........... 6 Table 8.7 - Production, Imports and Sales of Principal Farm Inputs, 1970-1987 . ............. . ....... 7 Table 8.8 - Land Tenure Patterns in Total and by Pampa Regions in 1947, 1952, 1960, 1969 and 1974 ..... 8 B. Livestock Table 8.9 - Cattle Population, Slaughter, Rate of Extraction, Production, Consumption, Average Weight of Slaughter, Real Pric^ of Steer and Consumption per Capita, 1980-1988 ...................................... 9 Table 8.10 - Production of Wool, 1970-1988 ................. 10 C. Forestry Table 8.11 - Production, Imports and Apparent Consumption of Forest Products by Type, 1884 ............... 11 AGRICULTURAL PRICES Table 8.12 - Real Internal and International Prices, Effective Exchange Rate and Purchasing Power of Exporters for Selected Cereals and Oilseed, 1970-1986 ......................... 12 Table 8.13 - Producer, FAS and FOB Prices for Selected Cereals and Oilseeds, 1981-1988 ................ 14 Table 8.14 - Relative Input-Output Prices of Selected Crops, 1974-1978 ..... ............... . . 15 AGRICULTURAL FINANCE AND CREDIT D. Public Sector Table 8.15 - Government Revenue in Agricultural Sector, 1985 17 Table 8.16 - Government Revenue in Agricultural Sector, 1986 18 Table 8.17 - Government Revenue in Agricultural Sector, 1987 19 Table 8.18 - Government Expenditure on Agricultural Sector* 1985 **...... .... ............ e........ 20 Table 8.19 - Government Expenditure on Agricultural Sector, 1986 ..... ...... * .... ..... ... . .. .... 21 Table 8.20 - Government Expenditure on Agricultural Sector, 1987 ...... . .. . ......... 22 E. Private Sector Table 8.21 - Banking System Credit to Agriculture and Livestock Subsectors, 1970-1986 ................ 23 AGRICULTURAL TRADE AND MARKETING Table 8.22 - Volume and Value of Aaricultural Exports, 1970-1987 ............................. 24 Table 8.23 - Volume and Value of Agricultural Imports, 1980-1987 ...................... ........ 26 Table 8.24 - Production, imports and Apparent Consumption of Fertilizers, 1972-1987 ... ...... ....... ..... 28 Table 8.25 - Marketing Margins for Wheat, December 1986 ..... 29 Table 8.26 - Difference in Shipping Costs of Grain between Argentina and Other Countries, 1986 .... 30 f � t � ТsЫв 8.1: Огоав Оевввtiе РглдиSб Ь� SвeWмl�jain_ 1i70-20В7 ц (1970 Аrвбгвlи) 1970 1iT1 197� 1978 1974 1978 1978 1977 1978 1979 19В0 1081 1981 1985 19д1 i96S 10В8 1987 QDP АТ l1NiKt? PRICE4 В77Ь 9105 9291 9844 10188 10103 1010Q 10717 10100 11180 11800 10812 10р18 1р®11 105Вб 1f1102 10ВЧ 10881 1ЕТ 1ЮIRВСТ ТдХЕS 1000 1088 10В1 1100 1169 11b2 118Z 1728 1188 1II89 1�88 1201 1112 1178 1204 11b'1 1ц1 1284 ФР АТ FACГOR COST Т771 8087 8289 864� 9004 8981 9СВ0 9872 9214 9881 10012 93i1 8В78 9188 90в1 89b0 9�S'2 9SB0 AerieulWrв 1048 1089 1089 1178 1Z08 117? 1727 1?Ь7 12У2 18�9 12b8 12Вр 1889 189� 14а9 1120 1881 1107 мiп�пе 178 19п 197 19а 19е 19в 1ае s1a s1o теа цв п18 п,w ?ао z1в 818 �1о �в 1Чwlкtл�rinp 1099 ?228 Z817 2109 2650 'д186 4110 8598 29� 'д$88 218В ?078 1970 ц70 8?8�3 ZOQO 1Zp0 2887 Саибгие0iоn 808 891 Ь89 187 b01 В77 808 ВВО 817 ВЧ 66? 887 187 800 8р1 ?8♦ 809 888 ElsctrieiLy, Овв мд УвЧг 181 198 437 Z91 818 II88 п71 286 в98 8Z8 851 817 858 8б7 411 418 Ч9 172 • Соввги, RввiвигапГв впд 1blвlо 1188 1711 1412 1Z78 1819 1842 1447 1101 1514 1t91 1819 1181 1262 1318 1874 1�0 1870 1890 Тгмврог0 вnд С",oвwnlu0iм 881 898 898 04? 987 989 988 1001 984 1051 1088 1019 �VZ 100.1 107У 1017 10В9 цОб Bвnkine 601 8� 8В8 б11 892 891 807 89? 788 797 898 847 780 89л 707 8аВ 74В 788 Pu►1ie мд Privalв 8вгviеи е/ 1185 1185 1109 1Z1Z 1299 1878 18� 1990 1105 1181 11В12 1491 ц90 1800 1818 18g1 ц7g 16В8 8/ 1970-1978 4iриги !ог риЫ ie впд orpvsLв игriеи вгв иLiввtва. $�ц8: Свnбгвl Ввпk. �д Ф в QD i Ф � Н С О м w • О • г • �N•8 1•Ч«� �в�«S г s•sо►т о•аяьп о•огы е•es►t я•еевт s•еэsТ в•есаТ s•►яат в•еиТ е•teat s•ssaT е•suT я•ТпТ о•roгТ в•ып л•evoT я•esoT с•ааоТ пr�оа о в•п т•е о•о Тц Т•е Т•от я•t в•t е•tt t•тТ а•с в•в е•s е•я л•s о•t t•► п•► ••ы•w!� г м W� s•п гят с•п я•вт в•яТ е•вt t•аТ а•cs е•еТ а•ят я•tт а•яТ в•sT �•оа Т•яа rга е•еТ э•вТ ••to�•н•э о0 р•л v« R+o••+•� is7 � � Ф Т•п в•sт ь•вТ Т•ва л•Та vп t•яТ т•оа ►•ва t•Тп ►•ег о•аа а'яа в•яс Т•ав ь•ет в•Те е•та «!в�•+own � а ••м1^�Nhг в•о ro s•о я•о я•о s•о ro я•о я•о я•о ►•о в•о Т•о Т•о Т•о а•о Т•о Т•о w�lwn! s•ts� s•Твs а•явь в•Тв► я•сев а•вл► п•ser raoo о•явs а•ввя о•вт rssя я•еап о•оап Т•вtя гееь с•яя► в•ья► ч�v«•t� rwi-мs Т•яв я•т t•ов rва е•оа а•са rca rca е•оа ецТ vп Т•ст е•ст rяТ я•вТ rвТ а•п rвТ �г+в!••в в•Тв я•и rав t•яс я•ес е•tv о•н я•яс rяt я•пс а•яс я•гв я•т rы rы я•ес roo а•лп вltи т•ва гга т•Тг я•а rве с•w rяа е•аа s•еа а•и с•ва я•яа Т•яа в•ва Т•яа rяа в•яа rca !••!� г•г т•в я•в �i я•в а•s ь•s о•в r•в в•• о•в а•s о•в т•в л•а я•ь в•я о•я я•о •+wa rтт в•в а•в Т•е а•е я•о rot о•аТ е•тт rot rот в•tt я•Тт sТт Т•Тт в•оТ rог roT иw в•s в•s в•s а•я с•в sц т•в в•о в•о в•л rs в•аТ в•от s•оТ о•от roT е•оТ rTi � ••лтв rагв rma s•соа Т•ск а•aas в•всв Т-тяп в•с« в•свв Т•авв е•яов с•яи а•ег.в я•тсв а•аяв Т•твв я•ягв •�иn т•вw rsaв г•яев Т•оте о•ыо в•tвв е•ut в•аи я•ввt Т•еос о•лсв Т•евв о•вея в•тав а•«п а•со� я•яТS а•вгя •+мlмs+ov !м•1-+^в с•ае Т'N 1'ле ►'fв t'вв я'iв Т'tL в'сс L'То л'вс 4'и л'и я'oL в'во •'ы а'яя в'и t'и «1tn•лм w• ••м1�+tв+�и +•« в•гв т•и Т•вл е•Тл т•и _•et s•м о•м т•вв о•ое я•яо е•вв vал Т•ы в•ы Т•ав е•яt •+•«!л w• •п«� !'а9Т а'1fT !'uS л•я►Т 4'6ST Т'Тят а'9►Т я'УяТ а'04т в•вiТ л'69t t'Mt •'ОяТ 4'tfT f'►QT Т'oat YQtt а'лаТ •в••/а+д 1•!•в•^!�К t'па л'яяа •'ява 1'ьоа 4'ееТ t'явт rlят л'аят roeT е'овТ Т'ut 4'tc в•с9 в'ю Т'ая о'L► е'М в'т9 •r« 140 roca t•аа а•«а в•тгв rпв я•втв в•tea roa я•аза е•о!а е•в►а в•о!а rna о•еи rтва в•мТ о•соа rвга л«•n t«Т оwт sиТ r«Т ввлт тет толТ млt е�сеТ осеТ иет ясет ясет ыет гсет ылt тсет оит («t•го•м o�cet) �а'о •1Р1 � ANNEX 8 Page 3 of 30 , • �в ��8�� g � . . . . 