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					Report No. 32763-AR


Argentina Agriculture and Rural Development:
Selected Issues

July 31, 2006


Argentina, Chile, Paraguay & Uruguay Country Management Unit
Environmentally and Socially Sustainable Unit
Latin America and the Caribbean Region




Document of the World Bank
        CURRENCY EQUIVALENTS
      Currency Unit = Peso Argentino (AR$)
       US$1.0 = ARS$2.92 (2005 average)
                FISCAL YEAR
           January 1st to December 31st
             WEIGHT MEASURES
                Metric System




Regional Vice President:    Pamela Cox
Sector Director:            Laura Tuck
Country Director:           Axel van Trotsenburg
Sector Manager:             Mark Cackler
Sector Leader:              Carter Brandon
Task Managers:              Robert Schneider
                            José María Caballero
                                                           TABLE OF CONTENTS
ACKNOWLEDGEMENTS ................................................................................................................................................. v
EXECUTIVE SUMMARY .......................................................................................................................................vii
1. INTRODUCTION ................................................................................................................................................. 1
2. THE STATE OF AGRICULTURE IN ARGENTINA ........................................................................................ 3
   OVERVIEW OF THE IMPORTANCE OF AGRICULTURE IN ARGENTINA‘S ECONOMY .......................................................3
   THE EVOLUTION OF AGRICULTURAL POLICY ..............................................................................................................4
   POTENTIAL ADDITIONAL PRODUCTIVITY GAINS ....................................................................................................... 11
   NEW FORMS OF FARM ORGANIZATION ..................................................................................................................... 14
   REGIONAL EFFECTS OF POLICY CHANGES................................................................................................................. 17
   SUMMARY ............................................................................................................................................................... 19
3. SOME INTERNATIONAL COMPARISONS ................................................................................................... 20
   OVERALL PERFORMANCE ........................................................................................................................................ 20
   LAND RESOURCES ................................................................................................................................................... 22
   AGRICULTURAL POPULATION .................................................................................................................................. 23
   FACTOR PRODUCTIVITY........................................................................................................................................... 24
     Land Productivity............................................................................................................................................... 24
     Labor productivity.............................................................................................................................................. 25
     Mechanization .................................................................................................................................................... 26
   TOTAL FACTOR PRODUCTIVITY ............................................................................................................................... 26
   AGRICULTURAL EXPORT POSITIONING AND MARKET PENETRATION ...................................................................... 29
   SUMMARY AND CONCLUSION .................................................................................................................................. 34
4. THE ROLE OF GOVERNMENT....................................................................................................................... 36
   AGRICULTURAL FISCAL POLICY .............................................................................................................................. 36
     Agricultural Taxation ......................................................................................................................................... 36
     Public Expenditure in Agriculture ..................................................................................................................... 41
   AGRICULTURAL PUBLIC SERVICE INSTITUTIONS ..................................................................................................... 46
     INTA ................................................................................................................................................................... 47
     SENASA.............................................................................................................................................................. 48
   ANCILLARY SERVICES AND THE ROLE OF GOVERNMENT ........................................................................................ 49
     Infrastructure and Processing Facilities ............................................................................................................ 50
     Rural Finance .................................................................................................................................................... 52
   GOVERNMENT AS A CATALYST FOR COLLECTIVE ACTION ...................................................................................... 53
   SUMMARY AND CONCLUSIONS ................................................................................................................................ 54
5. LABOR, INCOME AND POVERTY IN RURAL AREAS .............................................................................. 57
   THE RURAL LABOR FORCE ...................................................................................................................................... 57
     Characteristics and Employment ....................................................................................................................... 57
     Participation in Non-Farm Occupations ........................................................................................................... 59
   LABOR EARNINGS IN RURAL AREAS........................................................................................................................ 61
   RURAL POVERTY ..................................................................................................................................................... 65
     Incidence ............................................................................................................................................................ 65
     Location ............................................................................................................................................................. 65
     Characteristics ................................................................................................................................................... 66
     Is Land a Poverty Trap for Small Farmers? ...................................................................................................... 69
   SUMMARY AND IMPLICATIONS ................................................................................................................................ 70
6. THE CROP FRONTIER EXPANDS AND THE PAMPAS INTENSIFY ....................................................... 72
   HOW MUCH HAS THE FRONTIER EXPANDED? ......................................................................................................... 72
     Salta ................................................................................................................................................................... 72
     Eastern Santiago del Estero and Western Chaco .............................................................................................. 73
   THE ADVANCE OF SOYBEAN CROPS: WHAT HAVE THEY REPLACED? ...................................................................... 73
   FACTORS EXPLAINING THE LOCATION OF SOYBEAN EXPANSION ............................................................................ 75
     Regression Results for 1988 ............................................................................................................................... 75
     Regression Results for 2002 ............................................................................................................................... 76
     Regression Results for the Change in 1988-2002 .............................................................................................. 77



                                                                                       i
       Discussion .......................................................................................................................................................... 78
    IMPACT ON LIVING STANDARDS ............................................................................................................................... 79
    INTENSIFICATION IN THE PAMPAS ............................................................................................................................ 80
    SUMMARY AND IMPLICATIONS ................................................................................................................................ 83
7. FOOD QUALITY, SAFETY AND PHYTOSANITARY ISSUES ..................................................................... 84
    THE REGULATORY SETUP ........................................................................................................................................ 84
       Institutions and Norms ....................................................................................................................................... 84
    PHYTOSANITARY CONTROL PROGRAMS: ISSUES AND EXPERIENCES ....................................................................... 86
       The National Fruit Fly Control and Eradication Program (PROCEM) ............................................................ 86
       The Carpocapsa Control Program (PLCC) and the Closing of the Brazilian Border to Pomaceous Fruit ...... 87
       The Foot and Mouth Disease (FMD) and PHEFA ............................................................................................ 89
       Phytosanitary Controls and the Export of Tucumán Lemons............................................................................. 90
       The Impending Threat of the Asiatic Soybean Rust ........................................................................................... 92
       Improving Knowledge on Pesticide Management and Occupational Safety Issues ........................................... 92
    QUALITY, INSTITUTIONS AND THE DEVELOPMENT OF THE FOOD INDUSTRY ........................................................... 93
       Differentiation and Quality in the Wheat Industry ............................................................................................. 93
       Promises and Needs of the Honey Industry........................................................................................................ 95
       Economic Governance and the Unequal Regulatory Situation in the Beef Industry .......................................... 96
    BIOTECHNOLOGY AND BIOSAFETY .......................................................................................................................... 98
    LESSONS, CONCLUSIONS, AND RECOMMENDATIONS ............................................................................................. 102
       Lessons on Sanitary and Phyto-Sanitary Issues ............................................................................................... 102
       Lessons on Food Quality and Safety Issues ..................................................................................................... 104
       Biotechnology................................................................................................................................................... 104
       Final Conclusions and Recommendations ....................................................................................................... 105
8. THE IRRIGATION SUBSECTOR .................................................................................................................... 107
    IMPORTANCE OF THE SECTOR ................................................................................................................................ 107
    THE POTENTIAL OF IRRIGATION ............................................................................................................................ 108
    CONSTRAINTS TO ACHIEVING DEVELOPMENT POTENTIAL .................................................................................... 109
       Incomplete Legal Framework .......................................................................................................................... 109
       Weak and Poorly Articulated Water Institutions ............................................................................................. 110
       Decentralization Issues .................................................................................................................................... 111
       Difficulties Associated with Water Pricing and Water Charges ...................................................................... 112
       Difficulties Related to Infrastructure ............................................................................................................... 113
       Difficulties Related to Financing ..................................................................................................................... 113
       Difficulties Related to the Technical Capacity of Water Users ........................................................................ 114
       Difficulties Related to Research ....................................................................................................................... 114
       Difficulties Related to the Efficiency of Irrigation ........................................................................................... 115
    SUMMARY OF IRRIGATION POTENTIALS AND CONSTRAINTS.................................................................................. 116
       Potentials ......................................................................................................................................................... 116
       Constraints ....................................................................................................................................................... 116
    POLICY OPTIONS.................................................................................................................................................... 116
       Overall principles and objectives ..................................................................................................................... 116
       Elements for a strategy..................................................................................................................................... 117
       Instruments ....................................................................................................................................................... 119
9. SUMMARY AND CONCLUSIONS................................................................................................................... 120
    SUMMARY OF FINDINGS ........................................................................................................................................ 120
    GENERAL POLICY CONSIDERATIONS AND SUGGESTIONS FOR ADDITIONAL WORK .................................................. 122
BACKGROUND PAPERS ..................................................................................................................................... 124
REFERENCES ........................................................................................................................................................ 125
ANNEX I: REGIONAL OVERVIEW .......................................................................................................................... 132
ANNEX II: INDICATIVE ANALYSIS OF EXPORT MARKET STRATEGIES OF THE REGIONAL ECONOMIES ............... 143
ANNEX III: THE NEW AGENDA FOR FOOD QUALITY AND SAFETY ...................................................................... 151
ANNEX IV: INDICATORS OF IRRIGATION DEVELOPMENT IN ARGENTINA’S PROVINCES ......... 153
MAP OF ARGENTINA .......................................................................................................................................... 160




                                                                                      ii
                                  ACRONYMS
AAPROTRIGO   Asociación Argentina Protrigo (Argentinean Asociation Pro-Wheat)
AFINOA       Asociación Fitosanitaria del NOA
AMBE         Agricultural Based Manufacture Exports
ANMAT        Administración Nacional de Medicamentos, Alimentos y Tecnología Médica
             (National Administration of Drugs, Food and Medical Technology)
APHIS        Animal and Plant Health Inspection Service
CAA          Código Alimentario Argentino (Argentinean Food Code)
CASAFE       Cámara de Sanidad Agropecuaria y Fertilizantes (Chamber of Agricultural
             Health and Fertilizers)
CNA          Censo Nacional Agropecuario (Agricultural Census)
CNLA         National Foot-and-Mouth Disease Control Commission
CONABIA      Comisión Nacional Asesora de Biotecnología Agropecuaria (National
             Advisory Comisión of Agricultural Biotechnology)
CONICET      Consejo Nacional de Investigaciones Científicas y Técnicas (National Council
             of Research and Technology)
COPROSAs     Provincial Animal Health Commissions
CORENOA      Comité Regional Fitosanitario del NOA
EAP          Empresa agropecuaria (Agricultural Enterprise)
EU           European Union
FAO          Food and Agriculture Organization of the United Nations
FDI          Foreign Direct Investment
FUNBAPA      Fundación Barreras Patagónicas (Patagonic Barriers Foundation)
FMD          Foot and Mouth Disease
FOB          Free On Board Price
GDP          Gross Domestic Product
GM           Genetically Modified
GMO          Genetically Modified Organism
IASCAV       Instituto Argentino de Sanidad y Calidad Vegetal (Argentinean Institute of
             Health and Vegetal Quality)
IDB          Interamerican Development Bank
IIASA        International Institute for Applied Systems Analysis
INAL         Instituto Nacional de Alimentos (National Food Institute)
INASE        Instituto Nacional de Semillas (National Institute of Seeds)
INDEC        Instituto Nacional de Estadísticas (National Institute of Statistics)
INTA         Instituto Nacional de Tecnología Agropecuaria (National Institute of
             Agricultural Technology)
IP           Indicación de Procedencia/ Source of origin
IRAM         Instituto Argentino de Normalización y Certificación
ISNAR        International Service for National Agricultural Research
LAC          Latin American Countries
LART         Laboratorio de Análisis Regional y Teledetección (Laboratory of regional
             analysis and teledetection)
NEA          North East of Argentina
NOA          North West of Argentina
OECD         Organization for Economic Co-operation and Development


                                         iii
OIE         Organization of Animal Health
PHEFA       Plan Hemisférico para la Erradicación de la Fiebre Aftosa (Hemispheric Plan
            to Eradicate Foot and Mouth Disease)
PLCC        Patagonian Program to Battle Carpocapsa
PNCCA       Programa Nacional de Certificación de Calidad de Alimentos
PROCEM      Programa de Control y Erradicación de Mosca de los Frutos (Fruit Fly Control
            and Eradication Program)
PRODERNEA   Proyecto de Desarrollo Rural de las Provincias del Noreste Argentino
PRODERNOA   Proyecto de Desarrollo Rural de las Provincias del Noroeste Argentino
PROINDER    Proyecto de Desarrollo de Pequeños Productores Agropecuarios
PROSAP      Programa de Servicios Agrícolas Provinciales
R&D         Research and Development
RHS         Rural Households Survey
RNF         Rural Non Farm
SAGPyA      Secretaría de Agricultura, Ganadería, Pesca y Alimentos (Secretariat of
            Agriculture, Livestock, Fishery and Food)
SICOFHOR    Sistema de Control de Productos Frutihortícolas Frescos (Fresh Fruit and
            Vegetable Control System)
SNNCC       Sistema Nacional de Normas de Calidad y Certificación
TFP         Total Factor Productivity
UBN         Unmet Basic Needs
UNESCO      United Nations Educational, Scientific and Cultural Organization
US          United States of America
USDA        United States Department of Agriculture
WWF         World Wide Fund




                                        iv
                                 ACKNOWLEDGEMENTS

This report has been prepared by a team led by Robert Schneider and comprising Dorte Verner,
Jose Maria Caballero, and Marisa Miodosky. Peer reviewers were Derek Byerlee, Lucio Reca,
Graciela Ghezán, Alberto Valdes, and Dina Umali-Deininger. José María Caballero took over
the finalization of the report upon the retirement of Robert Schneider. We would especially like
to thank Marisa Miodosky who tirelessly searched down data and information from our
Argentinean colleagues, and never ceased to question. We are also most grateful to the team of
Argentinean consultants who contributed to the preparation of the report. Without their
involvement the report would not have been possible. Their names and areas of contribution are
given in the section on References.

During the elaboration of the report we have received valuable comments from Carter Brandon,
Edward Bresnyan, Jorge Caballero, Mark Cackler, Jasmin Chakeri, Estanislao Gacitua, Elsie
Garfield, Juan Gaviria, Jesko Hentschel, Francisco Proenza and John Redwood.

The team is grateful to the Secretaría de Agricultura, Ganadería, Pesca y Alimentos for its
support during the preparation of the study. We would like to thank, in particular, Jorge Neme,
Néstor Murgier, Gabriel Parellada and María Anchorena Nazar from PROSAP, who provided
strong support organizing the December 2004 workshop to discuss the consultants‘ reports, as
well as the trips of the team to the provinces. Gastón Bordelois, Susana Aparicio, Susana
Soverna, Alejandro Gerardi and Mónica Catania from PROINDER also provided important
information concerning rural development programs and rural dwellers‘ life conditions. Carter
Brandon oversaw relations with these and other government counterparts during the study.

A number of people deserve special recognition. The support and wise counsel of Raul
Fiorentino has been invaluable throughout the process. John Young, on his own initiative,
provided the market analysis of wine and grapes following a brief discussion concerning the
relative success of Argentina and Chile in penetrating high value markets and we would
especially like to acknowledge our debt to him. Janice Molina very efficiently translated under
difficult circumstances and Nelvia Díaz and Florencia Liporaci provided valuable editorial and
logistic support.




                                               v
vi
                                 EXECUTIVE SUMMARY
                                           Introduction

1.      This report examines the performance and trends of the Argentinean rural
economy. Its purpose is to update the World Bank‘s understanding of the forces shaping the
country‘s rural economy, and to serve as a vehicle for dialogue with government and civil
society on rural development issues. This is especially relevant in view of the new Country
Assistance Strategy finalized by The World Bank and the Government of Argentina in June
2006. It is hoped that the report will help identify areas where Bank financial and other
assistance could be of value to Argentina over the medium term. The report is intended as a
vehicle for dialogue not a final statement of Bank positions.

2.      The report is not comprehensive and does not aim at covering all of the many
aspects of agriculture and rural development in Argentina. It reviews selected areas of major
importance, and highlights others where further work might be warranted. In agreement with
Government, we chose to emphasize issues relevant to the growing regional economies (i.e.,
those provinces outside of the Pampas region). There are two main reasons for this. First, the
incidence of rural poverty is much higher in the regional economies. Second, the potential for
employment and income generation of agricultural development in the regional economies is
large, and many opportunities exist to develop high value products. Some of the issues that we
have chosen to examine are food quality and phytosanitary control, irrigation, and the
development of improved export market participation. Our emphasis on the regional economies
has not prevented our reviewing some themes pertaining to Pampean agriculture, such as the
outstanding performance of the grain and oilseeds sector and its contrast with the stagnation of
the beef sector; issues related to infrastructure and processing facilities; and the expansion of the
crop frontier. The report is based on a series of background papers by both Argentine consultants
and World Bank staff. The list of papers and authors‘ names are listed with the References.

3.      The growth of agriculture in Argentina over the last two decades is cause of
satisfaction but should not give rise to complacency. Argentina has enormous agricultural
potential and big natural advantages for the production of many agricultural products. After
decades of slow growth, there has been a big leap forward in the last 15 years. This was the
result of more favorable policies and breakthroughs in farming technology. There is cause for
satisfaction but not for complacency, for several reasons: (i) there is still much to be done in the
grain commodity economy of the Pampas with respect to infrastructure and processing facilities,
quality improvements, environmental surveillance, and phytosanitary control; (ii) the beef sector
has remained stagnant; (iii) high value crop production in the regional economies has expanded
but at a much smaller pace, facing restrictions in the irrigation and phytosanitary systems, lack of
term financing for farm modernization, and difficulties to organize collective action; and (iv)
poverty continues to be important in rural areas.

4.      Conditions are favorable for strong agricultural growth in the coming years. Regained
macroeconomic stability, favorable international prices and the competitive edge given by the 2002
devaluation mark an auspicious opportunity for policy action to vigorously address the above
issues. This would make agricultural growth more sustainable and equitable.