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М й R"' ".°. .. ? о� ������� вП�:в �о�� ss�ps�� sa�•А� п н . $ �� � l� D1 7F � р l$M й а3 ГО • i� а��i н � w�в р w� л М. е7 д р А w w 4 W р w • у �\в .+ g s н в c 4 О н I. р н я R р А � S� ���� а��Ъ а i6 %• S � 8 76 3 = � а.. м н � М � к � � � � � � � : � � � � � � � � . . � . . . . 8 � � р ° � о о уΡ� g 'i о � � $ � Д $ iS е�'�i � Я�i � $ 'S � $ "� � . : � . . . . � i а°д '° " рн � .. �" Ys�i����3 i#i�7�g 8�е�� . :� . . . . �ййр°°�' О А +� й W � � А � С� А р М � Z д � . : 8 : . . . w ♦ д р Р .нв "s� �д����� ��вяв ���� .:�.... ��ярр.: g" ������� �к��s ��д� .:�:... ���рФя � н � �� es����� �ss�a ���� .:�.... �s�pss � в � � в � � � ' � ъ � � ь 3 в s ,�у • : � � о � р � � л к �pw� �г ����=а ���а �_�__� �� ����Yg� �"�� пg a �` о � f i а 8 а В 8 ff й�i r r � ff�.� � ff� л �3 f� о� � 8 Ji � л S ci ,1 '� ANNEX 8 Pag. 6 of 30 1.!&―ナ・―---:-------,-----;----;-------,-------,，、・― AROWINA AGRICULTURAL SECTOR REVIEW Table 8.7t Production, ImR,2rts and Sales of PrIftelp I Farm Inputs- 1970-1297 ----- ---- - ----------------- THOUSANDS TONS- THOUSAND, UNITS Seed Production Farti I I zer Pesticide Fencing wire Tractor MOZO Soy beans Consumption jk/ Imports Sales Sales 1970 7.4 9.3 11.3 1971 167:; 76:; 7.5 11.9 13.7 1972 73.0 0.2 78.1 7.9 13.1 14.2 1973 97.8 1.4 71.4 9.0 9.0 19.8 1974 78.6 9.0 62.6 13.6 6.9 20.7 1976 69.6 9.4 64.1 9.8 5.7 15.2 1976 ".6 11.4 34.7 9.6 8.2 21.0 1977 86.7 4.8 66.9 9.9 6.7 22.9 1978 87.1 18.6 63.3 9.2 11.9 8.5 1979 98.3 82.3 99.0 16.6 6.9 0.9 19" 102.3 $2.4 94.4 10.7 5.1 5.0 1981 124.8 68.1 68.2 9.2 4.2 3.1 1992 87.4 94.4 76.6 13.3 6.5 4.4 1993 96.9 97.4 97.9 16.0 0.6 0.8 1984 80.8 123.3 127.0 17.0 8.7 12.4 1996 122.2 98.6 143.9 11.9 3.1 6.7 19" 94.7 109.6 181.2 16.8 7.6 1987 a/ 89.3 132.4 16.2 3.2 04 z jk/ In plant nutrients of N, P and K. Insecticides, fungicides and herbicides. ft0 S/ Up to August 1987. Source: Ministry of Agriculture, SNESR. аиriвх в Page 8 of 30 еа�дте � ТвУ1. e.ei Lu1d 7мигв h��вмв 7 Тsы1 и1 • Аввв Rиien. {n 10вт. 19Е�_ 10�0. 19д0 мв 1974 1W7 1Q54 1вв0 19К 1р4 �врlоiы�iт Mi11im а'авlеiЧ<.1�д NiUi.n frвleiMiм M1U{м lррlеlы�fм И1t11м Eqleiыlies Million f1гy.Wr. (�аоо� ииыги (�аао� икиг.. Сооо) и.аы.и (�ооо) и.ов.р.. (�ооо� wеы.и � � дювгвhiр 9l.а io.0 40.♦ 11.♦ .. 1аА .. п1.1 .. п1.д 7b.s пмыl еа.в 1п.а мл о.а .. s.п .. е.1 .. а.в 1о.п аыsи+ a.s о.т .. .. .. о.в .. 1.о .. о.т п.в ои... 1s.1 а.а ав.9 9.1 .. п.а .. 1.я .. о.т п.в тотiи. 1гп.а sa.s 1юя ао.о 1o1.i па.т .. по.в .. �.а 1оо.о � ом...ь�р пгs а.о пг.в е.т .. т.в .. ю.в .. и.п тв.а ммwl пг.9 в.п 1т.1 а.п .. п.т .. п.в .. п.в 1а.в ам,г.а а.о о.а .. .. .. о.п .. os .. о.а 1.в ось.г. 9.о п.в 1ая в.п .. 1.п .. о.е .. о.т а.1 ТDТЧ, ат.7 1а.п а1.4 14.1 во.8 11.6 .. ц.п .. 1в.7 ю0.0 3АМА FE Wn.raAlp 19.п d.t �8.8 в.4 .. тА .. 9.Е .. 9.в вв.0 м.вы1 вг.а а.а пi.в ' п.а .. п.п .. 1.в .. 1.а 1п.е вм..� п.о о.а .. .. .. о.1 .. о.п .. о.1 о.т o:ti... и.а п.а 1+.о п.9 .. 1.1 .. о.т .. о.п 1.в тотя ео.в ц.е вsя 1п.1 as.a и.в .. 1п.s .. и.в юо.о @3[4P.BI➢S oiм.гalrip 3Е.1 4.9 1в.б а.• .. в.в .. а.♦ .. в.4 7а.9 а.вы{ и.1 1.т в.п 1.а .. 1.а .. 1s .. 1.1 1в.1 вмг.е 1s о.1 .. .. .. о.п .. с•s .. о.1 1.в • оы.•. в.а 1.е iал п.е .. о.е .. о.а .. о.в а.в тотw аа.1 е.а а.1 т.а ап.т е.в .. т.а .. т.1 1оо.о 1 о�м�гвИiр а.а а.в 4.а 4.4 .. а.9 .. в.1 .. в.д 7а.а RМы1 а.1 4.б в.♦ а.а .. 4.• .. 1.7 .. 1.в 18J , аМгМ 0.1 0.1 .. .. .. 0.1 .. о.1 .. о 1 1.1 � { оы... �.а а.а s.s а.а .. 1.9 .. 1.в .. 1.в 1г.о топ� 1п.а и.9 и.в и.п ю.п ц.в .. и.е .. и.е 1оо.о РбlS�..9�'ii@64 о.м..мгр ао.а пд.о ио.е ю.п .. вs.а .. а+.е .. аа.а т►.о пмыl 1гв.в �.о 9r.e ю.в .. 1ал .. 1а.а .. ш.п 1е.в sм.д 1а.о 1.г .. .. .. 1.в .. 1.s .. 1.а 1.в ои... и.� 1в.1 ы.в пт.п .. т.п .. в.8 .. ал 4.е пorwL пеол п.т аоп.п ns .. еt.т .. тв.s .. та.а 1ао.о ееглпм,г тет.� ом...л{р 1та.а вп.а п�в.е ss.т .. 1ао.п .. 1а1.в .. 1ао.п та.в пмыl 1ат.е ае.а 1пв.т ы.в .. �.т .. пв.о .. па.е и.г ам... ю.1 п.а .. .. .. п.1 .. п.9 .. п.а 1.1 Оthвгв 19z.п вУ.0 п1в.в Os.1 .. 47.1 .. аа.в .. пт.1 1а.а AMICULTML SECTOR REVIM Tobje 0.9: Cattlijs Peputatten. Slaughtmr- Rata of Extractlen, Pr~11éc, concumotlen, Average blaht of slaughterý bal priem of staar 1 Cona~toa eer £*bits. IRMIM lnd;c&t4>r l~ 1981 1982 19" tm 1~ 1987 1~ 1. Cattie Stoei; st se Jund 66 64 68 64 56 64 62 0 49 (al li ton beads) 2. Total Slaushtmer (100 h~ ) ime 146% 12400 1120 1230 18700 isem 12~ 11760 3. Rat* of Extractloft 26 27 24 21 23 28 27 20 24 (Stau~r/S~) 4. procluct;oft of scof & Vaat 2839 2929 2FA7 2374 2568 27r4 2030 2662 2490 ~ *Am*) 5. Cons~ lon (Mm toos of 2376 2443 W46 am 2~ 2410 2686 2~ iin care&** welaht m»lvolont) 4. ~ 40 (UW t~ of carem 469 41105 sn 416 Rp 280 244 298 als Mokt "Mayatent) 7. Avereýis INIght of Staughtier 205 261 207 212 207 201 206 208 212 (kg) - 4. R*&$ Pries of stocer in Linlare Wark*t (I~ IM 97 0 107 ia 96 W in 114 114 9. Concumption Por Cbplta of ~ 'a` E 4 Vaal (Kg) e$ as 71 87 77 02 04 74 % 00 Mot*: al Forecest 0 C» rh w Uuree: JMC and Agro Worc*do 0 ANNEX 8 Page 10 of 30 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 8.10s Production of Wool, 1970-1988 (Tons) Fine Fine Cross Medium Cross Coarse Cross TOTAL 1970-71 48.6 82.5 7.7 36.1 175.0 1971-72 49.1 76.3 6.8 30.1 162.4 1972-73 47.2 71.6 7.6 27.3 153.8 1973-74 48.0 72.6 7.7 27.7 156.0 1974-75 49.0 74.0 8.0 28.0 159.0 1975-76 54.0 75.2 10.3 24.5 164.0 1976-77 56.2 59.5 12.3 25.5 153.5 1977-78 61.5 64.3 7.9 19.7 153.5 1978-79 60.0 65.5 8.8 20.7 155.0 1979-80 57.0 67.1 10.2 20.7 155.0 1980-81 57.0 67.1 10.2 20.7 155.0 1981-82 54.0 59.4 19.7 21.9 155.0 1982-83 50.4 52.5 25.2 21.9 150.0 1983-84 54.0 48.4 25.7 21.9 150.0 1984-85 45.0 44.4 25.7 21.9 137.0 1985-86 53.5 46.5 23.1 16.9 140.0 1986-87 50.0 61.1 15.0 11.9 138.0 1987-88 50.0 63.1 15.0 11.9 140.0 Source: Argentine Wool Federation ARGENTINA Table 8.11: Producton. Imports and Apparent Consumption of Forest Products by kn. 1984 Production Imports Exports Apparent Consumption aS ton. a8 ton. ea ton. 83 ton. LOG WOOD 6916856 4858848 12188 897 .. .. 