                                                 vii
5.       Three lines of policy action are highlighted in this report:

        There is evidence of underinvestment in agricultural public goods in the country.
         Progressively raising public expenditure in agriculture to levels similar to those of its
         closest LAC competitors would do much to increase the competitive edge of the sector.
         This has already started over the last two years, and we expect it to continue.
        Mitigating rural poverty would require a combination of direct and indirect
         employment generation, particularly in the regional economies, with improved access to
         and quality of education and other services. Investing in irrigation, sanitary and
         phytosanitary systems, and research and extension for small farmers would be an
         effective way to help improving poverty conditions.
        Collective action is increasingly critical in modern globalized agriculture, and is
         particularly significant for the development of the regional economies. It requires (i)
         resolving conflicts in the value chains to allow producers, suppliers and buyers to work
         together to achieve and retain high value markets; (ii) creating and maintaining systems
         of vigilance and enforcement of phytosanitary protection norms; and (iii) effective
         decentralized local management of irrigation systems.

                                 Summary of Technical Findings

Agricultural Performance

6.       Agriculture has been critically important throughout Argentina’s history. Deep
soils, temperate climate, adequate rainfall and good access to sea freight endow Argentina with
exceptional potential for agricultural production. This has permitted agriculture to perform well
despite over 50 years of little favorable policies.

7.      The contribution of agriculture to the national economy is important. In 2004 the
sector contributed 58 percent (US$13.1 billion) of total goods exports, of which 39 percent were
primary products and 61 percent agricultural manufactures. Agriculture generated 9 percent of
GDP and 22 percent of the value added of the goods sectors. Crops made the largest contribution
(63 percent of the total), followed by livestock (31 percent). Agriculture is also a major source of
employment. In 1997, direct agricultural employment was about 1.5 million or 11.4 percent of
the total. When the employment generated in the transport and commerce services related to food
and agriculture is considered, employment generation raises to 20 percent (Obschatko, 2002). In
2001, up to 35 percent of Argentina‘s population lived in predominantly agricultural zones or
resided in small cities linked to agro-industrial activity. This figure increases to 45 percent if a
broader definition of rural is used (de Ferranti et al, 2005).

8.     Notwithstanding its favorable conditions, the long term agricultural performance in
Argentina was below that of neighboring countries. The value of output increased 158 percent
in 1961-2005 in Argentina compared to 241 percent in Chile and 439 percent in Brazil. Over the
last 15 years, however, Argentina‘s agriculture experienced a big leap forward; it grew
considerably faster than Brazil‘s and Chile‘s during the six-year period from 1993 to 1999,
stagnated as Argentina‘s real exchange rate became uncompetitive during the 1999-2001 pre-
devaluation period, and recovered again after the devaluation.


                                                viii
9.      Historically, the Región Pampeana has dominated agricultural growth. The Pampas
are undergoing a rapid process of farm consolidation, driven by cost reducing and labor saving
technological change, and by new contractual instruments (generically called ―planting pools‖)
for combining land, machinery, and high quality management. These pooling arrangements have
improved the overall level of management as well as risk diversification. Primary agricultural
exports from the Pampas, especially in grains and oilseeds, grew 46 percent between 2000 and
2004, compared to 29 percent for the rest of the country. By 2004 79 percent of total
agricultural-based exports came from the Región Pampeana. In contrast, the non-Pampean
regions have taken the lead in agriculture-based manufactures.

10.     The current trend of frontier expansion and farm size increase is driven by
competitive forces and is likely to continue. It is based on technological change, revolution in
farm organization and management, and low unit margins in commodity production. Land in
annual crops in Argentina grew by 5.5 million hectares in the inter-census period 1988-2002.
This expansion took place through intensification (mostly reducing pasture in rotations in the
Pampas), and expansion into new frontiers. While prior to 1988 soil characteristics appear to
have been the dominant determinant of frontier conversion, they do not appear to have
significant influence in more recent years, presumably due to the spread of no-till technology
which permits cropping on hillier, drier, and shallower soils.

11.    Available evidence does not reveal a systematic positive or negative social impact of
frontier expansion at the macro level, although the local impacts may be relevant. The
environmental impact, however, may be severe as soybeans production expanded mainly on
natural vegetation. Thus, 86 percent of the 1988-2002 frontier expansion in the Chaco and
Santiago del Estero occurred in areas previously covered by natural vegetation, and only 13
percent in cropped areas.

12.     The beef sector has experienced long-term stagnation in production, exports, and by
all available productivity measures, although there has been some recovery in recent years.
Between 1961 and 2002, land productivity in livestock grew only 50 percent in Argentina, as
compared to 150 percent in Chile and 300 percent in Brazil. Since most farming in the Pampas
consists of mixed crop-livestock operations it is unlikely that stagnation is a reflection of
management deficiency. It is more likely that it reflects (i) the very high and competing
profitability of grains and soybeans (especially since the wide-scale adoption of no-till planting
and pooling arrangements), which has moved farmers to concentrate attention on crops and
convert good pasture land to cropping; (ii) the perception of greater risk associated with cattle--
especially since the foot and mouth disease outbreak of 2001; (iii) the effect of unstable
macroeconomic conditions and high interest rates, which affect beef production more than the
crops sector due to the longer term nature of the economic payoff of beef; and (iv) some
governance problems in the beef chain. The livestock sector is an area where further research is
recommended in this report.

Agricultural Policy and Service Institutions

13.    The correction of the urban bias in the nineties produced favorable results in
agriculture. The early nineties was a period of correction of the urban bias that traditionally


                                                ix
dominated policy, as well as of technological development and export market breakthrough. The
result was a boom in agricultural exports, mostly from the traditional commodity exporters of the
Pampas but also from high-value exporters of fruits, vegetable and wine from the regional
economies. The period 1991-2001 was tumultuous for Argentinean farmers. It witnessed
liberalization, privatization, dollarization, and the coming into force of MERCOSUR, followed
by the emergence of macroeconomic imbalances that resulted in currency overvaluation and
credit unavailability. For most farmers these events dramatically changed their economic
environment. Driven by favorable external and domestic markets, agriculture expanded rapidly
through 1998. The sector benefited from the elimination of quantitative restrictions on imports,
reductions on import taxes for fertilizers, herbicides, pesticides, machinery and irrigation
equipment, the elimination of taxes on fuels, commercial and financial transactions and exports,
the deregulation of economic activities, and the removal of inefficiencies and monopoly profits
in the trade channels (elevators, transportation and ports). The result was an impressive five fold
increase in fertilizer use, and a three fold rise in the use of herbicides and pesticides. During the
period 1988/1990 to 1996/1998 wheat, corn, soybeans, and sunflower average yields increased
26, 43, 7, and 25 percent, respectively. Land sown with the 31 principal annual crops expanded
25 percent, and annual output growth was 7 percent.

14.     However, macroeconomic imbalances towards the end of the decade led to a
prolonged recession, and subsequently to capital outflows and a financial crisis. Increasing
overvaluation dramatically reduced the margin for Argentinean commodity producers in the
Pampas and the value of exports from the regional economies. At the same time, growing
recession and unemployment depressed the domestic demand for income-elastic foods such as
dairy, fruits and vegetables. Finally, the devaluation of the Brazilian Real in 1998 reduced the
competitive position of Argentinean farmers within MERCOSUR. Agricultural profitability was
reinstated by the 2002 devaluation upon the abandonment of the currency peg, and recovery was
strong. Agriculture-based exports, which had either fallen or showed insignificant growth
throughout 1999-2001, grew by 26 percent in 2002, 27 percent in 2003 and an additional 13
percent in 2004.

15.     Agriculture has traditionally paid a considerable amount of taxes in Argentina. Tax
pressure on the sector in 2003 was 26 percent, similar to that of the national economy. Most
taxation (97 percent in 2003) comes from national -- as opposed to provincial -- taxes. Tax
pressure on agriculture increased much upon the 2001 crisis, mainly as a result of the
introduction (or more exactly reintroduction) in 2002 of export taxes or retenciones. In 2003,
export taxes accounted for 43 percent of all taxes paid by the sector. The incidence on agriculture
of national taxes is rather different from that on other sectors; proportionally, more is paid by
agriculture in export and income taxes and less in VAT and social security contributions.
Various elements in the tax structure are distortionary, chief among which is export taxation.
Agricultural taxation is one of the issues flagged in the report as needing further analysis.

16.     Public expenditure in agriculture is very low. There is an imbalance between what
agriculture contributes to and takes away from the public purse. In 2005, the main national
entities of the agricultural public sector received only 0.8 percent of all national government
expenditure, equivalent to 1.4 percent of agriculture GDP. In real terms and as a share of
agriculture GDP government expending in agriculture fell drastically with the crisis.


                                                 x
International comparisons confirm the low level of spending in the sector. For the average of
1996-2000 the government expenditure per agricultural worker was substantially less in
Argentina than in Brazil or Chile, and less than average in LAC. The ―agriculture orientation
index‖ shows also more discrimination against agriculture in Argentina than in Brazil or Chile or
for the LAC average. It is estimated that some 37 percent of government expenditure in
agriculture in 2003 was in private goods, which in view of the extreme shortage of public funds
going into the sector may result in it being deprived of essential public goods.

17.      INTA and SENASA are the largest government institutions providing vital services
to the sector--agriculture technology research and extension the former, and phytosanitary
protection and food quality and safety services the latter. They are both decentralized public
institutions operating under SAGPyA. They jointly accounted in 2003 for 46 percent of national
government spending in agriculture and 73 percent of that estimated for public goods.

18.    INTA can claim a number of important successes over the last years related to the
introduction of zero-tillage and biotechnology, and the improvement of management practices by
small and medium farmers. Many challenges remain, however, to keep pace with the deep
changes taking place in agriculture in Argentina in the last 15 years. INTA‘s strategic planning
faces up to these challenges but several areas seem to require more emphasis. They include
environmental sustainability, irrigation, bio-energy, quality systems, and the development of
non-traditional and specialty products.

19.      SENASA has good technical capacity and has been able over the years to establish
sound regulatory systems and a number of valuable regulatory and policing processes. But
there are also areas which could benefit from a strategic reassessment of SENASA‘s role.
SENASA‘s weaknesses are in strategic planning, communications and information management,
and capacity to create and sustain partnerships at the local level. SENASA‘s management has
shown awareness of these deficiencies, proposing a strategic reassessment of the organization‘s
role that substantially addresses these weaknesses. The challenge is also to change the
institutional culture towards more focus on ―making things happen‖ rather than ―doing them
yourself‖.

20.    Two essential services to ensure competitiveness of farming and the supply chains
are infrastructure and processing facilities, and rural finance. Limitations in the provision of
these services have historically affected the performance of the sector. Infrastructure and
processing facilities and rural risk and credit markets are also areas flagged for further research.

21.     There are important needs in infrastructure and processing. They refer to grains,
meat, and fruit and vegetables, whose requirements are different. There is room for
improvements in each of these product groups, which would reduce costs, improve quality and
hence prices, expand export markets, and allow the development of new production areas. A
joint public-private strategy would be useful to develop these services, together with a national
program to organize the actions of the public sector. The Ministry of Planning is taking welcome
steps in this direction.




                                                xi
22.    Shortage of bank lending, particularly term lending, is a historic problem in
Argentina’s agriculture. The pool arrangements that have flourished in the Pampas are to a
large extent an answer to this. Lack of term financing has historically held back the
modernization of regional agricultures. Small farmers are especially deprived of access to loans.
Conditions became especially dramatic upon the crisis, but have slowly started to improve since
2003.

Regional Agricultures

23.     The competitiveness of the regional economies is important for the growth of
agriculture as a whole. Regional (or non-Pampas) agricultures have a wide range of agro-
ecological conditions, crops, and irrigated and rain-fed farming. On the whole, regional farmers
do not enjoy the advantage of the particularly favorable natural conditions of their counterparts
in the Pampas. Hence, an exchange rate that allows most Pampa farmers to be competitive may
not allow many regional farmers to compete internationally in favorable terms. Enhancing
competitive conditions in the regional economies is therefore particularly important. Public
policies in areas like technology generation and transfer, irrigation development and
management, sanitary and phytosanitary systems, market development, collective action within
the production chains, and access to medium-term credit for farm improvements, are particularly
relevant to breaking production constraints in the regional economies.

24.    Regional agricultures have a strong potential to directly and indirectly increase
rural income and employment. Rural poverty alleviation and the future of the Argentinean
small farming community depend much on the performance of the regional economies.
Employment in the production chains of fruits, vegetables and wine is estimated at over 800,000
workers, slightly under a quarter of workers in primary and agroindustrial employment (Llach,
Harriague and O‘Connor, 2004). A 30-40 percent increase in employment in irrigated agriculture
appears feasible through a combination of area-expanding and quality (and marketing)
improving measures mentioned below.

25.     Policy reforms and macroeconomic shocks in the post-reform period had varying
effects on the regions and provinces. Most, but not all provinces exhibited sharp growth in
agricultural exports in the 5-7 post reform years, but stagnated or declined as the Peso became
overvalued and credit tightened in the late-1990s. In general, the more outward-oriented a
province, the more successful it was in responding to new opportunities opened up by the 1991
reforms, and the more successful in recovering from the post 1997 crisis.

26.      Excellent progress was made in exporting regional agricultural products into high
value markets in 1993-97, with the export value per hectare of Argentina‘s main irrigated crops
(fruit, vegetables and wine) reaching 95 percent of those of Chile. The subsequent crisis did
serious damage to these exports, however, and in 2002 that value was less than half of Chile‘s.
Had Argentina‘s unit export value continued to catch up with Chile‘s, the value of Argentina‘s
exports of irrigated crops in 2003 would have been nearly US$950 million higher.




                                               xii
Rural Incomes and Poverty Issues

27.     Argentina’s rural society is undergoing a process of transformation. Demographic
changes in Argentina and changes in the characteristics of the labor force reflect a rural society
in transformation, a view reinforced by the increasing extent of migration. There is a strong
feminization of the labor force, with women showing 48 percent participation. Agriculture is the
dominant source of employment in dispersed rural areas (72 percent), but the rural non-farm
sector is also very important for income generation and poverty reduction. Thus, the estimate
from a 2003 survey of 441 rural households of the share of non-farm income, in the income of
poor rural families is 46 percent, while in that of rural non-poor families it is 32 percent.

28.      Key factors explaining access to non-farm employment in rural Argentina are
education, age, land access, location, and gender. There is strong evidence that educated
people have better prospects of accessing non-farm employment, particularly in the better-paid
activities. Being a woman increases the probability of employment in non-farm activities, and so
does age. The opposite is the case with access to land and farm size. Workers in poor regions
are more likely to participate in rural non-farm activities than those in richer regions.

29.      Farm size, infrastructure, technology and gender of the farm head are important
correlates of farming incomes. At average values of other variables, income increases with
farm size, with larger farmers earning dramatically higher incomes than their smaller
counterparts. Gender also matters, although not in an important way; farms run by women yield
7 percent more income than those run by men. Whether the farmland is rented or owned, on the
other hand, shows little measurable effect on income. Not surprisingly, access to infrastructural
services (paved roads and electricity) and use of land-augmenting techniques (fertilizer and
irrigation) are important for income generation.

30.    There are some 200,000 indigent poor families in rural Argentina. These families
tend to be large and young, and they tend to escape from extreme poverty as they mature and
children leave the household. They live largely in the Northeast and Northwest and in dispersed
areas where basic service provision is weak and delivery is difficult and expensive. It is
noteworthy that education attendance beyond 11 years of age in dispersed areas falls off very
rapidly compared to grouped rural or urban areas, reducing the mobility and employability of
youth from dispersed areas. The indigent poor in dispersed areas are significantly more likely to
be small landholders than wage laborers.

31.     Out-bound rural migration is significant. Dispersed areas lost 14 percent of their
population over the last decade, reaching 2.6 million in 2001, compared to grouped rural areas,
which experienced an 8 percent increase and reached 1.2 million. Around 400,000 people left
dispersed rural areas during 1991-2001. Roughly, some 25 percent may have moved to grouped
rural areas and the rest to urban areas.

32.    Migration is not necessarily an indication of poverty. In the dispersed rural areas of
the Pampas, high education levels, even among small farmers, combine with an active land
market to lure small and mid-size farmers off the land, while small farmers without assets
remain. In these cases, out-migration should not be taken as prima facie evidence of decreased


                                               xiii
well-being. On the contrary, migration may be evidence of a farm family having achieved a
critical level of assets to successfully make the transition to non-farm employment. We also
hypothesize that small farmers left behind tend to be of below average educational attainment
relative to the leavers, living in areas where land values have risen relatively slowly and facing
an increasing loss of public services as neighboring communities depopulate. In the Northeast
and Northwest, on the other hand, there is evidence (e.g. Chaco) that many farmers leave the
farm under conditions of duress, without human or financial capital to smooth the transition.
Thus, in areas of high agricultural value, especially the Pampas, small farmers capitalize out (or
rent out) as technological and institutional change increases the value of their land beyond the
net present value of their own production. On the contrary, in areas of low agricultural dynamism
small farmers have neither buyers nor renters to finance their exit, nor do they have human
capital to apply to non-farm employment.

Sanitary, Phytosanitary and Food Quality Issues

33.    Argentina has been remarkably active in improving its regulatory framework for
food quality and safety over the last decade. The new norms refer both to quality standards
voluntarily adopted by producers, and to sanitary norms of compulsory observance. Contrary to
quality regulations, which are rather recent and of new design (including voluntary ones),
phytosanitary regulations have a long history in Argentina. Much work has been done
nevertheless in recent years to update the regulatory framework related to sanitary systems so as
to respond to the needs posed by new production technologies, laboratory methods, and
consumer demands.

34.    Progress has also been made in several aspects of voluntary quality regulation of
foods, such as the 2001 law establishing the ―Indicación de Procedencia‖ or source indication,
and ―Denominación de Origen‖ or origin denomination. Other voluntary regulations that have
been strengthened regard the certification of organic products, the promotion of food quality
through the Sistema Integrado de Calidad INTA project, and the establishment of a joint Sistema
de Normas Agroalimentarias, Insumos Agropecuarios, Producción Forestal and Maquinaria
Agrícola to set standards regarding processes, products and associated services.

35.    In spite of this progress there are still possible improvements in the SPS and quality
systems. Some quality and safety issues remain, such as the insufficient differentiation of
standard qualities in various products, and the different standards applied to export and domestic
markets. The need to strengthen phytosanitary controls is underlined by the cost for the regional
economies of phytosanitary problems. Carpocapsa costs Patagonia and Cuyo an estimate of
US$19 million per year; Fruit Flies cost the Northeast, Northwest, and Cuyo regions some
US$21 million; and Canker costs the Northwest region an estimate of US$37 million.