5927828 486138 Sawnwood 2066615 1666051 8708 6418 .. .. 2075388 1872469 Laquered 888 6242 8496 2489 ** 12880 87a1 Plywood 18617 97829 .. .. .. .. 13617 97829 Pressed wood 889033 352961 ** ** 88988 852961 Boards 188706 146389 * * ** ** 16706 146889 Pulp: Paper and Cartons 2949287 2822986 ** ** .. .. 2949267 2322965 Tannin 192528 248429 ** ** ** .. 192523 246429 Other s/ 18864 14486 * * ** ** 18884 14496 POSTS 185281 185231 .. ., 2818 2818 162413 162418 OTHER PRODUCTS 83414 61244 .* ** ** .. 83414 61244 030 2 a/ Includes those used in rolling press to obtain other products. Soag: SAGyP o а�гииs тв►1. о.1а: в..1 к.г=м.i мa.iii=seцiюe.l Ргkи�д•cNuS�.Betd�{n� РrпЛ{�ioatoL.в� Е�вегс_.. ви в.1«мв е=г._i. eii...e вno-воев юао � 1о7а Hwe 1on 1а7е 1v7a lоео 1ае1 lvев lves 1аы lоев 1ое{ ов+�иs wEAr �{1 Рг'св ' гоиг,..е 1v7o Р.м Р.г тал � 1е1.о 17v.c 1чо.о 1rг.о 1п.о 1и.о 1вs.о ив.о tra.o 1вв.о 1�.о 1ц.о це.о 7nluдatiaaвLecisв Си.гмt UBe рвг тм (FO� j/ в{.о tп.о 1s7.o ve.o ив.о 1{1.о 1е1.о аоо.о 17о.о 1и.о 1аэ.о 1а.а а1.о см.иие 1о7о use Р.г та �Fae� � ав.о 1u.z es.1 ы.я е{я еа.о rA.s 7а.в as.7 so.s м.{ as.9 ад.s ыг«ai.. е,�м.. а.ы {/ СоnвЧn0 1У70 Рвво Рвв 16f в.14 О.У8 1.20 1.i1 1.в6 1.0в О.в0 о.в7 1.0� 1.09 1.03 1.1в 1.2{ РигеАвв7ле Рwвв eI �iелгбвг ц Саввtмt 1У70 Рио Рвг Тов 1{в.и 1р.бв 17Е.ае 1ве.'N 167.�0 1и.06 1Ч.в0 176.{1 1вв.14 15В.ов 1ю.е6 121.У0 11в.42 lМт7Е lulвмвl Ргiев СаввЧn0 1i70 Рвво рвг Tan е/ 170.1 1es.0 130.7 187А 1es.0 111.{ 11в.0 Уе.в 116.Q 1aS.• 13�.8 цв.0 7l.0 �вlвмNiмвl hfeв � агвме ust р.г тм � ц ю.е 1rг.о и7.7 vв.в va.e 1м.е 1и.• 1вп.а и1.• 1тs.о 1ае.о 11о.а ы.v Самfм0 1V701R! ри Тм (f0� е/ ю.е ее.• 7s.г аэ.s sг.а мs ю.1 at.a ю.• и.7 и.в аа.в г{.в EN«.i.в ЕаеАми Rвlв � wвв�мs 1а7о Рио Р.г ust з.оо 1.а 1.п{ 1.7з 1.at 1.as о.ео о.е7 1.а 1.ое о.ое 1.ое 1.1п �геАввiм Реввг лI Евеегfлг и Саавtап0 1С70 Рио Рвг Тм lee.34 13В.2'0 1r9.2Y 1М1.У7 151.9У 10о.70 117.Вв 148.YS 11е.10 19�.Вд 190.b{ 11s.71 0.9.У7 е/ Ргiеи .rв ье Рии (ваивl fл 1/1о000000 Аивбгвl) of 1WO. ТАву вгв огiев qatвCim of вUrгв Ar►iMs1 дв 1в Во1и дв Gги1и дв В.мов АI►и� вА3ф вгв ддlвОвд ►1r вw�Ч1у eon'вугiwИигвl ргiев inдьрв oI гвlвrмt и1о рвг3одв. �� �/ Рог игиlв мд веув иР !о 1УВе РоВ Вимов Аiги рвiси fвР1 iait in ввуоrb и Proridвd ►у ЯО6С вгв wгlу Ior 10ев омвгb FOB Ргiеи Iгм J16 вгв ви1. � е/ ОвI1вlвд ►ir 1!9 гвlвrмt, рг3св inдвг, еви 1У70•1о0. г �� �/ овfiпвд s� Чв fоllиiпр Гогвиbг тСЕ • та с1 - а): вА... тСЕ ..Н«63и ..сАм{в г,а, та . вмьмl омигаi.l .гсhмев гва, мд у. г.Gв оГ ,и вврогt д.бiи м р+ ios РГ1tи. N � �/ ОвflвЧд �у вontAly поп'вОгiеиltигвl Ргiев iпдва, 4ви•100. � 1'h W 5mss,: s+�sP О Table 8.12 (Continued) Rest Internal end International Prices, Effective Fachangii Rate and Purchasing Power of FS,ortera for Selected Cereals and 011smaji- 1070-1986 1970 1475 1976 1977 1978 1079 1990 1961 19M 1983 1984 190 1988 011 SFM SOYA Internal Price Constant 1970 Peso par Ton 322.1 263.1 344.1 553.2 SM.3 255.0 L64.3 180.8 M.2 235.4 233.0 207.0 IWO International Price Current UN per Ton (FOS) jk/ 97.1 203.2 206.5 297.4 229.3 248.0 228.9 M.3 M.0 224.0 272.0 203.0 SeS.3 Constant 1970 Use per Ton (FOB) S/ 97.1 130.3 124.8 187.7 10.5 115.3 89.0 95.0 79.4 84.0 87.1 62.0 66.3 Effective Exchange Rate jV Constant 1970 Peso per USIP 2.11 1.86 1.W 1.05 0.80 0.67 1.04 1.06 0." 1.00 1.03 Purchmalne Power of Emporter S/ Constant 1970 Pow Per Ton 436.33 581.69 354.98 259.18 179.611 227.13 233.78 241.92 261.12 203.00 193.90 A/ Prices arm In Poso (equal to 1/10000000 Austral) of 1970. They arm price quotation of OCAmars Arbitral do Is Balsa do Cereal" do IlUeace, Air"' which are deflated by monthly non-soricul turn I price ;nd;cea of relevant solo p*riod*. bj For cereals and ooys up to 1984 FOB Buence Aires price* implicit in mmporte am provided by INDEC are used; for 29M onwards FOS price* fr" M arm used. r.1 Deflated by US relevant price Index, be" 1970-100. 4 Defined by the following formula. TCE - TCC (I - 9), share TCE - effective exchange rate, TCC nominal commercial exchange rate, and 0 a rates of all export duties an FOB prices. lk/ Deflated by monthly nw-soricultural price Index. base-100. 00 Source: SAGYP 0 ft ANNEX 8 Page 14 of 30 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 8.13: Producer, FAS af. and FOB b/ Prices for Selected Cereals and Oilseeds. 1981-1988 (at constant 1985 S/ Australs per ton) 1981 1982 1983 1984 1986 1988 1987 1988 d/ Cereals Wheat: Producer Price 82.5 79.3 89.0 65.7 45.6 48.6 37.7 568.5 FAS 77.4 94.0 82.9 70.7 66.9 63.6 54.5 76.7 FOB 97.4 121.6 111.7 93.1 82.7 71.8 72.0 Sorghum: Producer Price 34.1 39.4 45.6 37.3 34.6 27.0 30.8 FAS 45.9 560.9 60.2 61.2 47.0 39.6 40.6 48.6 FOB 81.9 64.6 86.9 76.8 67.9 58.2 54.4 Maize: Producer Price 40.8 49.3 56.1 54.1 48.6 36.8 40.8 FAS 60.9 62.3 74.9 68.7 61.9 49.1 49.8 58.2 FOB 68.6 76.2 94.7 95.2 85.8 85.6 83.2 Oliseeds Sunflower: Producer Price 90.3 114.0 99.1 153.1 18.4 69.6 116.3 FAS 166.9 131.1 117.4 176.6 129.7 85.4 114.2 128.1 FOB 129.6 181.6 187.1 242.9 19e.3 138.8 141.6 Linseeds: Producer Price 91.3 143.8 113.9 117.9 163.0 101.1 83.7 166.4 FAS 111.9 159.6 127.7 138.1 123.3 119.6 100.9 119.6 FOB 140.8 212.2 170.2 198.0 195.8 149.0 0.0 Soyabeans: Producer Price 80.8 110.3 108.4 117.8 92.9 82.5 119.4 FAS 96.5 127.2 125.6 137.2 116.6 98.8 131.9 1860.1 FOB 126.8 153.6 172.5 190.4 158.3 148.6 157.5 Memo Item: Exchange Rate: Austral of June 1985/SUS 6.48 0.68 0.77 0.7 0.78 0.78 0.8 Notes: g/ Free alongside ship; k/ Free on board; c Producer and FAS prices are deflated by wholesale price index for non-agricultural products (1985=160); current FOB prices are converted to Austral using the exchange rate above; 4/ Preliminary. Source: SAGyP AMtICULTLRAL SECTKR mEI Table 8.14: Relativ. inaut-autaut Prica. of Sa--et-d cra 1974-1078 (Tona of Wheat per thdt. of Inputa) Vagas of Di- Tractor Deneral Fencing Seed A~num Nial 5 glade Of 68 Hora6- Para~hien Ur~a Desel Fuel Laborer Wir* Drigo Pick-up Phoaphat* Transpor Vear Harvester Plough Pover al kl 5/ s/ 1000 M Truck k/ 4/ 1974-75 212.15 34.34 142.15 58.79 1.79 1.19 1.61 0.39 53.97 .. 6.49 4.03 1975-76 238.90 33.66 120.94 109.59 2.31 0.86 1.19 0.47 58.02 .. 4.00 3.18 1976-77 348.94 47.35 158.61 59.12 2.40 1.37 0.77 0.43 80.41 89.92 3.86 5.51 1977-73 377.80 28.84 171.47 50.59 2.61 2.11 0.59 0.48 67.71 87.69 3.57 5.30 1978-79 379.56 30.87 176.14 40.71 1.97 1.71 0.87 0.43 81.62 98.60 2.93 8.98 1979-80 402.82 31.37 155.88 28.87 1.88 1.62 1.08 0.42 80.65 92.00 3.12 7.79 1980-81 311.87 24.32 135.94 21.75 2.48 1.85 0.90 0.37 42.18 74.47 2.91 5.67 1981-82 277.57 28.22 164.37 35.14 2.39 1.33 0.73 0.41 39.47 80.24 3.32 3.13 1982-83 395.31 46.04 271.38 41.59 3.50 1.88 1.24 0.44 54.67 112.78 3.81 5.57 1983-84 345.16 82.76 252.17 41.17 2.62 2.13 1.71 0.58 63.18 118.43 3.78 8.38 1984-85 347.41 84.98 294.87 45.15 2.54 2.62 1.54 0.72 64.91 150.57 4.09 8.35 1985-86 359.88 48.67 291.22 51.92 2.36 2.71 1.50 0.64 65.22 154.16 3.60 9.04 1986-87 327.20 46.45 213.73 64.58 2.16 2.45 1.46 0.63 61.42 142.61 3.14 7.78 al 1.000 Litar k/ For 1.000 Mg s/ For 25 day* j/ For 100 Tn. and digtance of 200 km Other inputa are unit pricom for umer. sourca: SACyP t.e 0 ANNEX 8 Page 16 of 30 Table 8.14 (Continued) Relative Input-output Prices of Selected Crops (Tons of Maize per Units of Input) Wages for General 5 Blade Tractor Gas-Oil Laborer Seed Plough 75HP a/ h/ Drill 1974/75 54.26 201.80 1.55 2.27 19.77 75/76 46.26 169.99 1.69 1.04 87.49 76/77 41.33 145.64 1.05 0.76 60.50 77/78 29.66 155.14 1.87 0.64 37.81 78/79 42.00 243.90 2.49 1.13 49.97 79/80 38.21 228.49 2.20 1.33 44.95 80/81 44.56 119.93 2.09 1.39 46.15 81/82 37.69 211.69 2.84 1.38 49.67 82/83 47.71 260.04 2.03 1.12 45.46 83/84 46.47 274.60 1.88 1.25 42.43 84/85 49.06 235.25 1.98 1.61 46.04 85/86 54.45 294.02 2.60 1.48 54.51 86/87 56.69 342.01 3.17 1.74 61.38 (Tons of Soya per Units of Input) Wages for General 5 Blade Tractor Gas-Oil Laborer Seed Plough 75HP (1) (2) Drill 1979/80 28.82 155.92 1.37 0.99 33.28 80/81 26.36 149.90 1.86 0.92 35.60 81/82 18.10 101.13 1.17 0.51 19.48 82/83 25.98 143.19 0.95 0.66 22.01 83/84 23.93 141.16 0.97 0.64 21.75 84/85 28.83 138.92 1.16 0.94 26.44 85/86 31.43 169.49 1.50 0.87 31.53 86/87 29.74 178.97 1.66 0.91 32.24 I/ For 1000 liters b/ For 25 days of work ATCILTURAL. SECTOR REVIEW Table 8.15: Covernment Revenue in Aericultural Sector, 1985 (Thousands of Austral**) SOLACE OF REVE"E CRM m " CAPITAL FINANCINQ CENERAL. Q Teaes Non-Tax RESOLORC CONTRIBUrN Industry Other Rate Interests Sale Contribution On Foreign Consumption & Cosserce Profit and and of Credit Previous of National Trade Sales Tax Tax Ta Tariffs Profits Others Asset& Use Financing Treasury SPECIAL ACCGLfS Seeds Law .. .. .. .. 486 .. .. .. .. 28 .. .. 516 National Service for Animal Health .. .. .. .. 20657 .. 3 .. .. 748 12462 .. 33870 Special Fund for Tobacco .. 83641 .. .. .. ., .. .. .. 312 .. .. 83958 DECENTRAIZED ORANIZATIONS Administration of National Parks .. .. 824 .. 18 75 22 15 .. 157 8708 .. 4819 National Grain Board .. .. .. .. 56767 .. 4061 825 .. 32 .. .. 61665 National Neat Board , .. 11150 3754 .. .. .. .. .. .. 0 .. .. 14922 National Ins. for Agric. Technology 54254 .. 16 .. .. 5833 1203 64 4370 294 .. .. 66034 National Ins. for Research and Dev. of Fisheries .. .. .. .. .. 37 .. .. 72 2560 .. 2669 National Catti* Market . .* . *. 3275 .. 168 .. .. .. .. 3443 National Sugar Board .. .. .. .. .. .. .. .. .. 120 1458 .. 1578 Wine Producers .. 15352 .. .. .. .. 1489 .. .. 527 2 .. 17370 National Institute for Horse Activities .. .. .. 1442 .. 218 .. .. .. 1 .. .. 1661 Mate Comission .. .. .. . 31 .. 26 .. .. 1 370 .. 428 National Market for Fisheries of Mar del Plate .. .. .. .. .. .. 1610 .. .. 7 .. .. 1617 National Forestry Institute .. 462 .. .. .. .. .. .. 104 2927 .. 3483 COVEWeENT Secretary of Agriculture, Livestock and Fisheries .. .. .. .. .. .. .. .. .. .. .. 15362 15362 vtd > Secretary of Finance .. .. .. .. .. .. .. .. .. .. 13227 13227 0Q l' tzg Ministry of Works and Public Services . .. .. .. .. .. .. .. .. ,. .. 775 7795 0 TOTAL CENARAL 54254 110152 6048 1442 81236 6126 8619 904 4370 2412 23487 363B4 334432 Soura: National Accounting Office, Secretary of Finance, Ministry of Economy AcRIcu LA. SECTOR REVIEW Table 6.6: Covernmenjti evenue In Agricultural Sector 1988 (Thousands of Australes) SOURCE OF REVENUE CUPNENT RESOUCES CAPITAL FINANCIN CENERAL Igg Tates Non-Ta RESOURC CONTRIBUTO Industry Other Rate Interests Sal** Contribution On Foreign Consumption & Commerce Profit and and of Credit Previous of National Trade Sales Tea Ta Tax Tariffs Profits Others Assets Use Financing Treasury SPIAl. ACCoUNrS Seeds Law .. . .. .. 277 .. .. .. .. .. .. .. 277 National Service for Animal Health .. .. .. .. 9261 .. .. .. .. 34 8040 .. 17335 Special Fund for Tobacco .. 42770 .. .. .. .. .. .. .. .. .. .. 42770 DECENTRALIZED ORcANIZATIONS Adminiatration of National Park* .. .. 358 .. 13 102 26 14 .. 33 2129 .. 2675 National Grain Board .. .. .. .. 34654 .. 3048 .. 444 61 .. .. 38407 National Neat Board .. b629 .. .. .. 1057 .. .. .. .. .. .. 6686 National Inst. for Agric. Technology 39871 .. 14 .. .. 5 7350 148 .. 10 32 .. 