36.     The Foot and Mouth Disease (FMD) is a major threat to Argentinean livestock
production and an area of active government intervention. Argentina‘s experience with FMD
control leaves interesting lessons regarding how a program based on a regionally concerted effort
and strongly supported over a number of years with adequate legal, technical and financial
means finds success, but reversal is still possible if support weakens. Lessons include: (i) the
importance of the involvement of the private sector through the COPROSAs in achieving


                                               xiv
success; (ii) the importance of collective action at the regional level epitomized by the PHEFA
program; and (iii) how failure to maintain the conditions leading to success turned back the clock
for FMD control as shown by the 2001 crisis. The failure of Argentina to report promptly the
2001 FMD outbreak undermined the credibility of the regulator, and harmed market access not
only for beef but also for other agricultural goods.

37.    The use of genetically modified seeds expanded in Argentina at surprising speed.
Biotechnology erupted in Argentine agriculture in the second part of the 1990s, linked to
soybean cultivation and the use of the transgenic Roundup Ready (RR) variety resistant to the
herbicide Glyphosate. The fast dissemination of the GM variety is a success story in
contemporary Argentina agriculture. In 2003 Argentina had 13.9 million hectares planted with
GM soybeans, second in the world to the US, which had 42.8 million, and ahead of Canada (4.4
million), Brazil (3.0 million), China (2.8 million) and Australia (2.1 million). By 2004, 90
percent of the area planted with soybeans, 50 percent of that with maize, and 30 percent of that
with cotton used GM varieties.

38.     The institutional management of the biotechnology challenge in Argentina may be
considered an international case of best practice. The core of this response was the
establishment of a regulatory framework which defined clear steps for the release of GM seeds
with clear institutional responsibilities within each step. Risk analyses were systematically
conducted to ensure the protection of public health, the environment, and national commercial
interests. The system makes good use of the comparative advantages of the relevant entities in
the country – public, private and academic. The use of the genetically modified RR soybean
seed has been, however, accompanied by conflict with the owner of the GM technology,
Monsanto, over the payment of intellectual property rights.

39.     Quality and product differentiation are important challenges. Even though Argentina
has a long tradition as an exporter of agricultural commodities, quality competition in the form of
market differentiation and niche targeting is relatively recent. There are some important
successes, for example in ―green beef‖ and Plata maize, but additional opportunities exist in
major commodities like wheat, where the introduction of graded grain is slow to materialize in
the production chain. In the beef industry, lack of a standard objective classification of product
types and qualities, and the application of different regulatory systems to export and domestically
oriented production, undermines export opportunities.

40.     Quality and product differentiation are particularly important in the regional
economies. Whereas market differentiation may be an option for higher profits in the Pampas, in
the regional economies it is closer to a question of economic survival. Unlike the Pampas, the
regional economies do not have a clear comparative advantage on either the cost or quality
dimension. For fruits and grapes, at least, Argentina has not had in place the kind of well
defined marketing strategy characterizing other world market leaders. While at times Argentina
appears to compete on cost in the commodity markets, at other times it appears to have attempted
to move into higher value markets.




                                                xv
Irrigated Production

41.     Irrigated production is an important part of all agricultural production in
Argentina. Argentina‘s irrigated area reached 1.7 million hectares in 2001. Some 70 percent of
this area (1.1 million has) is located in the arid or semiarid regions. Fruits and vegetables make
up the most important share (28 percent) followed by sugar cane, tobacco and aromatics (15
percent), forage crops and cereals (14 percent), orchard crops (12 percent), citrus, olives, nuts
(3.3 percent), cotton (1.9 percent), forest crops (9.1 percent), and others (16 percent). In terms of
economic value, production from irrigated lands represents some 26 percent of Argentina‘s total.
In several arid provinces such as Mendoza, Río Negro, and San Juan, agriculture is virtually
dependent on irrigation, with irrigated production surpassing 90 percent of total output value.

42.     Productivity levels and water management are less than adequate in most irrigated
areas. As indicated above, if Argentina received the same export value in fruits, vegetable and
wine per unit of irrigated land in these crops as Chile, it would gain an additional US$950
million per year (over 70 percent). This would require a combination of better water control,
better phytosanitary control, and better marketing.

43.    Additional value and employment from irrigation could be obtained by bringing
new land under irrigation. Preliminary estimates indicate that an additional 30-40 percent area
could be brought into irrigation with investments in the public irrigation system in the range of
US$100-200 per hectare. Additional area in the order of 20 percent could be irrigated through
improved on-farm efficiency from the use of pressurized irrigation. Complementary benefits
from pressurized irrigation are the improved quality of production due to better water control,
and the elimination of water-logging and salinization.

44.     The potential effect of increasingly high-value irrigated agriculture is exemplified by
the Cuyo region. In Cuyo, consolidation of farms has led to much less out-migration than
elsewhere, due to the labor intensive nature of irrigated agriculture, especially in the production of
high value crops. As a result of this expanding activity, farmers leaving independent farming in the
Cuyo have a much higher probability of finding wage employment in on- or off-farm occupations.
In Mendoza, the Cuyo province most successful in developing irrigated agriculture and promoting
production for high value markets, population increased in both dispersed and grouped rural areas
despite a 13 percent reduction in the number of farms.

45.      The constraints to the full benefits of irrigation potential are more social than
physical. They relate to insufficient decentralization of authority and responsibility to the water
users and to the consequent persistence of a culture of dependency. This is aggravated in some
places by low profitability of agriculture related to small size of holdings and low human capital.
Institutional support to irrigation is generally weak.




                                                 xvi
                                    Policy Issues and Options

General Considerations

46.     Public action could be important to encourage further development of the rural
economy in Argentina. We see three areas for such action: (i) establishing and upholding rules
of the game that are stable and fair and contain incentives that benefit the wider social good; (ii)
investing in public goods, including agricultural research and extension, sanitary and
phytosanitary systems, infrastructure, education, and health; and (iii) adopting a clear strategy to
support the development of local and regional collective action, especially in cases where the
interests of individual links in the marketing chain prevent the competitiveness and development
of the entire chain.

Expansion of the Crop Frontier

47.     The current rapid expansion of the crop frontier raises social and environmental
policy concerns. The social concern is over the potential effect of frontier expansion displacing
more labor intensive activities and eliminating jobs. While there appears to be no imminent
social threat at this time, it would be useful to monitor the evolution of social welfare in frontier
expansion areas. This would require improving the collection of rural socio-economic data
through household surveys. The environmental concern refers primarily to the conversion of
forest ecosystems to cropland. The design and implementation of provincial and eco-regional
plans to better ensure the conservation of critical representative ecosystems, particularly in the
highly threatened Chaco ecosystem, is an option to address this environmental issue.
Sustainability concerns exist in connection with resource management, whether of soil, pests, or
pesticides themselves. While no-till cropping has made possible the cultivation of hillier land and
shallower soils, threats of erosion and declining yields due to nutrient depletion remain. In the
Pampas, there is evidence of a shift to high intensity rotations, especially under annual rental
contracts and pool arrangements. The establishment of a credible monitoring system of trends in
land management and soil conditions from an agricultural sustainability point of view would be
an option to address this issue. Such a monitoring system would provide credible land resource
information to farmers‘ organizations, extension workers and land market participants.

Poverty and Rural Development

48.     Poverty reduction strategies are different in the Pampas region and in the regional
economies. Poverty reduction policies in the Pampas are conditioned by the trend towards
increased farm size and ―pool‖ arrangements. The focus could be on the small and medium
farmers left behind, in order to help them make the transition to better paying occupations. In the
regional economies, the focus could be on agricultural intensification and the development of
high value crops. This could be achieved through improved irrigation and phytosanitary systems,
technological support, and support to access investment credit. Pursuing rural non-farm growth is
another option for poverty reduction in the regional rural economies. In view of strong synergies
in the development of the farm and non-farm sectors, this option could be pursued jointly with
agricultural development.




                                                xvii
49.      Poverty reduction requires actions along several lines. The strategic principles for
reducing rural poverty involve strengthening the key assets of the poor, and taking into account
geographic differences in the poverty situation and priorities. Four areas could be considered for
policy action: (i) targeting indigent households, particularly young large families, and linking
income transfers to education through social programs such as Becas and Familia; (ii) increasing
access to productive inputs for small firms and farmers through research and extension, more
access to land, and rural finance systems tailored to the needs of small producers; (iii) investing
in job creation in the regional economies to benefit the unemployed and those trapped in low-
productivity farms or low paying, low productivity jobs; and (iv) developing and
institutionalizing a national framework for provincial and regional rural development and
poverty alleviation. In addition, we recommend that a nationwide representative rural household
survey be conducted, with the objective of identifying the family and farm determinants of
poverty and migration in rural areas.

Food Safety and Phytosanitary Issues

50.      Improving food quality and safety systems is crucial for reaching Argentina’s
potential in the production and export of food. Argentina is a world agricultural power, but it
still has potential to increase its participation in world markets as one of the leading suppliers of
a number of agrarian products (soybeans, wheat, maize, beef, temperate fruits, citrus fruits,
honey) and a medium supplier of others (tobacco, sugar, rice, pulses, milk, garlic, onions,
groundnuts, cotton). Enhanced quality and safety systems are fundamental to achieving such
potential and also maintaining the participation already gained in world markets. The importance
of this is underpinned by the increasing importance of non-tariff barriers. The investments
required are not particularly high while the pay off is large; they are mostly for the fine tuning of
the research, regulatory and surveillance systems already in place. Efforts are also required to
strengthen the governance systems of the productive chains.

51.      It would be useful to define clear roles and responsibilities among provincial, public,
and private agencies, and allocate the budgetary resources required. Thus, current programs
to combat pests, especially the Fruit Fly, Citrus Canker, and Carpocapsa, could be strengthened
by: (i) extending their scope to the entire country through national legislation; (ii) defining an
institutional structure that includes provinces and production and marketing agents; (iii) a
decision on the techniques and procedures to be used in combating pests accessible to all
producers and including complementary actions (for example, barriers); and (iv) a suitable
budget and identified sources of financing. A clearer division of functions and responsibilities
between SENASA, provincial authorities and private actors would also be useful. However, a
strong national-level surveillance and enforcement of sanitary and phytosanitary regulations is a
critical, non-delegable attribution of this government entity.

52.       Other areas of SENASA responsibility that could be strengthened are:

         Budgetary processes. A budgetary review and reform could include: (i) transparent
          budgets by program; and (ii) clear definition of tasks for which a service fee will be
          charged.



                                                xviii
      Quality control of commercially marketed fresh products. This control is currently
       conducted on a small proportion only of the total marketed. More support could be given
       to the efforts of SENASA to improve the Fresh Fruit and Vegetable Control System
       (SICOFHOR). First, however, it would be convenient to analyze the alternative systems.
      Legal framework for pesticides and worker safety. The current legal framework on these
       issues is cumbersome and at times inconsistent and of doubtful validity. It would be
       useful for SENASA to review all of its current decrees and resolutions, and a similar
       analysis could be conducted by the Ministry of Health.
      Combating Carpocapsa, particularly in abandoned orchards. Stronger incentives could
       be created for owners to eradicate abandoned orchards, either positive through
       community-based incentives for eradication or negative through the strengthening of the
       police power of the state.

53.     Some of SENASA’s functions could be transferred to the SAGPyA. An option to
strengthen the capacity of SENASA to carry out its regulatory and surveillance functions would
be to transfer policy and coordination functions to a Plant Protection and Quality Enhancement
Unit in SAGPyA. Policy and coordination functions demand different skills and often different
mentality than those required by police functions. This streamlining of functions would allow
SENASA to focus on the technical tasks it does best, and be consistent with SENASA's
decentralized institutional structure. It would also create a specialized unit in SAGPyA to focus
on the promotion of collective action (for pest control, food safety and quality, and worker
safety), removing potential conflicts of interest. While SENASA could maintain its role in
negotiating international agreements, it could work with the SAGPyA unit to ensure that local
entities participate in the definition of standards and protocols.

Irrigation

54.     In spite of irrigation being a provincial matter, the role of the Federal Government
is critical to help provinces to plan and execute water strategies. Lack of action by the
Federal Government would perpetuate current provincial weakness. Federal intervention,
however, would be more useful if carried out within the context of a well-articulated strategy to
devolve authority and responsibility to the local water associations and to create the national
incentive framework to support it. The aims could be to (i) increase the number of water
associations in the provinces; (ii) increase the involvement of water associations in the areas of
planning and management of investments; and (iii) strengthen the institutional and financial
autonomy of the provincial water resource and irrigation agencies.

55.     In the long run the objective could be envisaged of weaning the water associations
from dependence on government. This would require them to develop a business plan and
establish a clear ―track record‖ in meeting the plan‘s goals. Over the medium term the water
associations could aspire to qualify for commercial credit. Government investment and
assistance could take place within the context of these business plans, with a clear strategy for
the water associations to develop independence and autonomy.

56.   The cost of water should be calculated following a standard methodology in all the
provinces, with due adaptations for specific circumstances. The calculation should be made


                                               xix
even in those schemes where water is high or fully subsidized, and irrespectively of whether this
is likely to continue. The existence of water subsidies (that would accrue to certain groups in the
form of water prices below the full water cost) could be supported by a detailed analysis, with
full involvement of the provincial legislature.

57.    The rehabilitation of water works is needed but it has risks. The Undersecretary of
Water Resources is currently preparing a list of priority rehabilitation works for each province
and a list has also been prepared by PROSAP. This information could be used to prepare a
program of investments. It is worth noting the danger, however, of continuing the pattern of
periodically financing deferred maintenance through emergency rehabilitation projects.

58.      More research on irrigation related issues is needed. INTA and the provincial
universities could help provincial governments and water users to prepare programs of research
that attend to the crucial aspects of irrigation development, including (i) brief but comprehensive
provincial diagnoses; (ii) improvements in technical efficiency; (iii) management systems; and
(iv) the social impact of irrigation.

59.       Possible instruments to bring about the above aims are as follows:

         A program of activities from the national level intended to orient and support provincial
          and local governments in the definition of strategies, targets, and objectives.
         Strengthening provincial capacities to manage associative and collective organizations.
         Detailed master plans for irrigation development in each province, specifying areas to
          develop, populations to attend, and commercial and institutional strategies to increase
          productivity.
         A national program to establish information management systems oriented at improving
          irrigation management.
         Water cost calculations for all irrigation systems. The water price could be fixed below
          cost only as an exception related to important reasons (rural poverty, emergencies, etc.).
         A clear definition and implementation of a system of premios and castigos directed at
          promoting full and timely payment of water charges.
         Establishing quality control programs for the irrigation systems in each province.

Market Development and Collective Action

60.     Supporting collective action in the supply chains is one of the most strategic roles of
government, impelled by globalizations, which internationalizes procurement standards not only
for exports but also for domestic supermarkets. The need of good economic governance of the
supply chains through collective action is underscored by the enhanced importance of co-
dependency in the traditionally antagonistic relationship among the actors of the chains.
Decentralization of service provision could focus on promoting incentive-compatible collective
actions. Public sector institutions like INTA and SENASA could be at the forefront of this.




                                                  xx
                                Suggestions for Further Work

61.     In the course of preparing this review, we have come across several important topics on
which there is lack of information and analysis. This gives them priority for study. Four of
these topics are:

      Additional work on agricultural taxation and non-fiscal transfers. Although this
       study contains a review of fiscal transfers to and from agricultural (Background Paper 2),
       we recommend a more fully-elaborated treatment of both fiscal and implicit transfers to
       and from agriculture, including a more complete analysis of the issues of export taxes, tax
       evasion in the sector, and local and provincial tax effort. This analysis needs to be carried
       out within the context of Argentina‘s overall tax system and fiscal equilibrium, and
       address the issue of regional inequalities and the large regional variation in economic rent
       to land.
      Risk and credit markets. Lack of credit is a major barrier for adoption of improved
       technology in the small and medium farm sector. Markets for hedging price and exchange
       rate risk and crop insurance, appear to be readily available to large farmers but not to the
       small ones. These markets need to be better understood, especially in the context of
       improving the competitiveness of small and medium size farms.
      The livestock sector. The potential to increase beef production in the Pampas and
       outside the Pampas is high. This is because much of the sector operates at medium and
       low technology levels, and the output gap between productivity levels in cattle
       production is high--much higher than in crops. Raising productivity is important because
       the sector is large, and a moderate raise in productivity would result therefore in a large
       increase in aggregate output. Also, it is in the smaller farms where the productivity gaps
       are largest. Further study of the reasons for this sector's relative stagnation, compared to
       the grain sectors, is warranted.
      Rural growth and employment creation. Recent Argentine agricultural growth,
       especially in the Pampas, has not led to significant employment generation due to its
       relatively high capital intensive and land extensive nature. The potential for higher rates
       of employment creation in the regional economies is higher. Additional analysis of the
       possible impact on employment of the agricultural growth under various scenarios would
       help inform the debate on rural poverty reduction, the role of agriculture, and the
       importance of developing either non-farm employment or near-by growth centers in
       towns and cities.

62.     This study will help guide future World Bank dialogue and financing of agriculture
and rural development in Argentina, particularly with regard to areas where the role of
government may be strengthened or the provision of public goods increased. The potential for
agricultural development in Argentina is impressive. A strategic support from government to
complement the capacity and dynamism of Argentina‘s farmers could help much to realize that
potential and make agricultural growth more equitable. With the present study, conceived as an
instrument for dialogue, the World Bank hopes to contribute to that objective.




                                               xxi
xxii
                                   1. INTRODUCTION

1.1     This report offers an overview of the performance and trends of the Argentine rural
economy. Its purpose is to update the World Bank‘s understanding of the forces currently
shaping the rural economy in Argentina, and to strengthen our dialogue with government and
civil society on rural development issues. This is especially relevant in view of the new Country
Assistance Strategy recently agreed between the Government of Argentina and The World Bank.

1.2     The report reviews selected areas of major importance in the agricultural sector, and
highlights areas where further work might be warranted. It is intended as a vehicle for dialogue,
not a final statement of Bank positions. For this reason we highlight throughout the report areas
where we feel we have important gaps in our understanding. Undoubtedly readers will identify
others. In this way, we hope that the document will initiate a process that will help the Bank to
better contribute to agriculture, rural development and poverty reduction in Argentina.

1.3     The report has, necessarily, been selective in the areas of review. Background papers
were undertaken on topics which government and other specialists in agriculture in Argentina
considered (i) important for future growth, productivity and employment (like irrigation and
phytosanitary control); (ii) areas of potential vulnerabilities (like market access and the
environmental effects of frontier expansion); and (iii) areas which are shaping the future in ways
which need to be better understood (like planting pools and rural poverty). These areas were also
chosen because the role of government, either as provider of public goods or as regulator of the
rules of the game, is critical, and because of their importance for the regional economies.

1.4     Of course, important topics remain to be addressed. We make recommendations with
regard to additional priority studies in the final chapter of this report.

1.5     This report is largely a synthesis of background papers prepared by country consultants
and World Bank staff. Complete background papers and their authors are listed in the section on
References, and are available at www.bancomundial.org.ar. The background papers were also
discussed in a series of workshops in December, 2004, and comments made at that time have
been incorporated. The preparation of the final report required strategic choices to keep the
length manageable and the story line intact. As a result, much good material has not been
included in this report. This is not a reflection of the quality of the papers. In some cases we
decided to wait until a more comprehensive report could be prepared. In others we decided that
the Bank would have little to add to local understanding of the issues. In these cases the
background papers have performed the important function of upgrading the Bank‘s knowledge of
Argentina‘s agricultural economy despite their content not being fully reflected in the final
report.

1.6     The report is divided into nine chapters. Chapter 2 provides an overview of Argentina‘s
agricultural sector. Chapter 3 makes comparisons with other countries, especially its regional
competitors Brazil and Chile. Chapter 4 discusses the role of government in the agricultural
economy, including fiscal issues, main institutions, the provision of infrastructure and financial
services, and government role in promoting collective action. Chapter 5 examines the situation of
the labor force, incomes and poverty in rural areas. Chapter 6 explores the social and


                                                1
environmental effects of soybeans expansion. Chapter 7 surveys sanitary, phytosanitary and food
quality issues. Chapter 8 discusses irrigation issues. Chapter 9 briefly summarizes the findings
and provides conclusions and recommendations for further action.




                                               2
                 2. THE STATE OF AGRICULTURE IN ARGENTINA

2.1     The purpose of this chapter is to provide an overview of the role of agriculture in
Argentina‘s economy, and the evolution of agricultural policy and its impacts. We are
particularly interested in exploring the effects of (i) the policy reforms of 1991 and (ii) the
subsequent macroeconomic imbalances leading to the crisis of 2001-2002. The chapter examines
also the new forms of agricultural production organization that have emerged over the last two
decades, and calls attention to the heterogeneity of Argentina‘s provinces with regard to their
endowments, production orientation, indicators of the quality of rural life, and their capacity to
adjust to the changing economic endowments. For reasons of space, regional and provincial
indicators and the description of agricultural production in the regions are presented in Annex 1.


         OVERVIEW OF THE IMPORTANCE OF AGRICULTURE IN ARGENTINA’S ECONOMY

2.2     Agriculture has been of critical importance throughout Argentina‘s history. Most
recently, agricultural has led the export-driven recovery of the Argentinean economy following
the crisis of 2001. In 2004, the sector contributed 58 percent ($13.1 billion) of total goods
exports, of which 39 percent were primary products and 61 percent were manufactured products
of agricultural and livestock origin. In 2004, the agricultural and livestock sector generated 9
percent of Gross Domestic Product (GDP) and 22 percent of the value added of the goods-
producing sectors.1 Crops made the largest contribution (63 percent of the total), followed by
livestock (31 percent).

2.3     Agriculture is also a major source of employment. In 1997, direct agricultural
employment (in primary agriculture and agro-industries) was about 1.5 million or 11.4 percent of
total employment. When the employment generated in the transport and commerce services
related to food and agricultural distribution is considered, another 1.1 million jobs are added,
with the percentage of all employment increasing to 20 (Obschatko, 2002). For 2003, Llach et al
(2004) estimated in 2.75 million jobs the direct employment generated by the food and
agriculture sector (including transport and commerce), to which they add another 2.84 million
jobs of indirect employment resulting from backward and forward linkages. 2

2.4     In 2001, 35 percent of Argentina‘s population lived in predominantly agricultural zones
or resided in cities linked to agro-industrial activity. Furthermore, if a definition of rural as that
proposed in de Ferranti et al (2005), which combines population density with distance to cities is
used, the proportion of rural population in Argentina is above the average for Latin America, of
the order of 45 percent (see Figure 2.1).


1
  Subsectors: agriculture, livestock, hunting, and silviculture–Preliminary estimates in millions of AR$, at current
prices, by the Bureau of National Accounts, INDEC.
2
  Llach et al (2004) figures have been challenged by Rodríguez (2005), who disputes their methodology for updating
results based on the1997 input-output table, and for the calculation of indirect employment. Rodriguez‘s own figure
for the participation of direct agricultural employment (including transport and commerce) in all employment in
1997 is 18.1 percent, similar to that of Obschatko.


                                                         3
2.5     Historically, the Pampean region has dominated agricultural growth in Argentina.
Primary Agricultural Exports from the Pampas, especially in grains and oilseeds grew 46 percent
between 2000 and 2004,3 compared to 29 percent for the rest of the country. By 2004, 79 percent
of total agricultural-based exports came from the Pampean region. In contrast, the non-Pampean
regions have taken the lead in agriculture-based manufactures.

                                                                            Figure 2.1: How Rural are Latin American Countries?

                                                     Proportion rural
    0.7
    0.6
    0.5
    0.4                                                                                                                                                                                                                                                                  150
    0.3                                                                                                                                                                                                                                                                  WDI
    0.2
    0.1
      0
                        Trinidad & Tobago




                                                                                            Chile




                                                                                                                                                                                                                                   Bolivia
                                                                                                                                                                   Costa Rica
                                            Domin. Rep.




                                                                                                                                                                                           Peru
                                                                                                                                   Cuba
                                                          Guatemala




                                                                                                             Colombia




                                                                                                                                                       Argentina




                                                                                                                                                                                                                                                      Uruguay
                                                                                                                                          LCR Totals




                                                                                                                                                                                                              Brazil
                                                                                                    Mexico




                                                                                                                                                                                                                                             Panama


                                                                                                                                                                                                                                                                Guyana
                                                                                                                        Suriname




                                                                                                                                                                                                  Hondur as


                                                                                                                                                                                                                       Nicaragua
                                                                                  Ecuador
          El Salvador




                                                                      Venezuela




                                                                                                                                                                                Paraguay




Note: The World Development Index (WDI) uses national definitions of "rural population." The alternative measure proposed by
the World Bank uses a measure defined as areas both (a) less than 150 persons km2 population density and (b) more than 1 hr
Travel Time to the nearest large city of >100,000 people.
Source: K. Chomitz, P. Buys and T.S Thomas, World Bank, 2005, Table 6.




                                                                                        THE EVOLUTION OF AGRICULTURAL POLICY

2.6      Deep soils, temperate climate, adequate rainfall and good access to sea freight endow
Argentina with exceptional potential for agricultural production. This endowment has permitted
Argentina‘s agricultural sector to perform well despite over 50 years of policies directed largely
at taxing agriculture to promote industrial-based growth (although with varying levels of
transfers over the period). The historical policy regimes are reviewed briefly in the paragraphs
that follow, with emphasis on the past 15 years.

Prior to 1991

2.7    Up to 1930, Argentina enjoyed a long period of agricultural expansion that benefited
from European immigration and heavy investment, both on-farm and in infrastructure, such as
railways, slaughterhouses, and ports. This period was characterized by a strong development of


3
    This figure includes Entre Ríos, Santa Fe, Buenos Aires, Córdoba, La Pampa and San Luis.


                                                                                                                                                       4
private markets for land and commodities.4 However, this long agricultural boom ended with the
collapse of world agricultural prices during the Great Depression of the 1930‘s. This collapse
was followed by the Second World War, during which, due to interdicted naval trade, Argentina
built up huge stockpiles of un-saleable grain.

2.8    These disappointing experiences with foreign agricultural markets led to a growing
pessimism concerning the agricultural sector as the motor of economic dynamism. In addition,
the depression and the war opened new domestic market opportunities for industry. These forces
combined to usher in a sustained policy promoting industrial growth through import substitution
and taxation of the agricultural sector. Agriculture was taxed through overvalued exchange rates,
public marketing boards, and export duties on grains and beef.

2.9     There are numerous indicators, both direct and indirect, of the negative effect of these
distortionary policies on the agricultural sector. Reca and Parellada (2001) and Mundlak and
Regunaga (2001) show that prior to the mid 1930s Argentina had higher agricultural yields than
the US, but that US yields grew much faster subsequently. Comparing the averages for the
periods 1913-1930 and 1975-1984, US yields tripled, while Argentina‘s failed to double.
Whereas US public policies stimulated a revolution in agricultural technology over this period
(including substantial public investment in research and extension through the Land Grant
College system), Argentina lagged in adopting publicly-available technologies. The most
dramatic evidence of the results of this policy bias occurred in 1953, when the combined effect
of policy -induced stagnation and drought forced Argentina to import grain to meet domestic
needs -- for the first and only time in the 20th Century. Indeed, the average annual production
over the three years 1950-52 was 20 percent below that of 1940-42 (Reca and Parellada, 2001).

2.10 Although this experience led to a substantial reevaluation of the role of agriculture in
Argentina, and to the creation of INTA in 1956, the underlying policy bias continued. According
to Sturzenneger et. al. (1990) by the early 1980s government policies transferred over 60 percent
of agricultural GDP to other sectors, including consumers and government. The cost in both
agricultural growth and overall economic growth was severe. Farm gate prices of cereals and
oilseeds are estimated to have been nearly halved by these policies and production was reduced
from a potential of 60 million tons per year to 34 millions tons over the 1980-1985 period. In
terms of the overall effect on Argentina‘s growth, Mundlak, Cavallo, and Domenech (1989)
calculate that had Argentina not adopted an inward growth strategy, on average for the 55 years
between1930 and 1984 it could have attained levels of income, consumption, and investment that
were 63, 70, and 112 percent higher, respectively. Growth would have been similar to that
experienced by Australia and Canada, countries with similar resource endowments.

1991-2001

2.11 The 1991-2001 period was tumultuous for Argentinean farmers. This period witnessed
liberalization, privatization, dollarization, and the coming into force of MERCOSUR, followed
by the emergence of macroeconomic imbalances that resulted in currency overvaluation and
credit unavailability. For most farmers these events dramatically changed their economic
environment. Driven by favorable external and domestic markets, agriculture expanded rapidly
4
    Based on Mundlak and Regunaga (2001).


                                               5
through 1998. The sector benefited from the elimination of quantitative restrictions on imports,
reductions on import taxes for fertilizers, herbicides, pesticides, machinery, and irrigation
equipment, the elimination of distorting taxes on fuels, commercial and financial transactions,
the elimination of export taxes, the deregulation of economic activities, and the removal of
inefficiencies and monopoly profits in the trade channels (elevators, transportation and ports).
The result was a five fold increase in fertilizer use and a three fold rise in the use of herbicides
and pesticides. During the period 1988/1990 to 1996/1998, wheat, corn, soybean, and sunflower
yields increased 26, 43, 7, and 25 percent, respectively. Land sown with the 31 principal annual
crops expanded 24.6 percent. Together, these yielded an impressive 7 percent annual growth in
production over the same period, as illustrated in Figure 2.2.

           Figure 2.2: Evolution of Agriculture in Argentina, 1961-2005. PIN, 1961=100
          400.0

          350.0                    Crops
          300.0                    Livestock

          250.0

          200.0

          150.0

          100.0

           50.0

             0.0
                   1961
                          1963
                                 1965
                                        1967

                                               1969
                                                      1971
                                                             1973
                                                                    1975

                                                                           1977
                                                                                  1979
                                                                                             1981

                                                                                                    1983
                                                                                                           1985
                                                                                                                  1987
                                                                                                                         1989

                                                                                                                                1991

                                                                                                                                       1993
                                                                                                                                              1995
                                                                                                                                                     1997

                                                                                                                                                            1999
                                                                                                                                                                   2001

                                                                                                                                                                          2003
            PIN: Production Index.
            Source: FAO statistics (2005).


2.12 The explanation for the low growth in livestock is mostly due to the poor performance of
beef production and in a minor way to the decline in the production of sheep and pig meat. Milk
production feared quite well, particularly in the 1990s, while the increase in poultry production
during that decade was spectacular, increasing by a factor of 2.7 between 1990 and 2000
(Figures 2.3 and 2.4). Yet, beef production explains most of the evolution of livestock output
since, according to FAOSTAT data, beef meat is 71 percent of all meat output for the average of
1990-2004.




                                                                                         6
                       Figure 2.3: Evolution of the Production of Milk and Beef, Sheep
                                    and Pig Meat in Argentina, 1961-2004




                  Source: FAOSTAT.

                                Figure 2.4: Evolution of the Production of Poultry Meat
                                               In Argentina, 1961-2004

                                                                                      Poultry
               2500

               2000

               1500

               1000

                 500

                   0
                       1961
                              1963
                                     1965
                                            1967
                                                   1969
                                                          1971
                                                                 1973
                                                                        1975
                                                                               1977
                                                                                      1979
                                                                                             1981
                                                                                                    1983
                                                                                                           1985
                                                                                                                  1987
                                                                                                                         1989

                                                                                                                                1991
                                                                                                                                       1993
                                                                                                                                              1995
                                                                                                                                                     1997
                                                                                                                                                            1999
                                                                                                                                                                   2001

                                                                                                                                                                          2003




                  Source: FAOSTAT.



2.13 The long-term stagnation of beef production seems to derive from a combination of
cattle‘s losing competition with crops, and the greater uncertainty in cattle production. In much
of the land traditionally under pasture, cattle can simply no longer compete with crops. This has
pushed cattle onto less productive and more distant pastures, and cattle-raising has had a hard
time competing with crops for management attention.5 Risk in cattle production has also been
high, as exemplified by droughts and closure of export markets due to foot and mouth disease
(aftosa).



5
    In Argentina most cattle are raised in mixed crop-cattle enterprises.


                                                                                             7
2.14 Beef production, however, has experienced considerable growth since 2002. It remains to
be seen whether this is something transitory or a structural phenomenon. The potential to
increase beef production in the Pampas and outside the Pampas is high. This is because, as
shown below, much of the sector operates at medium and low technology levels, and the output
gap between productivity levels in cattle production is high--much higher than in crops. Raising
productivity is important because the sector is large, and a moderate raise in productivity would
result therefore in a large increase in aggregate output. Also, it is in the smaller farms where the
productivity gaps are largest. Further study of the reasons for this sector's relative stagnation,
compared to the grain sectors, is recommended.

2.15 National GDP began to stagnate in 1998. Spillovers from the Brazilian crisis and
restrictive policies put in place to defend the dollarized peso combined to depress GDP
throughout 1999-2001, until the crisis in capital outflows at the end of 2001. A combination of
factors conspired against the Argentinean farmer during this period: (i) the devaluation of the
Real at the end of 1998 made Argentina significantly less competitive in newly-won
MERCOSUR markets; (ii) rising prices of non-tradable combined with record low grain prices to
depress the terms of trade for Pampean producers6, and (iii) collapsed domestic demand affected
most regional producers relying on domestic markets. Indeed, the poverty rate rose from 19.9
percent in 1992 to 28.5 percent in 1998, and 38.8 percent in 2001. Unemployment increased
from 6.3 percent in 1992, to 12.3 percent in 1998, to 18.3 percent in 2001.

2002-present

2.16 Overall, the agricultural recovery since the devaluation in 2002 has been strong.
Agricultural-based exports, which had either fallen or showed insignificant growth throughout
1999-2001, grew by 26 percent in 2002, 27 percent in 2003 and an additional 13 percent in 2004.
National GDP growth from the first quarter of 2002 to the fourth quarter of 2004 was 25 percent,
nearly sufficient to reestablish GDP losses (not growth losses) incurred over the previous three-
and-a-half-year slide. Unemployment, which had peaked at some 21 percent in 2002, fell to 12
percent by the fourth quarter of 2004. Taken together, the GDP and employment numbers
suggest a significant resurgence in domestic demand for income elastic food products.

2.17 Argentina is able to produce most field crop at top technical levels. It surpasses the
average of the LAC region in all crops included in Table 2.1 except wheat and soybeans which is
surprising. However, not a single field crop surpasses the US yield. LAC averages can be
considered a modest standard for Argentina, a middle income country with very favorable
natural conditions and a long farming tradition.

The future

2.18 The history reviewed above has created numerous winners and losers. Many farmers sold
out and moved to the city, while, as discussed below, many others turned farm management over
to specialists. Farmers in the Pampas will continue to be extremely competitive in commodities,
due to the low price of land relative to their main competitors and to the current rapid rate of

6
  Reca and Parellada (2001), report that the ratio of Pampeana producer prices to services and labor fell steadily,
reaching in 2000 nearly 60 percent of their 1990 level.


                                                        8
adoption of new technology. New niches are likely to emerge, both in MERCOSUR and in the
larger world market for production from the regional economies. However, entry into these
markets requires becoming competitive with globalized producers -- on a quality, timeliness, and
cost basis. Experience shows that success requires making strategic linkages with others in the
supply chain, jointly identifying and removing bottlenecks and weak links, and entering
differentiated, high value markets.


          Table 2.1: Crop Yields in Selected Countries, Average 2000-2002, (ton/hectare)
                   Mexico Argentina Chile Brazil LAC USA                 EU      India China
  Cereals            2.8        3.4       4.9     2.9     2.9     5.8    5.6       2.3    4.8
  Maize              2.6        5.8       9.8     3.0     3.0     8.5    9.1       1.9    4.7
  Wheat              4.9        2.3       4.1     1.6     2.4     2.6    5.7       2.7    3.8
  Rice               4.3        5.3       5.1     3.2     3.8     7.2    6.4       2.9    6.3
  Sugar Cane         74.1      65.4        --    69.6    64.9    77.2     --      67.3   61.3
  Citrus             12.4      20.1       15.4   22.0    17.0    34.7   18.3      17.8    8.2
  Pulses             0.8        1.1       1.6     0.7     0.8     1.9    2.7       0.6    1.4
  Vegetables         16.5      17.2       25.6   17.9    14.9    27.1   26.7      12.9   19.2
  Soybeans           1.6        2.5       0.0     2.6     2.5     2.6    3.3       0.8    1.7
  Source: Caballero (2005)--calculations based on FAO‘s AGROSTAT.