47428 National Inst. for Research and Dev. of Fisheries .. .. .. .. .. .. 11 .. .. 5 1324 .. 1340 National Cattle Market .. .. .. .. 1260 .. 101 .. .. .. .. .. 1361 National Sugar Board .. .. .. .. ** *. .. .. .. 1 910 ..911 Wine Producers .. 7358 .. .. .. 625 .. .. 62 622 8667 National Institute for Horse Activities .. .. .. 502 .. .. 6 .. .. -* ** S08 Nate Commission .. .. .. .. .. .. 10 .. .. .. 177 .. 187 National Market for Fisheries of Her de Plata .. .. .. .. .. .. 713 .. .. 1 .. 714 National Forestry Institute .. .. 72 .. .. .. .. .. .. 117 2028 .. 2217 CDV81MENT Secretary of Agriculture. Livestock and Fisherie .. .. .. .. .. * * ** .* .. .. 3969 39889 gq Secretary of Finance .. .. .. ** ** 19063 19063 Ministry of Works and Public Services .. .. .. .. I- .. ** ** ** .* .. 15775 15775 ) 0 TOTAL CENERAL 39871 b5757 444 502 45466 1164 11890 160 644 324 15262 74727 246210 0 Isurce: National Accounting Office. Secretary of Finance, Ministry of Economy * , ACRICULTURAL SECTOR REVrEW Table 8.17: Covernment Ravenue in AnriculturAl Sector 1987 (Thousands of Australee) SOUlCE OF REVENUE CURRW aguJm S CAPITAL FINANINQ GERAL Tax* Non-Ta. RERCES CONrT Industry Other Rate Interests Sales Contribution On Foreign Consumption A Commerce Profit and and of Credit Previous of National Trade Sales Ta Te Tea Tariffs Profits Others Asset* Use Financing Treasury SPECIAL ACCOUNTS Seeds Law .. .. *. .. 9s1 ** ** ** ** *. .. .. 951 National Service for Animal Health .. .. .. 50513 ** ** .. .. .. 8409 .. 58922 Special Fund for Tobacco .. 201040 .. .' .* * * ** .* ** .. .. 201040 DECBttALIZE ORANIZATIONS Administration of National Park* .. .. 1820 .. 4 200 43 54 .. .. 9465 .. 11622 National Grain Board .. .. 10585 .. 78609 .. 7889 664 18735 .. 31284 .. 14656 National eat Board .. 2943 .. .. .. 2723 .. .. .. .. .. . 56 National In. for Agric. T.Anolowy 102293 .. 29 .. .. 2021 1782 762 11034 261 22000 .. 140902 National In. for Reearch and Dev. of Fisheries .. .. .* ** ** ** 78 . 39 7836 743 National Cattle Market .. .. .. .. 8212 .. 491 8* .* *. .. .. 8703 National Sugar Board .. .. .. .* ** .* ** .. .. .. 2529 .. 2529 wine Producers .. 27467 .. .. .. .. 2990 .. .. 7572 .. .. 38029 National Institute for Hore* Activities .. 2454 .. .. 2SS .6 Nate Comeiseion *B ** .. .. 86 .. .. .. 9 1049 National Market for Fisheries of Mar del Plate .. .. .. .. .. .. 4382 .. .. .. .. .. 432 National Forestry Institute .. .54 .. * * .. .. .. 4955 5509 Secretary of Agriculture, Livestock and Fisheries .. .. . * * ** ., ** .. .. .. 4877 42877 0 :z is t2l Secretary of Finance .. .. * * ** ** ** -- .. .. 29045 29045 Ninistry of Works and Public Services .* .. .. 26085 26685 % 0 TOTAL CENERAL. 102293 231450 12988 2454 136225 5744 17843 1470 29769 7872 86941 98807 733856 0 urnces: National Accounting Office. Secretary of Finance, Ministry of Economy AMRICULWALt SECTORt REVIEN Table 8.18: Government Exsenditure on Agricultural Sector. 1985 (in thousand Australea) Other Code Curreant Capital Capital Esating Net Function Personnel A Services Interest Transfer& Transfers Coods Construction Stock Landing TOTAL 1. Agriculture Development 89252 3688 264 63894 1 2177 11619 .. 5 15400 I.a. Soil laprovemnt and Irrigation .. .. .. 2652 .. ** ** * I.b. Agriculture, Livestock and Natural Resourcea 15961 13392 177 60934 .. 945 1196 .. 9210 Secretary of Agriculture & Fisheries 4883 1913 177 5709 .. 14 14 .. .. 12710 SeedLaw .. 107 .. 4 .. 6 .. .. .. 119 Special Fund for Tobacco .. 7 .. 39255 .. 1 .. .. .. 39263 National Service for Animal Health 7533 5067 .. 2186 .. 85 563 .. .. 16054 Administration of National Parks 1258 1052 .. 29 .. 33 576 .. 5 293 National In*, for Reearch and Development of Fisheries 1184 3315 .. 1 .. 7 .. .. .. 4507 National Market for Fisheries of the Plats Sea 229 190 .. .. .. 145 .. .. .. 564 National Forestry Institute 726 1078 .. 523 .. 611 .. .. .. 2938 "ate ComisIon 148 63 .. .. .. 41 23 .. .. 275 Secretary of Finance .. .. .. 13227 .3 I.c. Trade and Storage 19439 22043 67 163 .. 400 9478 .. .. 51690 National Sugar Board 576 363 .. 163 .. 1 .. .. .. 1102 National Heat Board 2682 2001 .. .. .. 2 .. .. .. 4975 National Crain Board 15199 1849 .. .. .. 458 2128 .. .. 36634 National Cattle Market 582 83 .. .. .. 19 .. .. .. 1184 Ministry of Works & Public Services 201 157 67 .. .. .. 7350 .. .. 7795 I.d. Non-clasified 3852 1433 .. 145 1 752 945 .. .. 1128 7128 Wine Producer* 3782 1422 .. 16 . 752 945 .. . 917 04 National Institute for Nors Activities 70 1t .. 129 1 .. .. .. .. 211 II. Science and Technology 23919 6254 27 1260 .. 6815 582 .. .. 38857 0 National Ia. for Agric. Technology 23919 6254 27 1260 .. 6815 5M2 .. . 38857 TOTAL 63171 43122 291 65154 1 8992 12201 .. 5 192937 Sogrce: National Accounting Office. Socretary of Finance, Ministry of Economy. ARICULTURAt. SECTOR REVIEW Table 8.19: Covernment aLeomgitgrm 9n Agric4iterpt Sector* 1986 (in thousand Auetrates) Other Coods Current Capital Capital EAisting N6t Function Personnel A Services Interest Transfers Transfers Coods Construction Stock Lending TOTAL I. Agriculture Development 60884 54206 1382 128799 .. 20 30961 101 .. 287159 I.a. Soil Improvement and Irrigation .. .. *. 2097 .. .. .. .2097 I.b. Agriculture., Livestock and Natural Resources 23277 20625 640 126599 .. 1227 2268 101 .. 173737 Secretary of Agriculture & Fisheries 4912 3026 .. 29743 ., 111 .. .. .. 37792 Seeds Law .. .* ** .. .. 33 to .. .. 43 Special Fund for Tobacco 2 30 .. 7230 .. .. 4 .. .. 72685 National Service for Anismal Health 12395 11839 .. 3420 .. 215 1651 .. .. 29420 Administration of National Parke 2111 2181 .. 35 .. 190 S53 101 .. 5171 National Ine,. for Research sad Development of Fisheries * 2004 1262 640 11 .. 47 35 .. .. 3099 National Market for Fisheries of the Plata Sea 468 488 ** .. .. 484 80 .. .. 1520 National Forestry Institute 1139 1607 ** 897 .. 110 .. .. .. 3633 Nate Commision 246 112 .. .. .. 37 35 .. .. 430 Secretary of Finance .. .. 19063 ** .* .. .. .. 19063 I.c. Trade and Storage 30687 30962 686 76 .. 275 35662 .. .. 98548 National Sugar Board 1058 457 ** * .. .. .. 1516 National Neat Board 3963 2932 .. 75 .. 4 32 7006 National Crain Board 24424 26168 830 1 .. 267 20326 .. .. 71816 National Cattle Market 1123 1309 ** .* .. 3 .. .. .. 2435 Ninistry of Works A Public Services 319 06 56 .. .. .. 15304 .. .. 15775 I.d. Non-classified 6720 2819 56 1027 .. 1324 1031 .. .. 12777 12777 OQ z Wine Producers 6602 2588 56 3 .. 1313 1031 .. .. 11593 National Institute for Horse Activities 118 31 .. 1024 .. 11 ** .. .. 1184 e 0 II. Science and Technology 42751 11852 439 3229 225 525 8 .. 59857 National In*. for Agric. Technology 42751 11852 439 3229 225 515 846 .. .. 598b? 0 TOTAL 103635 66058 1821 132028 225 3341 39807 101 347018 Sourct: National Accounting Office. Secretary of Finahce Ministry of Economy. AtICULTURAL SECTOR REVIEW Table 8.20: Covernment reenditura on Agricultural Sector- 1987 (in thousand Australes) Other Coods Current Capital Capital Esisting Net Function Personnel A Services Interest Transfers Transfers Coods Construction Stock Lending TOTAL I. Agriculture Development 134037 112398 1850 24523 106 8420 32018 115 195 53387 I.e. Soil Improvement and Irrigation .. .. 3450 ** 3450 I.b. Agriculture, Livestock and Natural Resources 56181 49590 1232 239120 .. 6253 3748 115 .. 356239 Secretary of Agriculture A Fisheries 12345 8988 .. 19857 .. 237 .. *. .. 39427 Seeds Law .. 258 .. .. .. 5 5 .. .. 266 Special Fund for Tobacco 17 16 .. 183417 ** .. .. .. 163450 National Service for Animal Health 28024 26120 .. 5434 .. 706 g966 .. .. 65250 Administration of National Parke 5578 6087 .. 430 .. 791 653 115 .. 13654 National Institute for Research and Development of Fisheries 6752 2501 1232 6 8. 08 121 .. ..98 National Market for Fisheries of the Plats Sea 1298 1201 .. * . 261 .. .. .. 2750 National Forestry Institute 2566 4140 .. 871 .. 3g1 .. isle Mate Comieion 601 281 .. .. .. 5.949 Secretary of Finance .. .. .. 29045 .* * ** .. 29045 I.c. Trade and Storage 80218 51897 118 240 .. 105 25732 .. .. 139510 National ugar Weard 2757 1178 .. ** ** .S .. .. 3936 National Mast Board 1464 888 .. 240 ** .. 2. 2628 National Crain Board 52717 46007 .. .. . 1041 ,9 .. .. 9765 National Cattle Market 2533 3510 .* .. 26* ..6 Ministry of Works and Public Servicea 747 314 118 * * .. 25706 .. .. 26 I.d. Non-classified 17638 10911 .. 2423 106 862 2538 .. 195 34673 34673 Wine Producers 17300 10820 .. 43 .. 861 2538 .. .. 31562 National Institute for Horse Activities 336 91 .. 2300 106 1 .. .. 195 3111 N 0 II. Science and Technology 119825 20826 1858 10651 232 2997 5099 .. . 161488 National In&. for Agric. Technology 119825 20B26 1858 10651 232 2997 5099 161488 0 TOTAL 253862 133224 3208 255884 338 11417 37117 115 195 695360 EourcA: National Accounting Office. Secretary of Finance, Ministry of Economy. ANNEX 3 Page 23 of 30 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 8.21: Banking System Credit to Agriculture and Livestock Subsectors. 1970-1986 End of December in 1000 Pesos of 1970 a/ Agriculture Livestock YEAR Sector Sector Mixed Total 1970 889814 850400 983615 2723529 1971 804072 846504 977721 2628297 1972 741340 726566 823306 2291212 1973 1037289 833182 990162 2860632 1974 1123779 812870 1028764 2965412 1975 459245 265383 376565 1101190 1976 508237 261244 500686 1270167 1977 b/ 1002039 327940 491910 1821889 1978 k/ 1211350 448400 571097 2230848 1979 kl 1417832 680913 848930 2947675 1980 b/ 1558816 1024248 1496382 4080670 1981 .. .. .. 1982 1044044 350410 981648 2376102 1983 805758 285071 866420 1957249 1984 772399 22714 818183 1817722 1985 740849 171669 593916 1506434 1986 a/ 774057 247878 599677 1621612 Notes: a/ Peso (Ley 18.188, equal to 1/10,000,000 Austral) deflated by Non-Agriculture Wholesale Price Index; b/ Based on the BNA breakdown of data; c/ Preliminary. Source: SAGyPy л� ' т.ли е.пп: Ул1•�. ые w1... л7 мг��Т.�1.ы�.о�л-ioea 1970 1976 19в0 19в1 19BQ 1�а8 Чi11iм Nillion Mi11im Mi11im Miltiou Ni11ia+ •000 Там Ооllвгв 'о00 Топв Ооllвге •000 Том ооllви 'о00 Таnв Ооllвгв 'орр Гаи ilиltив 'oD0 Таи •Ооllвге uv{��в мirl Ргое�г+ ба7.е ево.! 800.9 2S9.a бпа.ь о91.п 69в.б те.е ввп.7 ВВ2.1 f�.a В79.в �i.. мt..1. ьп.а пп.7 s.1 п.о 1.а в.1 1.в в.ь п.е е.ь 1s 8.е е.л вв� и.е� ви.а юв.1 1вв.а 17п.7 sw.a веb.о ьи.е в77.7 sвал ьое.в пвь.в вэо.1 RiвАвгiве v.a ь.в а9.е 1в.о 1в7.а 1во.в 1+е.1 187.:г zes.s 1ев.а 18s.s 1as.a Ni1Y, а Ni1� Ргодаа{е, Ервв а 1lоиву пь.1 в.о 17.п 88.в п7.1 4о.4 •0.1 88.7 во.4 79.2 60.8 78.9 ОЧвгв Вв.1 1Q.8 па.1 в.8 9а.В 17.8 п9.8 18.В п�.п 9.Э 19.в в.ь [вгвдв. Оilвидw а вЧвг Увыw1. Рглд�еr. iоб09.в а9а.1 eaSQ.e 1sBS.1 18•о7.9 пвВ7.7 п1п1•.1 319о.в 17п94.п ss1i.9 пК�3.� 85q.a L{vв Р1м�в 1 flоигв 0.0 0.0 0.0 0.0 0.0 о.1 0.1 0.1 O.i 0.1 0.0 0.0 14r0iw1Wrв а Увввlвllи о9.1 11.9 91.1 ьв.1 sD�.6 1п7.1 1ьа.9 о9.8 18а.4 100.п 1о9.п 8о.1 Pwib паа.п 51.1 817.8 116.а 87•.1 197.8 888А 17b.s 5В7.1 1sQ.4 8ав.• 18в.1 слгм. ти а wa п1.о 1о.п по.а 1а.в ео.в ее.в ю.1 апя sa.1 ss.s в1.а и.в Gги1• 1о1а.7 аое.в вог•.v ив7.п 9ееv.з 1ы1.в lвеsо.l пвэо.п 1ввlsл 1еап.1 пгэав.7 saw.s Р1оег а Мива Ву-.гвдиаtв 1ta.8 9.а 1ео.а вч.1 те.о пе.1 вв.1 1о.в .г.п 1о.о 1от.а пп.1 о11...а о.п s.v 1в.п в.т пвНа.а ьп.а ппо7.а в•в.п 1ава.в аа9л 1ье9.о ess.s wwг.ьl. еsг.�и о.1 о.а o.t 1.1 о.1 t.7 о.1 t.s о.о о.а о.е о.1 ои.г. в.е 1.1 1.а о.о о.о 1.п о.7 о.а о.в о.е о.9 о.а м:..1 в v.л.с.л1. F.1, а о:1. и..1 1os.a 1и.ь о1.8 в7в.а апе.7 ыо.е аw.в ви,.7 по.8 tsa9.s ьев.1 os1 в Рва в7в.1 1os.a 1ве.а 91.8 етв.а аг+.7 вм.