2.19 Two important issues for the future of Argentina‘s agricultural exports are the long term
reliability on the Chinese market, which absorbs now most of Argentina‘s soybean exports, and
the results of the negotiations between MERCOSUR and the EU, as well as the possible signing
of a FTAA and the results of the WTO Doha round. The first of these issues is explored in Box
2.1 and the second in Box 2.2.

2.20 The differentiation between quality standards required by external and domestic markets
will increasingly disappear as supermarkets further penetrate domestic retail marketing. Reardon
and Berdegué (2002) report that fifty-seven percent of Argentina‘s retail trade went through
supermarkets by 2000, up from 35 percent a decade earlier. Supermarkets compete vigorously
for consumers, on the basis of price, quality, and product differentiation and innovation. They
also procure globally.

2.21 Successful farmers will be those who can incorporate themselves into dynamic supply
chains that continuously innovate. As we shall see below, in numerous regions farmers are
successfully making the transition to high value crops. Indeed, as a result of the reforms of the
nineties and the currency devaluation of 2002 a number of farmers in the regional economies --
in many cases in alliance with foreign investors and domestic investors from outside the region--
are investing heavily in production for the export market. Many others, decapitalized as a result
of the events described above, and without access to credit, have no possibility to make the
investments necessary to upgrade. The number of farms is diminishing throughout the country,
with the more successful farmers buying out those who are struggling.




                                                        9
                     Box 2.1: Sustainability of Soybean Exports: How secure is the Chinese market?

Currently, approximately 60 percent of Argentina‘s exports of soybeans and 18 percent of soy oil are destined for
the Chinese market. Due to the export surge in soy products, China has become Argentina's fourth largest trading
partner after MERCOSUR, EU, and US. Thus, there is a strong reliance on the Chinese market for soy products. In
determining whether this export market poses risks, close attention needs to be paid to China‘s biotechnology
policies, since almost 100 percent of Argentinean soybeans are GMO.

                                         Export destination for Argentinean Soybeans

              1400               China

              1200               Italy

              1000               Spain

               800               Netherlands
       Million US$




               600               Thailand

               400
               200
                     0
                          1996      1997        1998      1999       2000       2001       2002        2003


     Source: UN COMTRADE.

In 2001, China announced its first set of biotechnology and food safety regulations requiring each shipment of
biotech soybeans to obtain an individual safety certificate. This put a temporary halt to imports, bringing down
import volume from 1.1 million tons in April 2002 to close to zero in June 2002. In March 2004, the Ministry of
Agriculture issued a permanent safety certificate for importing herbicide tolerant GM soybeans. However the
situation remains precarious as import permits are still required for each shipment and the permanent safety permit is
subject to review after 5 years.

On the Chinese domestic policy side, in 2002 and 2003 the government issued a national policy for boosting GM
free soybean production in the northeast region, thus signaling its intention of substituting soybean imports with
domestically produced soy. However, this year the national agricultural policy reversed this policy reemphasizing
its commitments to long-term food security by encouraging food grain production. Thus, there is still uncertainty in
national policies on domestic soybean production.

It is clear that China will expand its demand for soy products due to its strong demand for meat and vegetable oil
and the existence of new extensive investment in the crushing industry in the coastal areas. For now, the
government seems to have abandoned the promotion of domestic production in lieu of imports. Factors that may
explain this include domestic transportation bottlenecks from the soybean producing provinces in the northeast, and
benefits associated with the high oil content, consistency of quality and reliability of delivery dates of imported
beans. Nevertheless, the possibility of increased domestic supply competition cannot be ignored. China's soy yields
are still 35 percent lower than Argentina's, and they may improve with improved production technology. In
addition, profits from soybeans (222 Yuan per mu) are double that from corn (110 Yuan per mu) in the northeast
region (China Ministry of Agriculture, 2004 as quoted in USDA-ERS, 2004).

Source: Tuan et al (2004).




                                                             10
                            POTENTIAL ADDITIONAL PRODUCTIVITY GAINS

2.22 In this section we look at two projections of future gains in production and productivity,
one by INTA based on field surveys of existing technologies and technology gaps, and the other
by SAGPyA. Chapter 3 discusses productivity further, in a comparative context.

The Instituto Nacional de Tecnología Agropecuaria (INTA) technology adoption study

2.23 In cooperation with its 12 regional centers, INTA has undertaken a long-term study of
technology adoption and productivity in Argentinean agriculture. This study is based on detailed
production data in 48 categories of crop or livestock activities (disaggregated by homogeneous
agro-ecological zones and levels of technology), and an analysis of the factors restricting the
adoption of higher levels of technology (Cap and González, 2004). These data were used to
project the additional value of agricultural production that could be obtained under various
assumptions concerning rates of adoption of existing technological packages.

2.24 Technology adoption was modeled through two parameters, the first related to the rate of
adoption, and the second to a ―ceiling‖ on the amount of area to which the technology could
profitably be applied. The first parameter is a function of the characteristics of the technology
and its ease of adoption (biological, chemical, agronomic, or mechanical; see Byerlee and Hesse,
1982), while the second is determined by factors external to the technology itself, such as the
provision of public goods (roads, phytosanitary control, etc.), investment by other actors in the
production chain (for example in the creation of a cold storage) and the characteristics of the
producers (access to credit, risk bearing capacity).

2.25 Two basic scenarios were explored: one assumes that the existing maximum area remains
unchanged, but all producers reach the ―ceiling‖ for their area; and the other assumes that all
areas currently under production of a crop adopt the highest technology package. The first case
assumes that all farmers ―catch up‖ to the highest technological package that is profitable in their
region. The second scenario further assumes that all necessary public and private investments are
made to make the highest technology package attractive on all land currently cropped under each
of the 38 items.7

2.26 The results of the first scenario (full adoption under current external conditions) yield an
additional gross value of annual agricultural production of US$6.6 billion (at 2000/2002 prices)
by 2014. The second scenario–assuming all necessary complementary investment and complete
adoption–would raise gross production value by US$11 billion. This suggests a potential
increase in agricultural production value (relative to 2002 and at constant 2000/2002 prices) of
44 percent by 2014 in the less optimist scenario, and of 76 percent in the upper limit scenario.

2.27 Seventy percent of the additional production was explained by four items: livestock,
soybeans, wheat, and corn. The potential for productivity increases in cattle is high (Table 2.2),
and represents 46 to 47 percent of the total. Cap and González (2004) suggest the following
reasons for the large unrealized potential of livestock:

7
  Ten of the items had to be left out of this estimate for lack of all of the necessary data to carry out of the
simulation.


                                                      11
          Box 2.2: Trade Liberalization Scenarios: Will ―Sensitive farm products‖ be included?

It is likely that certain ―sensitive farm products‖ will not be included in the list of liberalized goods in the final trade
agreements. EU has not lowered tariffs for this category of goods in its Association Agreements with Central and
Eastern European countries, custom union agreement with Turkey and in its free trade agreements with
Mediterranean countries such as Morocco and Tunisia, all areas which have geo-political significance for the EU. In
the EU-MERCOSUR agreement, sensitive farm products will probably be dealt with by the ―single pocket
principle‖, which means that quotas for sensitive farm products will be split, mostly 50-50, into an immediate share
for the EU-MERCOSUR agreement and a later share for the WTO Doha round. Since 75 percent of MERCOSUR
exports to EU is agriculture, including many sensitive farm products, such as rice, cereals, meat, dairy products and
sugar, the benefits to MERCOSUR will depend on the outcomes of the negotiations.

The chart presents simulation results for FTAA, EU-MERCOSUR and WTO trade negotiations. Each model differs
in the assumptions employed, and hence a simple comparison cannot be made but the chart summarizes the result
for a full economic liberalization for Argentina under the different trade negotiations.8 An EU-MERCOSUR
agreement would yield benefits for Argentina ranging from US$0.6 billion to US$12.61 billion; and benefits from
joining the FTAA are believed to be lower ranging from -US$0.5 to US$10.41 billion. The combined benefits of
both could be as high as US$20 billion. However, some sources (Van der Mensbrugghe, 2002, and World Bank
Brazil CMU, 2004) estimate that Argentina could have a negative benefit if it joined the FTAA only (and not the
EU), as it would lose preferential treatments it currently enjoys with Brazil.

The World Bank Brazil CMU model compares full liberalization with the case where certain sensitive farm products
are omitted from liberalization. Benefits shrink dramatically once it is assumed that certain farm products will not be
included. For example, the EU-MERCOSUR agreement is expected to have a benefit of US$5.9 billion for
Argentina under full liberalization but this shrinks to US$0.5 billion if market access is withheld for the seven
sensitive farm products which currently enjoy the highest level of tariff rates in the EU (paddy rice, cereal grains,
processed rice, bovine meat products, dairy products, other meat products and sugar). This indicates the importance
of the details of the agricultural negotiation in determining the outcomes.

                          Benefits for Argentina according to trade liberalization scenarios

                        25        Van der Mensbrugghe
                                  Brazil CMU
                        20        SAGPyA
                                  CEI
                        15        IFPRI

                        10

                         5

                         0                      FTAA + EU-MERCOSUR
                                 FTAA                                    WTO
                        -5               EU-MERCOSUR          AR + NAFTA



Source: Taminichi (2005).




8
    Exception is the IFPRI model which assume 0 percent tariff in all goods except for cereals and meat products.


                                                            12
           The sector operates, in general, at a medium and low technology levels; and
           The range in productivity levels is wide. In livestock, low technology production is only
            34% as productive as high technology production, while for soybeans, corn, and wheat
            the yield gaps between the low and high technology levels are 39, 47 and 48 percent
            points, respectively (Table 2.2).

                                                 Table 2.2: Technology

                                                                      Percent           %High Technology
                              Technology level    Percent Area
                                                                     Production              Yield
                                   Low                 38                23                    34
          Cattle                  Medium               42                44                    60
                                   High                19                33                   100

                                   Low                 17                 13                   61
          Soybeans                Medium               53                 51                   81
                                   High                30                 36                  100
          Source: Cap and González (2004).



SAGPyA projections

2.28 SAGPyA has estimated that between 2003 and 2010, land area planted with grains,
legumes, and industrial crops will grow 16 percent, and from 2010 and 2016 an additional 9
percent. With these projections, 100 million tons would be reached in 2010 and nearly 116
million tons in 2016. The area needed to reach 100 million tons in 2010 was estimated at 32.7
million hectares compared to 25.4 million hectares in 2003.9

2.29 The projected value of agro-industrial exports, at constant prices, foresees a 45 percent
increase for 2010 and 80 percent for 2016, the year in which a total of US$30 billion could be
reached, at average prices of 2001-2003 (Table 2.3).

                                    Table 2.3: Projected Exports: 2010 and 2016
                                                                  EXPORT VALUE
                                                                 (in millions of US$)
                        Export complex
                                                                                          Increase,
                                                   2003          2010          2016
                                                                                           2003/16
                   Soy                             7.191         10.070        11.279       4.088
                   Wheat                           1.086          2.107        2.547        1.461
                   Sunflower                        727           1.347        2.035        1.307
                   Fruits and horticulture          976           1.669        2.089        1.113
                   Cotton                            7             125          222          215
                   Maize                           1.288          1.126        1.366          78
                   Tobacco                          163            200          240           77
                   Other cereals                     64            76            93           29
                   Others                           338            532          680          342

                   Source: SAGPyA (2004).


9
    Estimates from unpublished work by SAGPyA (2004).


                                                            13
                                     NEW FORMS OF FARM ORGANIZATION

2.30 The 1990s witnessed a plethora of new forms of organization of agricultural production,
mostly in the Pampas, but also spreading into other regions. The driving force behind this
outburst of institutional creativity has been the large economic gains available from the adoption
of ―soft technology‖ and the economies of size that this involves. During the first years of the
1990‘s credit availability from the National Bank improved, rates fell, and longer term credit
became available--which in turn facilitated a greater participation of credit in the financing of
investments in the agriculture sector. As credit tightened, new ways of financing emerged,
including various barter arrangements exchanging goods and marketing for crop products.
Warrant systems,10 leasing, trust funds, and reciprocal guarantee societies developed as
alternatives to traditional financing, and also as a means of bringing together lands from different
owners, technical and managerial know-how, machinery, and inputs. The availability of
alternative financing was stimulated in part, by a favorable evolution of agricultural prices.

2.31 The agreements among producers and various actors that associate in the productive
process through the provision of production factors (sometimes in kind, sometimes in labor or
money), commonly called planting ―pools‖ or ―pools de siembra”, have increased in quantity
and variety. Normally management of the farm remains in the producer‘s hands (often assisted
by professional technical personnel) with the agreements being a form of financing and risk
diversification, and in many cases allowing increases in scale. With the incorporation of
fertilization technology and direct cultivation these arrangements have also generally involved
the conversion of rotational pasture to permanent agriculture (see Box 2.3).

2.32 Looking at agricultural establishments (EAP) engaged in predominantly agricultural (as
opposed to livestock) activities, brings out the importance of pooling arrangements in Pampean
agriculture. The proportion of agricultural EAPs that work third party lands (whether or not they
also own land) is shown in Figure 2.3.

     Figure 2.5: Percentage of Agricultural EAPs with Land under Contract in Pampean Provinces

         70.0%

         60.0%
                                                                  63%
         50.0%
                                              54%
                          50%                                                              52%
         40.0%
                                                                              42%
         30.0%

         20.0%

         10.0%

          0.0%
                  Buenos Aires           Cordoba           Entre Ríos      La Pampa    Santa Fe

       Source: Bertolassi (2004). Based on the 2002 Agricultural Census.

10
   The warrant system provides the farmer a way to fix the price of his grain while holding in storage in country
without having to rush it to the port to sell.


                                                             14
2.33 Effect on management. Data from the 2002 agricultural census provides evidence that
farm enterprises operated under ―pool‖ arrangements achieved higher management standards
than others. The census includes various questions related to enterprise management, including
mechanisms to manage risk and improve efficiency, use of agriculture insurance, and use of
mechanisms to provide price coverage. Figures reveal substantially higher rates of adoption of
risk management practices on farms operated under ―pooling‖ arrangements. For example, in
Córdoba 71 percent of farms operating under pooling arrangements have hail insurance,
compared to 11 percent for farms without participation in pools. Similarly for the adoption of
agricultural technology: 27 percent of pool farms in Entre Ríos performed soil analysis compared
to 14 percent of other farms, and 55 percent monitored pests compared to 22 percent in non-pool
farms. Although these differences are not as high for all provinces, adoption rates are higher for
pool than for non-pool farms in all Pampean provinces for virtually all modern practices.

2.34 Effect on farm size. The 1988 agricultural census registered about 85,000 agricultural
enterprises (EAPs) with fewer than 100 hectares for the Pampean region. This number fell to
50,500 EAPs by 2002, a drop of over 40 percent. The number of EAPs larger than 1,000 hectares
increased from 14,000 to nearly 15,000, an increase of 7 percent. Overall in the Pampas region,
there were about 54,000 fewer EAPs registered in 2002 than in 1988. This shows the clear
consolidation of farms (Table 2.4).



                    Table 2.4: Variation in the number of Pampean EAPs, by stratum
              Scale (has)                EAPs 88         EAPs 2002         Difference   Percentage Diff.
        Up to 5                             8720              4484              -4236            -48.6%
        5.1 – 10                            7159              3692              -3467            -48.4%
        10.1-25                            15925              8858              -7067            -44.4%
        25.1-50                            21740            13397               -8343            -38.4%
        50.1-100                           31528            20099              -11429            -36.3%
        100.1-200                          35846            24294              -11552            -32.2%
        200.1-500                          37666            29352               -8314            -22.1%
        500.1-1000                         15544            14978                -566             -3.6%
        Subtotal, up to 1000              174128           119154              -54974           -31.6%
        1000.1-2500                         9735            10294                 559              5.7%
        2500.1-5000                         2900              3107                207              7.1%
        5000.1-10000                        1081              1155                 74              6.8%
        10000.1-20000                        255               318                 63             24.7%
        over 20000                            72                84                 12             16.7%
        Subtotal, over 1000                14043            14958                 915              6.5%
          Total                           188190           134112              -54078           -28.7%
         Source: 1988 and 2002 Agricultural Censuses. Bertolassi (2004).




                                                         15
        Box 2.3: Development and Spread of Zero Tillage: Spontaneous and Collective Action

  The development of Zero Tillage (ZT) in Argentina shows positive, and often unplanned results of virtuous
  public-private interactions.

  ZT is the most important agricultural technology introduced in the last 50 years in Argentina. It is the planting
  of crops in previously unprepared soil by opening a narrow slot or trench of the smallest width and depth needed
  to obtain proper seed coverage. ZT evolved over 30 years of formal and informal interactions of public and
  private agents. Three different stages can be identified.

  The first stage was in the INTA station of Marcos Juarez, Córdoba, in 1970, when a group of researchers
  decided to test ZT in farmer‘s fields. Researchers sought help from local manufacturers to develop adequate
  planters. Interactions between the researchers, machinery manufacturers, and farmers, were informal and very
  active. Manufacturers explored a new line of machine with small investments in research and the researchers
  developed the tools they needed. As a result, a package based on the herbicide paraquat was developed and
  tried by many farmers. It was abandoned, however, because of costs and difficulties with weed control and
  machinery. At the same time, the Pergamino INTA station started an experimental project with tillage and
  realized that higher yields were obtained with ZT. However, managers at the experimental station did not want
  to commit land to a technology whose potential was uncertain. The trials were established in a nearby
  agricultural school, and innovative farmers followed it closely.