а sа.в еаз.7 вН9.а 1пво.в asa.1 [1рд. Ввvвгоыв а Тллвеел п177.п п81.В 1Т4ь.7 И8.ь 3811.п 1171.п 8898А 10в{.7 8б9в.8 8в•.♦ 629в.8 11ввJ Ргрвгв/ МиЧ а РiвИ 186.а 19а.8 7Н.7 11в.• оо.• п81А Вв.♦ па4.1 В7.1 2о7.а 78.В 173.в аrрвг а 8виb � 100.1 1п.а 191.6 11b.1 4а7.1 8по.1 71а.1 п8В.♦ п59.ь � И.4 вв0.о 1ав.9 Gею а аиiлЧв 0.1 0.1 О.п 0.2 О.п O.I 0.1 0.8 О.п , 0.а 0.1 О.п в�у ;у f� '� Gги1 РгодиеЧ 0.8 О.п 0.8 0.9 8.8 8.7 п.7 3.д 1.п •.1 8.1 8.♦ �,.,, wо.иьl. Ргеви<а пв.в 1о.7 ве.в пп.в в8.1 вв.в ав.2 ап.9 7ь.а av.a е7.7 во.е Ф С'� .~ оаи г�ееа Ргрвгвеiом е.2 1.п в.1 п.в s.s 7.а п.о в.п п.7 в.1 s.7 •.7 г� Ввvвввввв а Vinвpвr 7.♦ 1.п в4.1 11.6 1М.4 Ы.8 7В.7 18.а 08.9 Эв.7 80.п п5.8 Роо0 В�r-огод.еа 1в79.3 1ts.e 1854.в цtл пь1г.1 ип.7 пе9в.в ео7.о s9ts.1 1ЭВ.в а182.в вИ.s � м То0васо tв.п в.а зе.в еп.1 1в.9 пв.v ta.9 �.ь пв.в ьв.9 �.а воя W О v , г ТвЫв 8.22 (Соntlпивд) � ASЯIGI�TI/tAL S.�{Тl1R REVIEL Уо1ии впд Ув1и о1 Аегiсиltигвl Еввогlв. 1970-1087 1084 1986 198р 1987 �/ M111ion Willion Millian Nitlion '000 Топа ооllвгв '000 Топа Dоllвга '000 Топв Оо11вг. '00о Tms Ooilars uveвfлek + Мiтв1 Ргодие?л 841.1 1ЬО.0 878.1 124.8 424.7 b80.6 961.8 бЭо.8 �i�. мi.в1. o.v 9.? о.е 4.в 1.о1 4.7 ?.2 4.в 8вв! впд Мввtа 182.9 2Ь7.1 184.8 228.8 lВ8.2 2ВЬ.8 121.1 р`8:8 Fiвhвriвs 128.Ь 1b8.1 148.1 147.1 198.b 214.7 177.8 199.8 Mi1M, � Mi1k Products, Fурв L Иопву 8�.2 88.8 18.1 4?.4 40.8 47.1 97.Ь 87.б 04hвго 18.9 4.9 21.1 8.4 26.8 В.9 25.2 7.В tегввlв_ Оilивде � otheг УвиtвЬlв Ргодисtв 21$48.8 9471.8 21822.Ь 8908.2 17484.2 ?204.7 11297.4 1287.1 Livв Plвnta � Flовегв 0.08 0.0� 0.001 0.о00 0.02 0.0� 0.008 0.02 Hortieultл�rв � VврвЕsЬlи 218.2 8б.4 292.4 Об.8 ?88.4 127.1 L9�.9 88.8 Fruilв 827.9 108.4 4/3.8 197.9 918.А 188.9 417.7 117.8 Со11ве, Твв � Мвtв 18.В 82.8 80.7 47.8 81.8 88.2 44.8 28.1 Gги1• 17?18.8 2?59.8 2a81b.8 2284.9 18b8S.1 124Ь.2 90B8.S 718.8 flоиг � Vhвв0 Ву-РгодиеЧ 155.4 27.4 128.1 24.9 87.8 18.8 19.9 10.1 Оilивдв 8889.8 952.4 948{.4 79b.2 82?21.1 816.8 1890.9 820.0 v.р.tвые �Ьг.са о.о? о.2 о.о2 о.2 о.о1 о.�о о.оов о.1 г ои.г. о.• о.1 о.4 о.а o.s о.а os о.? Мiв1 � VвиlвЫ е Pai � иilв 1998.1 09о.4 1В90.4 492.8 143о.7 888.4 1488.9 488.5 oi1 • FaL 1898.1 990.1 1890.4 992.8 1990.7 888.4 1488.9 458.8 Еоод. Ваvегару 8 ТоЬвсел б470.1 1114.1 6482.7 85б.1 8889.8 1189.1 4088.8 1100.Ь Ргврsгед ИовN i Fish 86.7 148.4 80.8 162.8 &5.2 180.8 88.2 23о.9 Supar � Sвевбв 4ц.8 1о7.б 155.8 98.6 118.б 98.8 78.9 21.8 Свеао i derivatвa 0.1 0.1 0.09 0.1 0.1 0.9 0.2 0.4 b у {у '� Gгвв1 Ргоlисtв 2.1 1.4 8.8 1.В 4.9 2.4 2.7 1.8 00 .'�: Ф � УвреWЬlв laroducts 95.4 bB.b 97.9 Ь9.1 83.7 В7.1 102.9 85.2 N Other food Ргврвгв0iопо 1.Ь 2.8 1.S 2.9 1.6 8.4 1.9 8.8 И QG Beverspes � Vinвpar 92.1 25.8 В1.4 22.8 Во.8 17.9 81.2 12.7 о м food Ву-ргодисЕе 4772.8 723.7 4480.В 515.2 Ь968.6 В21.7 4861.2 708.9 w ТоЬвесо 26.7 48.9 31.б ЬВ.В 21.9 99.В 29.2 95.b О l/ Pгeliminaгy fipuгea for Che firat 10 montF�o.y Иоtев: СотропапЕа иу not адд ир to йtal дие to roundinp. -+ п е< � п е е< е� r е s п r t$l��� к а4 f ►�� Р���'�: ��s:; � '� 'д .`Р о' а �' 9 ь в� п • ё� ь в: i р° 3 ь' 3 3 о f 8г�� У' � • }< �; :i Р� � s �< 2 9 : i' i а• : ь � � �г �• � г:: с с£ п г � г � g � т � � s � �= а � • п к � � ; . ь п � е � _ _ L � � `ь' р � iS о_ S и Ф Sл �,4° Ф�,а' � Ф т.� .- i. о � У .. • о'.$ `о ?2 о� СрΡ о й�д °v .°.. i$'. л Фv о��$ S i.°. о.ю. � 81 .р. S L S$$ о i� � � � С у � .у. v (i Ч V 4 4 в1 fв i$ � tд r 1. � О О А ре v Ф 8 Ф О Р Ф Оо � Ч S Ф Ф � i й'Ё � w 8 � Рд $ Pr �' � й Кп й й а 8& й$$' Рл ZC й 1� � в 8Z С� 3 о • � g : : q Ч рΡ ь �рΡ .. _ ь 41 в v w Ч а + (д � Ч N О V а О р Р Го вр. iy N Оо ё в Ф v V � i �п S�!С w г� л а S ��$ 8 i 8°: й� S 4&' 1 о.+. й� S$ :: 'ь 8 ~ 2S о и ��' �$. й Ф т 8 а Ф о.. о.. р v л 8t .. � о ао о й а$ � : � L 8 й�&� S�� L^ � Ж 8�6 � L Р� В Sd i3 $� � �� 8 S � t .. ; Е 3 Ф � Ф а � Ч � 9 = о � : й��{3 �'3 � v$ 4 t'i й � b° .Ф� у о��� о а о 4: S� �� ��� 9� 8 В R���� У w т� 8 S 8� L � � S� 8� $ С� ч �_ ~ тФj� �рΡ p 8 =_ g Ч Ч 4 � й Ф ~ О Ф i о О О v Ф О т д Ч f0 Ч �j у р р р Ф р � в � 8� S S Ф� s 2� а� S � �� а��� а� � � 8 �� 8� о : 4 ��! и � � < О Ч Р ♦ а О Ое Ф О � О о О в� р О О � Ч О О i 1+ r в~в у р вр Ф 0 � Т3 ё'3 й й$:: Е г� L��� 8 8�t 8� SL ."'i в о � S v"1 � о .°. $ � �g 8 s Ф_ о �'8 � В 4 � а=:: � й й а��в А о v�� о о � w� i`� 8 'O ' Ф й w й � ir� aii iŭ �о �� а w� v� 8i $�. .� �i ��' й° ii .°• � о�S � � L�� S у ё • � � 8=_ Ч rрΡ О ОФ р в� � уq уq йp аи ои О Фq О qО О й{�1 вл•. р в�Лв Pi rрΡ�♦q NрΡ уm.рΡ� рΡ ' 8 А в�в р О О в Ч Ф Ф О О У (� вvв W � Ф (0 V (� � Ф О V fI О Ф вов � i n' q Ф Q �_ о в� Ч.� .� О й О О в� Ф Ф у r р О О 8i � v О д О у е• Ф w Ф v � 8 Р���� 8� 8 В 8 У t S� ���� �С � � 8 S� J� $ � � � + Ф е о о о о о о о о о о о о о о о о о о е о о� о о о о о о L ��-_ р й s&$ 3 3 �` $ 3 w о о 3 о й 8 8 g."2 Q$ S3 й У$ 8 о(S w r� $ 8 f° е ь ё • q � 8 к ++ в� Р Ф Ч О � • � О О е О Ч О О р О Ф О О (0 r р r � Р й� а � 9 Ф й �� � я S ц����� S F3 8 $ ��� � ц � i В 0£ 3� 9Z е$8д я х�nт�:� .• � •Ь1• 8.25 (Солбiливд) � Vл1им апд Ув�.!а е4 Maior AariculWrвl IаiюгЕв. 19р0-19В7 19В4 1988 1988 1987 Уоlитв Ув1ив Уо1им Ув1ив Vо1им Vв1ив Уе1им Уs1ив 8i11ian Nillioл Mi11iм Million Millian Nillion Mi11im Miltioп ('000 Топв) of Риов Dоllагв ('000 Толв) АиоЕгslва Do1 bгв ('000 Тапв) АивLгвlвв Dг+llаго ('000 Tons) Аивtгаlи Oollars ArpenLi юв >и TAL IMPORTS В801.18 933.24 4884.71 7630.б5 2289.Ь7 8814.25 9В00.24 4Ь91.82 4Т24.28 10055.77 9S58.b8 4765.78 _iw.�лek < Апiм1 РглдиеЕл ?2.38 1.4Т 21.48 18..96 11.64 19.90 9B.bS 40.1В 89.06 38.68 Т4.90 43.68 .;•. м1.в1. s.93 о.34 2.мэ о.е1 1.27 а.аа 2.4в г.12 2.1а о.ю 4.2s z34 д влд lbsц 1.87 0.13 1.80 1.11 0.87 1.?7 18.87 19.b7 18.8Ь ц.28 19.92 14.Z8 iаhвгlи 12.87 0.8.9 9.24 10.18 4.7b Т.98 12.84 10.28 10.88 12.88 20.28 11.42 .1У, • Mi16 Ргодисбв, Ерра � Иопву b.BS 0.48 8.27 4.00 Ь.74 8.47 4.48 5.88 8.09 9.1В 2В.84 32.29 �h•гв 0.80 0.13 1.69 0.38 3.91 2.11 0.14 2.60 2.49 0.28 4.88 2.