  The second stage lasted through the 1980s as three groups worked simultaneously. On the one hand, INTA
  researchers from Marcos Juarez and Pergamino studied weed control, with slowly but steadily improvements in
  the efficiency of herbicides. On the other hand, pioneer farmers continued to work on the technology package.
  The same year, INTA Pergamino launched the Program for Conservation Agriculture (PAC), which promoted
  several conservation practices including ZT. Soon after, INTA and Banco Nación launched a subsidized credit
  program for the purchase and maintenance of tillage machinery, although it did not work well because the
  technology was still uncertain. In the mid 1980s about 15 pioneer farmers and INTA researchers began meeting
  to discuss ZT. A Monsanto researcher, who had previously participated as a trainee in Pergamino‘s trails,
  pressed them to form an association to promote ZT. In 1988, The Argentine Association of Farmers for Direct
  Planning (APRESID) was created, after Monsanto paid all start-up costs.

  With the creation of APRESID, the third stage started. Through APRESID, use of ZT surged from 300,000 ha in
  1991 to 9,250,000 ha in 2000. ZT is superior to alternative technologies in every aspect considered. APRESID
  coordinates most of the activities of an innovation system formed by thousand of farmers, input suppliers,
  research funders, public research institutions, individual researchers and governmental agencies. The
  experiments, conducted by farmers, deal with rotation and soil management.

  Lessons learned. This experience shows how the interaction and the leadership of different actors at each stage
  resulted in the most important agricultural technology recently introduced in Argentina. The state, through
  INTA, started the process and interacted positively with the private sector, who contributed with inputs to the
  trials. However, INTA did not want to expand the project outside their experimental station. At that stage, the
  private sector through APRESID took the leadership of expanding in expanding ZT. APRESID has played two
  key roles: it has reduced the costs of information generation and transfer by exploiting economies of scale, and
  has filled the gap left by the formal research system, which has been slow to respond to farmers‘ needs.

Source: Ekboir and Parellada (2002).



2.35 Effect on migration. Importantly, there is no clear relationship between farm size
concentration and out-migration into more urban areas (see Annex 1). Furthermore, as discussed
in Chapter 5, out-migration and farm consolidation should not be necessarily taken as an
indication of reduced social well-being in Argentina. On the contrary, they suggest that farmers
who have the assets necessary to leave the farm and take advantage of opportunities off the farm
are doing so. Most important among such assets are education, which provides the opportunity


                                                         16
to maintain income in non-farm employment. Second is good quality land (even if in a small
parcel) that is under demand in an expanding agricultural economy. Good quality land can be
either sold to provide the capital to finance non-farm activity, or it can be rented to supplement
non-farm income. Data in Annex 1 suggest that in areas of high agricultural value, especially the
Pampas, small farmers capitalize out (or rent out) as technological and institutional change
increases the value of their land beyond the net present value of their own production. In
contrast, in areas of low agricultural dynamism small farmers have neither buyers nor renters to
finance their exit, nor do they have human capital to apply to non-farm employment. This, for
example, appears to be the case of the Northwest, which has the highest poverty and un-met
basic needs rates of all the regions, but nevertheless has the lowest rate of out-migration from
dispersed areas and the lowest rate of reduction in farm numbers.

2.36 The Cuyo region appears to illustrate the potential employment effect of increasingly
high-value irrigated agricultural. In the Cuyo, consolidation of farms has led to much less out-
migration than elsewhere. This is undoubtedly due to the labor intensive nature of irrigated
agriculture, especially in the production of high value crops. As a result of this expanding
activity, farmers leaving farming in the Cuyo have a much higher probability of finding wage
employment in the agricultural or non-agricultural area. In Mendoza, the province most
successful in developing irrigated agricultural and promoting high value products, population
increased in both dispersed and grouped rural areas despite a 13 percent reduction in the number
of farms.


                                 REGIONAL EFFECTS OF POLICY CHANGES

2.37 Macroeconomic performance in the post-reform period had varying effects on the
different regions and provinces. Most, but not all exhibited sharp growth in agricultural exports
in the 5-7 post reform years, followed by stagnation or decline as the peso became overvalued
and credit tightened.11 The following paragraphs show the wide range in outcomes of these
macroeconomic swings on individual provinces, and attempt to shed some light on the
determinants of these outcomes. In order to do so, we have looked at growth in exports of
manufactures of agricultural origin over two periods: (a) the early post-reform period, and (b)
from the peak of pre-crises growth (usually around 1997) to 2003.12 These two measures capture
how successfully a province took advantage of trade liberalization to expand value-added
agricultural exports, and how vulnerable the province was to overvaluation and credit rationing
during the pre crises and the early post-crises period. The analysis indicates important
differences among the performance of the regional economies.

2.38 Note that 13 provinces had rapid growth (over 10 percent a year) following the
immediate post-reform period (Table 2.5). Of these provinces, 5 also showed net non-negative
growth from their pre-crises peak to 2003. These 5 are Chubut, Catamarca, Córdoba, La Rioja,

11
  Details on agricultural production in Argentina's various regions are presented in Annex 1.
12
   We chose to look at exports of manufactures of agricultural origin because (1) unlike primary exports they do not
contain mineral exports, and (2) they measure the success of a province in adding value beyond the primary
agricultural stage. It would had been interesting to perform further analysis along these lines on primary exports as
well, but we were not able to obtain a clean series for this period for primary exports.


                                                         17
and Mendoza. This group contains provinces with a long history of competitive agricultural
exports (Mendoza, Córdoba, and to a lesser extent Chubut), and provinces which have
successfully introduced ―new‖ export products, namely olives, olive oil, wine, and industrial
crops, at least partially with the aid of fiscal incentives (Catamarca and La Rioja).

2.39 Three other provinces, Santa Fe, Misiones, and Tucumán, also grew during both the pre-
crises and post crises period, albeit at a slower rate than the previous group. These provinces are
also generally competitive in agroindustrial products. Santa Fe is highly competitive in grain, oil
and dairy products, while Misiones is highly competitive in wood products and tea, and
Tucumán in citrus, mostly lemons.

2.40 Reflecting strong investment, all of the Patagonian provinces exhibited strong export
growth during the early years of the reform. Interestingly, nearly all Patagonian provinces
experienced significant declines, following their peaks (in 1995-1997). Only Chubut (as noted
above) had recovered its (1996) peak by 2003. The rest were still exporting 6-8 percent less of
agricultural-based manufactures in 2003 than in the pre-crises period.


                               Table 2.5: Growth Rate of Exports of Manufactures of Agricultural Origin, 1990 –
                                                            Peak and Peak –2003
                                                Rapid decline                  Slow decline                      Growth
                                         La Pampa -2.5;-9.3 (1998)     Entre Ríos -9.6;-0.8 (1995)     Corrientes -3.3; 5.4 (1996)
   Growth, 1990 to Peak Year




                                                                       Jujuy -12.7; -0.2 (1996)
                               Decline   Sgo. del Estero –1.2; -10.1
                                         (1995)

                                         Formosa 1.4; -19.3 (1992 a)   Buenos Aires 9.0; -3.9 (1997)   Santa Fe 8.4;5.2 (1998)
                               Show
                                                                       Salta 0.8; -0.9 (1996)          Misiones 6.9;5.1 (1997)
                               growth
                                                                                                       Tucumán 8.9;1.9 (1996)
                                         Chaco 11.0; -6.8 (1994)       San Luis 30.7;-6.1 (1998)       Chubut 29.8; 0.0 (1996)
                                         Neuquén 11.6;-6.1 ((1996)     Santa Cruz 21.8; -5.8 (1997)    Catamarca 34.5; 4.2 (1998)
                               Rapid
                                         Río Negro 11.6;-20.1 (1996)   San Juan 17.0; -4.3 (1997)      Córdoba 16.4; 6.0 (1997)
                               growth
                                         T. Fuego 25.0; -7.9 (1995)                                    La Rioja 34.0; 0.8 (1997)
                                                                                                       Mendoza 10.2; 1.0 (1997)
Notes: For each province, the two growth rates are given, and the peak year is in parenthesis. a For Formosa, 1992 was selected
because after that year there was a constant decrease. Rapid decline: growth rate <-6.0; Rapid growth: growth rate >10.0.
Source: IICA (2004).

2.41 Santiago del Estero, Jujuy, La Pampa, Entre Ríos, and Corrientes all suffered sharp
reductions in agriculture based manufacturing exports (ABME) immediately following the 1991
reforms. Entre Ríos, Jujuy and La Pampa all saw ABME fall over 70 percent in the years
immediately following the reform. The trough was reached in 1993 in the case of Entre Ríos and
Jujuy, and stretched over the period 1994-1995 for La Pampa. ABME grew slightly in Formosa
in the immediate post reform year but experienced an 80 percent drop between 1992 and 1993,
and never recovered significantly within the period under review. These provinces represent a
wide range of situations. Santiago del Estero and Jujuy are both relatively uncompetitive in
external markets, and consequently have few export-oriented agroindustrial activities. Beef from
Santiago del Estero can, in small proportion, be exported, but only after processing in Santa Fe
or Córdoba. Jujuy is competitive in sugar cane, citrus and high quality paper, but only the citrus


                                                                          18
is exported. La Pampa is very competitive in primary products, but agricultural processing tends
to take place in Santa Fe and Buenos Aires prior to exporting.13 Entre Ríos is fairly competitive
in poultry and grain production, but suffered a decline in exports of rice to Brazil. Of these
provinces, only Corrientes has recovered to or beyond its pre crises export peak, based on growth
in wood products, beef, and some citrus.


                                                  SUMMARY

2.42 In 1991 Argentina emerged from over 50 years of policy bias against agriculture. The
result was a boom in agricultural exports, especially from the traditional commodity exporters of
the Pampas, but also from emerging high-value exporters of fruits, vegetable and wine from the
regional economies. Land sown with the 31 principal annual crops expanded 24.6 percent and
yielded an impressive 7 percent annual growth in production over the period 1988/90 to 1996/98.
The more outward-oriented a province, the more successful it was in responding to new
opportunities opened up by the 1991 reforms, and the more successful it was in recovering from
the post 1997 crisis.

2.43 Emerging macroeconomic imbalances in the middle of the 1990s led, in the first instance,
to a prolonged recession intended to defend the peso, and finally to capital outflow and a
financial crisis. Increasing overvaluation dramatically reduced the margin for Argentine
commodity producers in the Pampas, and the value of exports from the regional economies.14 At
the same time, growing recession and unemployment depressed domestic demand for income-
elastic foods such as dairy, fruits and vegetables. Finally, the devaluation of the Brazilian Real in
1998 further exposed Argentine farmers to competition within MERCOSUR, markets, including
from Brazilian imports.

2.44 The sector has enjoyed in the past years strong international comparative advantages and
prices in both primary and processed exports, and has experienced a significant consolidation of
farms and only modest employment creation, at least in the primary crop production in the
Pampas. Even greater growth and employment potential lies in the regional economies in higher
value added production for both domestic use and export.




13
  Since a higher proportion of Pampas‘ exports are in primary form they escape this analysis.
14
 In the following chapter we present evidence suggesting that within the regional economies it was the products in
which Argentina had the highest market share that suffered most.


                                                       19
                         3. SOME INTERNATIONAL COMPARISONS

3.1     It is helpful when diagnosing performance to have comparators, either with similar
characteristics or with variation on characteristics that can help explain difference in outcomes.
In this chapter we compare Argentina‘s performance with Brazil and Chile, along a number of
dimensions. We use Brazil primarily as a comparator with Argentina‘s Pampeana region, and
Chile as a comparator with Argentina‘s regional economies, occasionally making also
comparisons with other southern cone countries.

3.2    With regard to agricultural performance in Brazil and the Pampas there are a number of
important similarities:15

          Since 1990, soybean production has tripled in Argentina, while in Brazil it has more than
           doubled. Argentina‘s wheat and corn production is up 75 percent and 105 percent,
           respectively, and Brazil‘s corn production is up 40 percent.
          Argentina and Brazil have become numbers 3 and 2 soybean exporters, respectively.
           Together, the two countries have some 50 percent of world trade in combined soybean-
           and-product exports, easily surpassing the 35 percent share of the US.
          Economic and political reforms undertaken in the early and mid-1990 underpin the surge
           in agricultural output in both countries.
          Both countries have abundant land and good soils, and are therefore natural low-cost
           producers.

3.3        Argentina‘s regional economies have a number of characteristics in common with Chile:

          They have roughly comparable irrigated area, producing in predominantly arid and semi-
           arid climates.
          They are both major producers of pomaceous fruits, grapes, and citrus.
          Both have made significant progress in moving upscale in the export market through
           quality improvement, product differentiation, and branding, especially in wines, although,
           as shown below, Chile has done so more successfully.


                                              OVERALL PERFORMANCE

3.4    Not surprisingly in view of the history of policy bias reviewed in Chapter 2, agriculture in
Argentina has had a long term performance below that of its neighbors. The value of agricultural
production over 1961-2005 increased 158 percent in Argentina compared to 241 percent in Chile
and 439 in Brazil (Figure 3.1). Figure 3.2 focuses on the post reform period. It highlights the fact
that Argentina‘s agriculture grew considerably faster than Brazil‘s and Chile‘s during the early
years of the reform (the six years from 1993 to 1999), and stagnated as Argentina‘s real
exchange rate became uncompetitive during the 1999-2001 pre-devaluation period, with a strong
recovery since 2002.

15
     See Randall et al (2001) for further details.


                                                      20
 Figure 3.1: Agriculture Performance: Argentina, Brazil, and Chile - 1961-2005
                         (FAO Production index—PIN)

  600
                            Argentina
  500                       Brasil
                            Chile
  400

  300

  200

  100

      0
            1961

                     1964

                                1967

                                         1970

                                                  1973

                                                           1976

                                                                    1979

                                                                             1982

                                                                                      1985

                                                                                               1988

                                                                                                        1991

                                                                                                                 1994

                                                                                                                          1997

                                                                                                                                    2000

                                                                                                                                              2003
  Source: FAOSTAT data (2006).


Figure 3.2: Agricultural Performance: Argentina, Brazil and Chile - 1990-2005
                        (FAO Production Index—PIN)

200
190                       Argentina
180                       Brasil
                          Chile
170
160
150
140
130
120
110
100
          1990

                   1991

                              1992

                                       1993

                                                1994

                                                         1995

                                                                  1996

                                                                           1997

                                                                                    1998

                                                                                             1999

                                                                                                      2000

                                                                                                               2001

                                                                                                                        2002

                                                                                                                                 2003

                                                                                                                                           2004

                                                                                                                                                     2005




  Source: FAOSTAT data (2006).




                                                                           21
                                                                                                                        LAND RESOURCES

3.5     Argentina‘s neighbors show contrasting development paths, largely determined by their
land endowments. Figure 3.3 examines land availability for crops in Argentina, Brazil, and
Chile. Between 1990 and 2000, Argentina and Chile cleared new land by less than one percent of
the 2000 cropland area. On the other hand, the new lands opened in Brazil were equal to nearly
40 percent of the 2000 cropland area.

                                                                    Figure 3.3: Land Availability for Crops: Brazil, Argentina, and Chile
                                                                   4.5


                                                                    4
                                                                                                                             Deforestation 1990-2000
                                                                   3.5                                                       Potential cropland outside of forests
                                                                                                                             Potential cropland in forests
                              Miltiples of land in crops in 2000




                                                                    3


                                                                   2.5


                                                                    2


                                                                   1.5


                                                                    1


                                                                   0.5


                                                                    0
                                                                                           Chile                           Argentina                              Brazil

                        Source: Schneider (2004).

3.6     The evolution of agricultural land and land under crops reflects availability (Figure 3.4).
From 1961 to 2002 Brazil‘s total agricultural land grew by 75 percent and its crop land by 134
percent. Because Argentina‘s overall land frontier (including crop and pasture land) was already
virtually closed, crop growth took place mostly through the switch of pastures to cropland, with
cropland growing by 23 percent with little change in total agricultural land. Chile expanded its
agricultural land significantly, but with a fall of 40 percent of the land in crops. Since the1980s,
land in agriculture and in crops both fell in Chile.

       Figure 3.4: Agricultural Land and Land in Crops: Argentina, Brazil, and Chile - 1961-2002

 A. Index of Total Agricultural land: Argentina,                                                                                           B. Index of Land in Crops: Argentina, Brazil,
          Brazil, and Chile - 1961-1002                                                                                                             and Chile - 1961-2002
 180                                                                                                                                     250
                   Argentina                                                                                                                                Argentina
 170
                   Brazil                                                                                                                                   Brazil
 160                                                                                                                                     200                Chile
                   Chile
 150
 140                                                                                                                                     150
 130
 120                                                                                                                                     100
 110
 100                                                                                                                                      50
  90
  80                                                                                                                                       0
  61

        64

              67

                    70

                          73

                                                                   76

                                                                          79

                                                                                82

                                                                                      85

                                                                                            88

                                                                                                  91

                                                                                                        94

                                                                                                              97

                                                                                                                    00




                                                                                                                                           61

                                                                                                                                                 64

                                                                                                                                                       67

                                                                                                                                                             70

                                                                                                                                                                   73

                                                                                                                                                                         76

                                                                                                                                                                               79

                                                                                                                                                                                     82

                                                                                                                                                                                           85

                                                                                                                                                                                                 88

                                                                                                                                                                                                       91

                                                                                                                                                                                                             94

                                                                                                                                                                                                                   97

                                                                                                                                                                                                                         00
 19

       19

             19

                   19

                         19

                                                     19

                                                                         19

                                                                               19

                                                                                     19

                                                                                           19

                                                                                                 19

                                                                                                       19

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                                                                                                                                          19

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                                                                                                                                                                  19

                                                                                                                                                                        19

                                                                                                                                                                              19

                                                                                                                                                                                    19

                                                                                                                                                                                          19

                                                                                                                                                                                                19

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                                                                                                                                                                                                            19

                                                                                                                                                                                                                  19

                                                                                                                                                                                                                        20




                                                                                                                               22
                                                     AGRICULTURAL POPULATION

3.7     Of the three countries, only Chile ended the century with a larger agricultural
population16 than in 1961 (Figure 3.5). Argentina‘s and Brazil‘s agricultural populations were,
respectively, 17 percent and 35 percent lower in 2003 than in 1961. All three countries lost
agricultural population in 1990-2003 but at different rates: Chile 4 percent, Argentina 11 percent,
and Brazil 23 percent. As a reflecting of its roots as a livestock economy, Argentina has a high
land-agricultural population ratio: while Chile and Brazil have less than 10 hectares per unit of
population in agriculture, Argentina has nearly 50 hectare (Figure 3.6). This ratio has also been
rising much faster in Argentina than in Brazil in the last decade.

          Figure 3.5: Index of Agricultural Population: Argentina, Brazil, and Chile - 1961-2003
                  120
                                                                                                              Argentina
                                                                                                              Brazil
                                                                                                              Chile
                  110



                  100



                   90



                   80



                   70



                   60
                        1961   1964   1967    1970    1973   1976   1979   1982   1985   1988   1991   1994   1997    2000   2003

                 Source: FAOSTAT data (2006).

       Figure 3.6: Agricultural Land Per Ag Population: Argentina, Brazil, and Chile - 1961-2002
                  60




                  50




                  40


                                      Argentina
                  30                  Brazil
                                      Chile


                  20




                  10




                   0
                       1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001


                   Source: FAOSTAT data (2006).




16
     This definition of agricultural population follows FAO, which includes agricultural workers and their dependents.


                                                                    23
                                             FACTOR PRODUCTIVITY

Land Productivity

3.8     Figure 3.7 compares the productivity of cropland in Argentina and its neighbors. 17 The
increase by a factor of 4.5 in the productivity of cropland in Chile since 1983 is remarkable.
During the same period, the productivity of Argentina‘s cropland increased 70 percent, and
Brazil's 50 percent. Chile‘s strong performance partly reflects the abandonment of unproductive
cropland, while the incorporation of new cropland in Brazil and Argentina has probably put
downward pressure on land productivity. Chile‘s results also reflect a remarkably successful shift
into high value crops.

3.9     Productivity of pasture land in Argentina has lagged behind that of its neighbors (Figure
3.8), reflecting low efficiency in the cow-calf sector, low levels of technology adoption,
reproductive diseases, and inefficient farm size (ERS, 1998). Due largely to the longer term
nature of the economic payoff, unstable policies and high interest rates have also hurt the
livestock more than the crops sector. Over 1961-2002 land productivity in livestock grew only
50 percent in Argentina, compared to 150 percent in Chile and 300 percent in Brazil.
Productivity gains in Brazil are particularly impressive since the pasture area grew 61 percent in
this period. Chile‘s productivity growth was also remarkable, with an increase of 145 percent,
while the pasture area expanded 35 percent. Despite a slight decrease in area, the productivity of
Argentina‘s pastures increased by only a third of that in Chile and a sixth of that in Brazil.


     Figure 3.7: Evolution of Land Productivity in Crops: Argentina, Brazil, and Chile (1961-2002)

               500
                             Argentina
               450           Brazil
                             Chile
               400

               350

               300

               250

               200

               150

               100

                50

                 0
                 61

                 63

                 65

                 67

                 69

                 71

                 73

                 75

                 77

                 79

                 81

                 83

                 85

                 87

                 89

                 91

                 93

                 95

                 97

                 99

                 01
               19

               19

               19

               19

               19

               19

               19

               19

               19

               19

               19

               19

               19

               19

               19

               19

               19

               19

               19

               19

               20




              Source: FAOSTAT data (2006).


17
   Figures are based respectively on FAO‘s crop PIN divided by arable and permanent crops and livestock PIN
divided by permanent pasture.


                                                  24
                   Figure 3.8: Evolution of Land Productivity in Livestock: Argentina,
                                      Brazil, and Chile (1961-2002)
             450


             400
                                 Argentina
                                 Brazil
             350
                                 Chile


             300


             250


             200


             150


             100


              50
               61

                     63

                           65

                                 67

                                         69

                                                 71

                                                       73

                                                             75

                                                                   77

                                                                         79

                                                                               81

                                                                                     83

                                                                                           85

                                                                                                 87

                                                                                                       89

                                                                                                             91

                                                                                                                   93

                                                                                                                         95

                                                                                                                               97

                                                                                                                                     99

                                                                                                                                           01
             19

                    19

                          19

                                19

                                       19

                                              19

                                                      19

                                                            19

                                                                  19

                                                                        19

                                                                              19

                                                                                    19

                                                                                          19

                                                                                                19

                                                                                                      19

                                                                                                            19

                                                                                                                  19

                                                                                                                        19

                                                                                                                              19

                                                                                                                                    19

                                                                                                                                          20
                   Source: FAOSTAT data (2006).


Labor productivity

3.10 Labor productivity in agriculture grew at similar rates in Argentina and Chile in 1961-
2002, more than doubling (Figure 3.9). Growth in Brazil was much higher, more than 450
percent. As mentioned above, Brazil and Argentina‘s labor productivity figures are accompanied
by a 17 percent and 45 percent decrease in agricultural population, respectively, while Chile‘s
agricultural population remained relatively constant. Argentina's labor productivity benefits from
a high land/labor ratio, whereas that of Chile benefits from a high output/land ratio.

                    Figure 3.9: Index of Agricultural Labor Productivity (1961-2003)
             600
                                     Argentina
                                     Brazil
                                     Chile
             500



             400



             300



             200



             100



               0
                61

                63

                65

                67

                69

                71

                73

                75

                77

                79

                81

                83

                85

                87

                89

                91

                93

                95

                97

                99

                01

                03
              19

              19

              19

              19

              19

              19

              19

              19

              19

              19

              19

              19

              19

              19

              19

              19

              19

              19

              19

              19

              20

              20




             Source: FAOSTATS data (2006).




                                                                         25
Mechanization

3.11 Figure 3.10 compares tractorization in the three countries with the United States and
Canada. Chile mechanized first and continued to mechanize longer, reaching a degree of
mechanization comparable to that of the US and greater than that of Canada. Argentina began to
mechanize before Brazil, but Brazil mechanized more rapidly throughout the 1960s and 1970s,
catching up with Argentina in 1975.18


                         Figure 3.10: Arable plus Permanent Crops per Tractor:
                                Argentina and Comparators (1961-2002)
                 450

                                                                                 Argentina
                 400                                                             Brazil
                                                                                 Chile
                 350                                                             United States
                                                                                 Canada
                 300


                 250


                 200


                 150


                 100


                  50


                   0
                   61

                   63

                   65

                   67

                   69

                   71

                   73

                   75

                   77

                   79

                   81

                   83

                   85

                   87

                   89

                   91

                   93

                   95

                   97

                   99

                   01
                 19

                 19

                 19

                 19

                 19

                 19

                 19

                 19

                 19

                 19

                 19

                 19

                 19

                 19

                 19

                 19

                 19

                 19

                 19

                 19

                 20
               Source: FAOSTATS data (2006).



                                      TOTAL FACTOR PRODUCTIVITY

3.12 The indicators we have been looking at are partial productivity measures, which measure
the average contribution to output of individual factors. They have the limitation of being
affected by elements other than the factor in the index. Total factor productivity (TFP) examines
instead the productivity of the aggregate collection of inputs. It is measured as the ratio of the
production index over an index of aggregate inputs.

3.13 Table 3.1 shows TFP estimates from two recent sources. Both use FAOSTAT data and
include Argentina and other countries within a common methodological framework. Avila and
Evenson (2004) use basic accounting relationships. Bravo-Ortega and Lederman (2004) estimate
translog production functions. Taking the entire 40 year period 1961-2001 and estimating total

18
   It should be noted that (i) FAO data do not distinguish between tractors of different size or power, (ii) tractor
needs have been reduced in both Brazil and Argentina since the late 1980s as minimum and zero tillage have
become more widespread, and (iii) farm size structure in Argentina probably favors fewer and larger tractors than is
the case in the comparators.


                                                   26
agricultural production (agriculture plus livestock), Bravo-Ortega and Lederman found annual
TFP growth to have been highest in Brazil (1.93 percent), second in Argentina (1.84), and lowest
in Chile (1.20). These values compare to 2.12, 2.11 and 1.23 for Australia, the US, and Canada,
respectively. Avila and Evenson, on the other hand, break the four decades into two 20 year
periods (Table 3.2). For the earlier period they estimate Argentina‘s TFP growth to be highest
(1.83), followed by Chile (0.69), and Brazil (0.49).

                        Table 3.1: Total Factor Productivity Growth Estimates

                                                Estimated total factor productivity growth (% annual)
    Authors        Method         Period
                                             Argentina Brazil      Chile    Australia     US     Canada
   Bravo-       Estimated
   Ortego,      trans-log         1961-            1.84         1.93     1.20     2.12     2.11         1.23
   Lederman     production        2000
   (2004)       function
                                  1961-
   Evenson                                         1.83         0.49     0.69      --       --           --
                Accounting        1980
   and Avila
                relationship      1981-
   (2003)                                          2.35         3.22     2.05      --       --           --
                                  2001

3.14 Consistent with observed technological improvement over the past 20 years, estimates for
the period 1981-2001 indicate a sharp increase in TFP growth. In this period, Brazil leads overall
TFP growth with an annual average of 3.22, followed by Argentina (2.35) and Chile (2.05).
Note that the simple average of two 20 year estimates from Avila and Evenson is broadly
consistent with the 40 year estimates of Bravo-Ortega and Lederman.

           Table 3.2: Output Growth Rates and Total Factor Production Growth Rates
                      LAC Southern Cone Countries 1961/81 and 1981/2001
                                                          1961-1981
         Countries                     Crops                      Livestock        Crops & Livestock
                               TFP         Output             TFP        Output    TFP       Output
         Argentina             3.08          2.86             0.90        1.24     1.83        1.86
         Brazil                0.38          3.20             0.71        4.28     0.49        3.72
         Chile                 1.08          1.40             0.24        1.92     0.69        1.53
         Paraguay              3.97          5.35             0.36        1.26     2.63        3.53
         Uruguay               1.29          1.16             0.32        0.00     0.01        0.18
                                                          1981-2001
         Argentina              3.93         4.43             0.43        0.92      2.35         2.18
         Brazil                 3.00         3.60             3.61        4.58      3.22         3.41
         Chile                  2.22         2.99             1.87        3.92      2.05         3.67
         Paraguay              -1.01         1.31             1.29        4.17     -0.30         3.27
         Uruguay                2.02         2.58             0.53        1.16      0.87         1.48

         Source: A. Avila and R. Everson (2004).



3.15 From Table 3.2 we can notice that aggregate output growth follows closely growth in
TFP and was significantly higher in 1981-2001 than in the previous 20 years. Output growth was
mostly driven by increased efficiency and technological improvement, rather by increased input
use. Brazil‘s high growth rates reflect predominantly input growth in the earlier period, and both



                                                      27
significant input and productivity growth in the latter period. Chile‘s strong growth during the
most recent period reflects both solid technology growth and strong input growth.

3.16 TFP growth in crops in Argentina has been consistently high since 1961, rising from 3
percent per year during the earlier period to nearly 4 percent per year in the latter period. No
other country in the Southern Cone exhibits this consistently high performance in efficiency
growth in crops. The contrast with the livestock sector is remarkable; Argentina shows the
lowest productivity gain in the Southern Cone in 1981-2001, having been the first in 1961-1981.

3.17 Growth in TFP results from the adoption of new technologies such as zero tillage and
new varieties like genetically modified RR soybeans and BT corn that permit higher yields or
lower production costs. A country‘s adoption of new technologies depends on its capacity to
innovate and imitate.

3.18 Avila and Evenson classified countries according to their strength in these dimensions
through an ―innovation capital‖ index and an ―imitation capital‖ index19. Figure 3.11 illustrates
the ranking of LAC Southern Cone countries in terms of innovation and imitation, and the 1981-
2001 TFP growth. Note that Brazil, with the highest TFP growth, had already reached the highest
innovation level (according to this index) in the early period and gained two levels in imitation
capacity. Argentina was tied with Chile in the earlier period but failed to improve either its
innovation or its imitation capacity. Chile improved its innovation capacity to Brazil‘s level.
With the exception of the ordering of Argentina and Chile, a country‘s ranking on the
innovation/imitation space corresponds to its ranking in the TFP space.




19
  The innovation capital index is based on ISNAR data for agricultural scientist/cropland, and UNESCO data on
R&D/GDP. The imitation capital index is based on the years of schooling of the working population (males) and the
number of extension workers/cropland.


                                                 28
            Figure 3.11: Total Factor Productivity Growth (1981-2001) and Capacity to
                       Innovate and Imitate: LAC Southern Cone Countries

                                                                3.22
                      I                                         Brazil
                      n 6
                      n
                      o            2.35                    2.05
                                 Argentina                 Chile
                      v 5        (no change)
                      a
                                                      0.87
                      ti                             Uruguay
                      o 4
                      n              0.31
                                    Paraguay

                         3
                             3                 4                   5                 6
                                                   Imitation


               Source: Based on Avila and Evenson, (2004).
               Note: The base of the arrow indicates a countries ranking on these indices in 1981. The
               point of the arrow indicated its ranking in 2000. Argentina made no improvement over
               the period. The numbers refer to each country's estimated annual TFP growth over the
               period.



              AGRICULTURAL EXPORT POSITIONING AND MARKET PENETRATION

3.19 Table 3.3 compares the position in world markets of Argentina, Brazil and Chile.
Argentina has maintained its position in the cereals market, as the 4th or 5th larger exporter, and
has improved dramatically its share in the soybeans market. It is now the third largest exporter of
bulk soybeans (Brazil is second, and the US first), and the first exporter of soybean cake and oil,
with Brazil in the second position. With respect to meat and beef, Argentina has been loosing
market share since 1970. It is now the 10th exporter of fresh bovine meat and the 17th exporter
of meat and prepared meat. Brazil, on the other hand, has rapidly expanded its share in the world
market of livestock products, ranking now from 1st to 4th exporter in all categories. Regarding
exports from the regional economies, Argentina has significantly improved its performance in
oranges, lemons, pears, and wine since 1970, and in cherries and grapes since 1980, and has lost
significant positions in apples. Argentina is now the 2nd largest world exporter of lemons and the
3rd of pears. Chile has improved its position in all fruits considered in Table 3.3 and in wine. It is
now the world‘s first exporter of grapes and the 4th or 5th of apples, cherries and wine.

3.20 Among Argentina, Brazil and Chile, efforts to increase investments in value added
downstream production are inversely related to the scope for additional primary production
(Brooks and Locatelli, 2004). Brazil and Argentina remain heavily focused on primary products
(although Argentina relatively less so), while Chile, with no scope to incorporate additional land,
has been very successful in increasing the unit export values.



                                                   29
3.21 It is interesting to compare the exports of fruits, vegetables and wine in Argentina and
Chile. These products have major importance in Chile and are typical of Argentina‘s regional
economies. Figure 3.12 suggests that the reforms of 1991 had a significant effect in helping
Argentina narrow the value gap with Chile, and that the imbalances of the period 1997-2001
dealt a severe blow to Argentina‘s penetration of world markets. Argentina made substantial
progress during the six years following liberalization, reaching export values per hectare 95
percent of those of Chile in 1997). With the loss of high value markets associated with
overvaluation and lack of credit, per hectare export values fell to less than half of Chile‘s in
2002. Had Argentina‘s unit export value continued to catch up with Chile‘s, the value of
Argentina‘s exports of irrigated crops in 2003 would have been some US$950 million higher.

3.22 Figure 3.13 looks at the relative success of Argentina and Chile in expanding into new
markets in the three periods discussed above. We divide exports in three categories according to
market penetration in 1990: (i) high (greater than 2 percent of world market share); (ii) medium,
(between 2 and 0.5 world market share); and (iii) low (less than 0.5 percent of world market
share). In Chapter 2, we found that provinces with larger outward orientation were more
successful in increasing exports of agriculture-based manufactures during the early years of the
reform period, and also more successful in maintaining exports through the crises period. We
expected that markets where Argentina had a low market share would be new, less well
established markets, and would therefore be less likely to resist the difficult 1998-2002 period.
Hence, we expected the growth profiles of Chile and Argentina to be similar where market
penetration was high, and for Chile to have been more effective in increasing penetration in new
markets. The result however is the opposite. Argentina and Chile show similar (modest) growth
profiles for low and medium penetration markets. For markets with high market share, however,
export values of Argentina fell by 35 percent in 1997-2002, while those of Chile expanded by 45
percent. Apparently, Argentina's more traditional export industries suffered more than the newly
established niche markets, and Chile did historically better in building on those markets where it
had clearly established strengths.