а8 вгиlа. рSlмвда � ОЕhвг Yjy.lвЫ в РглдиеLв 101.70 9.70 136.05 187.21 70.68 124.4Ь 248.24 231.9Ь 245.40 160.13 278.6В 144.ц .ivв Рlвnбв L Flоввгs 0.5В 0.0� 0.29 0.27 0.21 0.88 0.23 O.b9 0.81 0.18 1.20 0.87 r0ieulWrв � УврвЧ►1и Z8.7J 0.9Ь 11.78 18А8 4.01 Ь.8Ь 27.89 10.19 9.49 11.21 19.98 Ь.73 wiCв 110.96 2.79 32.46 110.В7 18.88 20.14 1Ь7.ОВ 48.В8 49.34 84.83 47.60 25.2В ТIи, Ти � Мвц 18.12 9.8t 84.28 31.10 44.14 68.98 34.34 187.38 1b0.8p 82.74 148.08 79.14 irвsls 0.48 0.11 0.97 0.76 1.11 1.47 18.68 8.71 8.19 1.32 Ь.24 4.02 оиг а) Mhиt Ву-ргодиец 0.41 0.01 0.21 0.90 0.21 0.41 0.В7 0.29 0.29 ". 38.ц 8.80 У.6В -lвввдв 8.65 1.14 18.38 8.70 4.88 9.09 8.68 18.46 1Ь.82 4.88 28.90 19.30 рвLвЬlв EaLneb 1.Ь9 О.ТВ 9.81 1.49 Ь.81 30.14 1.72 12.84 18.48 1.В0 30.78 14.12 �вгв 1.В8 0.07 0.90 1.57 0.84 1.38 1.98 1.1b 1.23 1.01 1.96 1.05 л►.�,1 а v.л.с.ы. Fва в Ott. 7.3в о.79 1о.44 в.4s в.о2 вл9 7.ю в.sв 7.х ь.8s 1о.ьs ь.29 1• Fв4 7.38 0.79 10.Ч b.4S 4.02 6.49 7.b3 В.б8 7.20 8.Ь8 10.88 b.29 оед. Ввrвrааи t ТоЬвеео 82.28 4.79 87.13 23.69 27.80 88.18 89.62 84.89 87.71 8В.96 10Ь.8! 87.37 �врагвд МиLв Ь FiвA 0.14 0.01 0.95 0.04 0.07 0.11 0.02 0.11 0.09 0.11 0.60 0.31 � z �раг а Sвиц 8.78 0.09 1.2В 1.18 О.Ь7 1.00 1.77 1.б4 1.б0 2.88 3.79 1.89 Ор Z ою 1 двгivвLво 14.87 2.91 44.79 31.88 17.84 32.50 15.78 39.20 42.04 18.4В 67.SS 81.98 �� гввl Ргодисtв 0.78 0.10 1.58 0.14 0.2Ь 0.48 0.44 1.25 1.24 0.30 1.Ы 0.98 N V OD рвtsЬlв РгодиеЕа 3.89 0.42 4.42 2.89 1.44 2.89 7.29 5.93 8.88 4.00 7.68 4.21 р �вг woa Рг.р.г,е3ол. п.Ьз О.ео 7.ы 1.2о п.1а в.78 s.s1 8.оа 8.sv з.ы 3ь.1о 7.вр �" vегврвв � Vinspar 1.в4 o.s7 s.9T 8.в7 3.1s 8.42 7.7е в.о1 в.sа 1о.2ь 1г.Ь4 в.42 �"' О од By-producis 2.32 0.19 2.22 2.24 1.64 3.07 3.19 2.60 2.74 Ь.66 b.91 3.27 bвcw О.Е4 0.09 1.21 0.45 1.09 1.3В 0.01 0.21 O.ZO 0.18 1.11 0.5В ' Equa1 to 1/10000000 АиаLгвlао Е ANNEX 8 Page 28 of 30 � AORкQA.TtNA1в,�TOR ;tЕУ1ы . � Твblв 8.24: Ргодиевiеn. IтеогЕв влд Аввsгмt tenwwnбion о� Fвrtilisвгa �J (ео�.�, 19r2-1987 Р R 0 0 U С Т 8 NUiR2B�R8 Nвtionsl 2врог4в TOTAL г� Ч Р К TQTAL Уиг Ргодие6 РгодиеLв Ч�RR2B�P1�' �' 'I 1972-75 �/ 110114.00 184397.00 2В4811.00 49101.30 20836.50 5345.50 75289.Э0 1979-74 �/ 10Z307.00 ц1887.00 214174.00 4b287.00 20859.70 93В8.10 6547'2.В0 , 1074-78 �/ 64В52.00 123683.90 18B9SB.00 $5331.20 19357.80 8834.50 5в323.30 14?8-78 �/ 631&9.30 46980.70 120194.20 27887.60 4071.90 8¢4Q.70 94453.20 1978-77 �/ 689Ы.00 113021.00 182872.Q0 457ц.90 12827.00 4095.30 82644.50 197Т s,/ ТЬ984.00 47В09.00 178187.00 в0414.00 11092.00 3588.00 85874.00 1978 g/ 92710.00 98111.00 190�1.00 44412.00 14208.00 4727.00 8Э348.00 1979 р/ 82888 00 418071.00 300089.00 60578.00 28229.00 10179.00 98974.00 1980 88318.00 17ц69.50 �87487.80 68954.30 21828.80 МВ8.00 9щ7.00 1981 В3709.00 ц8898.10 179д08.40 811М.80 1264В.90 4401.10 88180.00 198Z 74481.00 1Z9.Э42.00 �5.00 500?b.BO 1998Т.80 4698.80 78577.20 1988 78738.00 176ц4.90 �2972.90 84818.40 24494.80 887R.90 97783.00 19&t 7000В.80 291141.80 510118.00 0�08.80 ТО308.30 943В.90 127783.70 148b 81206.30 269804.В0 954101.10 119448.5р 19708.50 4883.80 14Э817.60 1988 72703.20 109781.80 272488.80 87463.40 �t787.30 109Z3.10 101178.80 1087 8988Э.00 2448ц.S0 359897.80 91788.50 27'771.80 12898.20 132435.� �/ Аруагмb eonsuвp0ion iпсlиди aLoek sdjustиnб; �/ АргiеиlWмl yar 3 OaES 1ег WEionsl РгедиеЪ 4ог 1977-79 вгв иbissLвd. - • 5тпев: Fвrti 1 i иг Ов0агtввл�. SАСуР. ANNEX 8 Page 29 of 30 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 8.26: Morkotina Moraine for Wheat, December 1988 Rosario Buenos Aires Bahia Blanca US$/to" US$/ton USS/ton FOB Prices 80.00 80.00 96.00 1. Fort changes for Merchandise 5.27 4.92 6.47 1.1 National Grain Board Elevator 8.32 2.86 4.62 Inspection 0.95 6.96 0.95 Lose (0.3% Over FAS) 0.19 0.18 0.18 1.2 General Administration of the Port 0.82 0.93 0.82 2. Cost of Commercialization, Including Margins 8.60 ?.as 8.09 2.1 Analysis of Merchandise 0.04 0.04 0.04 2.2 Financing (1.25X over FAS) 0.72 0.74 0.71 2.3 Commisions (1X over FAS, plus USSO.16 per ton) 0.75 0.78 0.74 2.4 Customs (1% over FOB) 0.80 0.80 0.80 2.S Margins 6.19 5.31 5.80 3. Charges and Tax** 6.03 6.03 8.03 3.1 Export Taxes (SX over FOB) pj 4.00 4.00 4.00 3.2 Contribution to INTA (1.5% over FOB) 2.20 1.20 1.20 3.3 Stamp Tax (6.15X over FAS) 0.09 9.09 0.09 3.4 Foreign Exchange Transfer Tax (0.0 over FOB) 0.49 0.49 0.48 3.5 Merchant Marine Fund (2X over Marine Cost) 0.26 0.26 0.26 FAS Prices 60.26 $1.40 $9.41 4. Cost of Commercializatior and Conditioning (3.8 Austral Per Ton) 5.98 6.04 5.94 4.1 Conditioning (3.8 Austral Per Ton) 2.97 2.97 2.97 Drying (0.9 A/tn) Draining (0.5 A/tn) Losses (2.3 A/tn) 4.2 Commision of Country Elevator Owner 3.01 3.07 2.97 S. Charges and Taxes 1.14 1.15 1.13 6.1 Gross Income (IS over FAS) 0.60 0.61 0.69 5.2 Stamp A Registration Duties (0.3X over FAS) 0.18 0.10 0.18 5.3 Social Security Contribution (6.8X over FAS) 0.36 0.38 0.38 S. Long Haul 7.26 6.53 6.73 7. Short Haul and Cargo Handling 3.38 3.38 3.38 7.1 Short Haul (16 Km, at 2 A/tn) 1.67 1.87 1.67 7.2 Cargo Handling fron! Country Elevator Silos (2.05 A/tn) 1.74 1.71 1.71 Producer Prices 42.46 46.30 43.23 M/ No longer in effect; 1.2 Austral a I US 2 ANNEX 8 Page 30 of 30 ARGENTINA AGRICULTURAL SECTOR REVIEW Table 8.26: Difference in Shippinz Costs of Grain Between Argentina and Other Countries, 1986 Differential Relative Origin Destination US$/ton to Agentina (%) US Gulf USSR (Black Sea) 17.7 -35 San Lorenzo USSR (Black Sea) 13.3 -51 Australia USSR (Black Sea) 21.7 -21 Argentina USSR (Black Sea) 27.4 0 US Gulf Rotterdam 6.4 -57 San Lorenzo Rotterdam 6.2 -59 Argentina Rotterdam 15.0 0 Source: IICA