                                           30
            Table 3.3: Argentina, Brazil and Chile position in world markets of agricultural and food products (percent world market)
Country      Product                     1970       Rank       1980      Rank       1990      Rank       2000      Rank       2003      Rank
Argentina    Cake of Soybean              0.0        20         1.6       6         17.3       3         31.9       1         33.1       1
Argentina    Oils of soybeans             0.0        32         2.7       8         23.3       1         35.4       1         39.4       1
Argentina    Soybeans                     0.0        27         8.5       2         11.7       3          8.4       3         11.8       3
Argentina    Cereals                      6.9         4         4.0       5          3.9       5          7.0       5          5.7       5
Argentina    Maize                       15.1         2         4.3       4          3.4       4         11.6       4         11.1       4
Argentina    Meat and meat prepared       8.9         4         4.5       10         2.5       13         1.8       17         1.3       17
Argentina    Meat and bovine fresh       12.3         2         6.0       7          3.3       9          3.5       10         2.8       10
Argentina    Beef and veal boneless      13.4         3        10.3       3          6.3       6          4.7       8          3.6       9
Argentina    Beef preparations           44.2         2        28.1       2         30.8       1         17.1       2         11.4       3
Argentina    Orange juice concentrated    0.0        11         0.3       9          0.7       5          0.1       18         0.2       15
Argentina    Oranges                      0.1        37         0.3       27         1.3       12         0.9       16         0.9       13
Argentina    Lemons                       0.0        33         1.6       9          2.4       6         12.9       2         13.5       2
Argentina    Apples                      11.5         4         9.4       4          3.8       9          2.4       10         2.4       10
Argentina    Pears                        9.2         2         8.5       4          9.5       5         19.0       1         12.7       3
Argentina    Grapes                       1.0        14         0.2       29         0.5       16         1.6       12         1.1       14
Argentina    Cherries                     0.5        13         0.1       18         0.0       24         1.1       16         0.6       15
Argentina    Wine                         0.1        29         0.2       21         0.2       18         1.2       11         1.3       11
Brazil       Cake of Soybean              8.5         2        34.3       2         30.3       1         24.3       2         26.4       2
Brazil       Oils of soybeans             0.2        15        21.1       2         18.7       2         13.5       2         23.3       2
Brazil       Soybeans                     2.1         3         5.5       3         15.5       2         23.8       2         27.5       2
Brazil       Meat and meat prepared       2.0        17         2.5       15         2.5       13         4.4       9          7.5       3
Brazil       Meat and bovine fresh        3.6         6         0.2       35         0.7       20         3.5       9          7.0       4
Brazil       Beef and veal boneless       na         na         0.5       19         1.4       16         4.8       7          9.1       3
Brazil       Beef preparations            5.8         3        24.9       2         14.5       2         27.1       1         29.6       1
Brazil       Orange juice concentrated   31.6         2        65.6       1         76.1       1         72.4       1         54.3       1
Brazil       Oranges                      0.7        18         1.0       15         1.0       15         0.9       15         0.5       17
Brazil       Lemons                       0.0        44         0.2       23         0.2       24         0.6       14         1.8       9
Brazil       Apples                       0.0        71         0.0       78         0.1       29         1.3       13         1.1       16
Brazil       Grapes                       0.0        63         0.0       40         0.1       28         0.6       18         1.9       11
Brazil       Sugar, total (equiv.)        5.0         5         8.8       3          4.0       6         13.5       1         20.4       1
Chile        Lemons                       0.0        28         0.5       16         0.1       30         1.9       8          1.1       12
Chile        Apples                       0.1        16         4.7       8          5.4       7          8.0       5          7.8       4
Chile        Pears                        1.1        11         3.1       12         5.0       8          6.4       6          5.8       8
Chile        Grapes                       2.5         9         7.9       3         21.9       2         21.0       1         22.6       1
Chile        Cherries                     1.2         8         2.0       8          3.7       7          5.6       5          7.5       4
Chile        Wine                         0.2        24         0.4       16         0.6       14         4.5       5          5.2       5

Source: FAOSTAT data (2006).




                                             31
                           Figure 3.12: Value of exports of fruits, vegetable and wine
                              per hectare of irrigated land: Argentina and Chile
                  1600


                  1400
                                   Argentina
                                   Chile
                  1200


                  1000
US$ per hectare




                   800


                   600


                   400


                   200


                     0
                      85

                             86

                                    87

                                           88

                                                  89

                                                         90

                                                                91

                                                                       92

                                                                              93

                                                                                     94

                                                                                            95

                                                                                                   96

                                                                                                          97

                                                                                                                 98

                                                                                                                        99

                                                                                                                               00

                                                                                                                                      01

                                                                                                                                             02

                                                                                                                                                    03
                    19

                           19

                                  19

                                         19

                                                19

                                                       19

                                                              19

                                                                     19

                                                                            19

                                                                                   19

                                                                                          19

                                                                                                 19

                                                                                                        19

                                                                                                               19

                                                                                                                      19

                                                                                                                             20

                                                                                                                                    20

                                                                                                                                           20

                                                                                                                                                  20
                  Source: FAOSTAT data (2006).

                    Figure 3.13: Growth of export value by 1990 market penetration
1800000

1600000

1400000
                                                                                        High market penetration
1200000                                                                                 Medium market penetration
                                                                                        Low market penetration
1000000

       800000

       600000

       400000

       200000

                     0
                              1990               1997                2002                                 1990               1997                 2002

                                                          Chile                                                          Argentina

                  Source: FAOSTAT data (2006).




                                                                                   32
           Box 3.1: The contrasting development of wine industries in Argentina and Chile
Chile‘s initial export strategy was to penetrate international markets with average quality wines sold at a low price.
To this aim, different strategies were applied. In some areas small wineries sold out to large ones and concentration
permitted scale economies. Other local producers created associations, which reduced transaction costs. The small
wineries grouped together in companies (Sociedades Anónimas) which were able to finance investments through
capital markets. This enabled the sector to attract large FDI inflows. Joint ventures with foreign firms also
transferred technology to local producers, a process which was further supported by a number of governmental
projects that funded R&D expenditures to help smaller producers to improve their grape and wine varieties.

Chile is now moving into higher quality segments of the wine market, with greater emphasis on quality and branding
(which requires consistent investments in R&D and advertising). Large producers have invested in promoting brand
reputation, while small wineries‘ associations have been applying quality standards and promotion strategies.
Producer associations and governmental bodies (e.g. the government export promotion agency PROCHILE) have
succeeded in creating a country image: Vino de Chile. FDI and improvements in the quality of infrastructure
(transportation, logistics and communication systems), led to Chile becoming by 2000 the fifth world wine exporter.
Argentina has a natural comparative advantage in wine production due to a temperate climate and abundant natural
resources. It is the largest wine producer in Latin America, the world‘s fifth largest producer and the 9th largest
exporter in 2000. In contrast with Chile, the wine industry in Argentina was traditionally fully oriented to the
domestic market (Argentina has one of the world‘s highest rates of wine consumption per capita). But domestic
demand favored lower priced wines and wine production was dominated by old and low quality grape varieties. The
industry started changing at the end of the 1980s when domestic demand of quality wines increased while total
domestic consumption fell. Also, export opportunities for quality wines became more apparent and FDI investment
started flowing in. However, despite huge potential and on-going changes in the industry, total wine exports
accounted for less than 1 percent of all exports in the late 1990s, with only around 6 percent of total wine production
exported. Moreover, Argentine wine exports are not highly differentiated, as more than half of total wine exports
consist of bulk or tetra-packed wine, and the composition of exports in terms of common and quality wine has been
very uneven since 1990. The transition from a traditional sector to a modern and differentiated one has been
constrained by the quality of grapes. Many farmers have been unable to invest in this area and the lack of
coordination between wine industries (bodegas) and farmers has hampered the transformation. There was also little
public policy effort to help the conversion from a traditional to a modern sector.
FDI in Argentina‘s wine industry has been quite limited. While many foreign groups acquired wineries in Argentina
over the last ten years, the technology transfer did not materialize at the farm level. The latter would have required a
learning process supported by policy initiatives (training courses; improvement of information channels between
different levels of the food chain; initiatives from producers‘ associations). Nevertheless, a stronger presence of
foreign companies and an increase in FDI is helping the sector to produce higher quality wines. In addition, there is
a recognition on the part of the public and private sectors of the benefits of creating a national wine brand, as was
done in Chile.


3.23 Annex 2 analyzes the export marketing strategies of the regional economies with
particular reference to wine (see Box 3.1). The analysis is consistent with observations by OECD
emphasizing the difference in the role of Foreign Direct Investment (FDI) in the food chain in
Argentina and Chile. In Argentina, the first wave of FDI in the food industry used the country's
abundant natural resources to produce commodities. More recently, FDI has been associated with
―supermarketization‖ and procurement for local and regional markets. Chile‘s more successful
penetration of value markets has been associated with macroeconomic policies and a stable
regulatory environment that encouraged FDI. These policies include improvements in
infrastructure through road concessions to the private sector, and measures designed to integrate
small farmers into commercial networks, improve access to credit, and extend the benefits of
R&D (Brooks and Locatelli, 2004).



                                                          33
3.24 Brooks and Locatelli (2004) find that both the role of FDI and that of government has
been limited in the case of Argentina, especially with regard to transferring modern technology
to the farm level. This appears to reflect a lack of effective partnerships between government and
producers associations, as well as lack of cooperation among different levels in the supply chain
(e.g. bodegas and farmers). In Chile, government-funded R&D was an important help to smaller
producers to improve grape and wine varieties and to promote a national name.


                                  SUMMARY AND CONCLUSION

3.25 Productivity Growth. Argentina‘s output growth over the past 40 years has taken place
in the crops sector, and has come predominantly from productivity growth. This is the result of
an exceptional progress in the development and adoption of new crop technology, in the context
of traditionally highly land extensive agricultural practices with relatively scarce new land being
available.

3.26 Growth in Argentina’s livestock sector has been elusive, with only Uruguay exhibiting
lower rates of growth in output and total factor productivity. We suspect that total factor
productivity growth in the livestock sector in Argentina has been somewhat underestimated,
however, as high-quality pasture has been converted into cropland and existing TFP measures do
not take into account differences in land quality. Nevertheless, INTA technology surveys
confirm that adoption of advanced technology in livestock has lagged, and that the payoff for
adoption seems high.

3.27 Investment Climate. It is noteworthy that Chile had the highest rate of aggregate growth
in agriculture in the Southern Cone in 1981-2001, despite having the third highest TFP growth
figure (Table 3.3). This illustrates the point that while productivity growth is very important, so
is the quantity of investment. Chile‘s somewhat lower TFP growth was more than compensated
by its strong investment and governance climate.

3.28 Research and Extension. Argentina holds a strong position in the Southern Cone in
terms of capacity to innovate and imitate new technology, but has lost ground to Brazil and Chile
in 1981-2001. This lag is consistent with Argentina‘s low unit export values of irrigated crops
compared to Chile, and the slow uptake of advanced technology in cattle, both areas where
additional technological efforts may have a high payoff.

3.29 High value markets. The regional economies made excellent progress in exporting into
high value markets during the post reform years. During the six years following liberalization
export values per hectare in high value irrigated crops reached 95 percent of those of Chile. The
subsequent crises did serious damage to the exports from these economies into high value
markets, and in 2002 the value per hectare of fruits, vegetables and wine exports of Argentina
was less than half of Chile‘s. Had Argentina‘s unit export value continued to catch up with
Chile‘s, the value of Argentina‘s exports of irrigated crops in 2003 would have been some
US$950 million higher. Surprisingly, it appears that the exports most affected were those where
Argentina had large market shares. This is an area for further research.




                                                34
3.30 Marketing strategies for the regional economies. The behavior of Argentinean
exporters of wine and table grapes reviewed above and in Annex 2 are suggestive of a trading
mentality rather than a marketing strategy. A marketing strategy would target a specific market
niche with a product designed or selected to appeal most to a particular segment of the market,
and then adopt a long-term market penetration plan that ‗fits‘ or ‗aligns‘ all aspects of the
business to serving the target customer. The data suggests that Argentina competes neither on
price, nor cost, but rather hesitates between the two. A transition to higher quality wines started
at the end of the 1980s, but it has been slow in showing export results in spite of Argentina‘s
large natural potential.




                                                35
                           4. THE ROLE OF GOVERNMENT

4.1     Government can play a critical role in improving the competitiveness of agriculture and
influencing the well being of rural households, but can also distort incentives and hence
negatively affect competitiveness. Government can help expand the resources for agriculture
through the creation of a favorable investment climate for the private sector; it can invest directly
in rural infrastructure and other public goods and services; and it can help improve the
productivity of resources through research and development, extension, and strong and
consistent rules of the game. Government can also promote collective action among private and
public sector actors—an important function to enhance the competitiveness of production chains.
We address these issues in the present chapter, examining agricultural fiscal policy, the main
government institutions related to agriculture, and the role of government in enhancing ancillary
services such as infrastructure and rural finance, and in promoting collective action. Our
discussion refers to Argentina but some international comparisons are also made.


                                 AGRICULTURAL FISCAL POLICY

4.2     There are several aspects in the analysis of agricultural fiscal flows. First, we want to
know how strong agricultural taxation is and if the amount spent by government in the sector is
sufficient to sustain competitiveness and equity—an issue related to the level of the flows. A
connected issue refers to fiscal neutrality, i.e. the balance between the taxation and expenditure
flows. Finally, we want to know whether the way in which fiscal resources are extracted from
agriculture through taxation and ploughed back into it through public expending is consistent
with competitiveness and equity, i.e. what are the efficiency and equity implications of the
structure of fiscal flows.

4.3     Several studies throw light on the above issues in Argentina in a historical perspective.
Thus, it has been shown that: (i) during the best part of the 20th century agricultural taxation was
considerably higher than public expenditure in the sector (Cavallo and Mundlak, 1982; Reca and
Parellada, 2001); (ii) the tax structure traditionally penalized the sector by decreasing the relative
price between its outputs and inputs, thus reducing investment levels and slowing sector growth
(Sourrouille and Mallon, 1973; Ragúnaga and Mundlak, 2002); and (iii) public expenditure in
agriculture has traditionally been comparatively small in Argentina, insufficient for the needs of
public goods and services. We examine below in more detail some of these issues in a
contemporary framework.

Agricultural Taxation

4.4     Tax pressure on agriculture is estimated at around 26 percent in 2003. Hence, 26 cents
out of each Peso of value added generated in agriculture in Argentina goes to government. This
is very close to the 25 percent general tax pressure in the country (Table 4.1) in that year.
Agriculture, thus, contributes to taxation in a proportion similar to the rest of the economy.




                                                 36
                Table 4.1: Argentina Tax Structure and Pressure on the Agricultural Sector
                                    1998 and 2003 (million 2003 AR$)
                                                                1998                      2003
                                                           AR$ (m)         %        AR$ (m)         %
               Agricultural Taxation
               A. National Taxes
                   Corporate Income tax                        588        15.6        711           6.7
                   Personal income tax                         218         5.8        1378         12.9
                   Minimum income tax                           --          --        499           4.7
                   Export tax                                   --          --        4617         43.3
                   Value added tax                            1682        44.6        1348         12.7
                   Social Security Contribution                394        10.4        285           2.7
                   Tax on bank transactions                     --          --        509           4.8
                   Diesel tax                                  193         5.1        401           3.8
                   Personal property tax                       74          2.0        153           1.4
                   Sub-total National Taxes                   3149        83.5        9902         93.0
               B. Provincial Taxes
                   Sales tax                                    --          --         202          1.9
                   Rural property tax                          624         16.5        549          5.2
                   Sub-total Provincial Taxes                  624         16.5        750          7.0
               Total Agricultural Taxation                    3773        100.0       10652        100.0
               Agricultural GDP                              23037                    41515
               Tax Pressure on Agriculture (%)                16.4                     25.7
               Source: O‘Connor (2004).



4.5     Tax pressure increased between 1998 and 2003. The introduction in 2002 of export taxes
(retenciones),20 which account for 43 percent of all taxes paid by the sector in 2003, is the main
reason for the 1998-2003 increase; without retenciones, tax pressure on agriculture in 2003
would have been 14.5 percent, less than in 1998 (Table 4.2). Other changes were also made in
the tax system in this period. In particular, two more taxes were introduced with a relevant
impact on agriculture: the minimum income tax (impuesto a la ganancia mínima presunta), and
the tax on bank transactions (impuesto a los cheques).

4.6     Provincial taxation falling on agriculture is small; it amounted to only 7 percent in 2003.
It consists of a sales tax (which is different from the national VAT) and a personal property tax
(on rural property in the case of agriculture). There are other provincial taxes like the stamps tax
(impuesto a los sellos) and the vehicles tax (impuesto automotor), but they have little incidence
on agriculture. The importance of provincial taxation and the incidence of individual provincial
taxes change much across provinces. The dispersion of provincial tax incidence is big, incidence
being generally higher in richer provinces like Buenos Aires, Córdoba and Santa Fe.




20
     Export taxation of agricultural products has been a recurrent event in Argentinean history.



                                                           37
                Table 4.2: Argentina: Tax Pressure on Agriculture and the National
               Economy with and without Export Taxes, 1998 and 2003 (percentages)
                                                                    1998   2003     % Change
              Agriculture only                                      16.4   25.7        56.7
              Agriculture less export taxes                         16.4   14.5       -11.6
              National Economy (all sectors)                        18.2   25.2        38.5
              National Economy less export taxes                    18.2   22.6        24.2
              Source: O‘Connor (2004).

4.7     There are considerable differences between the tax structure of agriculture and that of the
national economy (Table 4.3). In agriculture, the importance of export taxation is much larger
than in the rest of the economy, while that of the value added tax is much smaller. Not
surprisingly in view of the high incidence of self-employment in agriculture, the contributions to
social security are also much smaller in the agricultural sector.

                        Table 4.3: Argentina: Structure of National Taxation,
                                   Main Taxes, 2003 (million AR$)
                                                   All Sectors          Agriculture
                     Taxes
                                                AR$ (m)       %       AR$ (m)      %
                     Value added tax              20,948     29.0        1,348    13.6
                     Income taxes                 14,751     20.4        2,588    26.1
                     SS Contributions              9,668     13.4          285     2.9
                     Export taxes                  9,212     12.7        4,617    46.6
                     Other taxes                  17,696     24.5        1,064    10.7
                     Total Taxation               72,275    100.0        9,902 100.0
                     Source: O‘Connor (2004).

4.8     There are potential problems of distortions with the current system of agricultural
taxation in Argentina. One case is export taxation (retenciones). They were introduced in 2002
with the double purpose of (i) wiping off windfall gains to agricultural exporters resulting from
devaluation and rising world prices, and (ii) ameliorating the impact of the recession by
decreasing the domestic price of exportable food staples and also by raising public revenue to
finance social programs.21 The introduction of export taxation was an emergency response to the
crisis to achieve these worthwhile objectives, but maintaining it is not necessarily an efficient
way of meeting them in a longer perspective. First, retenciones discriminate against exports vis-
a-vis importables and non-tradable. Second, agricultural rents could be dealt with using other
instruments like income and land taxation, and social programs are better financed from the
ordinary budget than from earmarked taxation. Keeping low the domestic price of exportables
(which in the case of Argentina coincides with basic staples) through export taxes implies a
forceful transfer of income from producers to consumers, with economic effects that should be
considered. During times of high export revenue, farming can be profitable in spite of the
transfer, but as soon as conditions normalize the transfer is at the expense of negative incentives
to farm production and investment. Also, it is usually during booming periods when delayed
agricultural investments are made and many farm loans are paid back. Cutting profits in these


21
   Much in fact of the proceedings of the export tax goes to finance the program Jefas y Jefes, a conditional cash
transfer to the poor.


                                                        38
periods may slow investment and the repayment of loans. The impact of taxation on farm
profitability is illustrated in Box 4.1.


            Box 4.1: Profitability of a Mixed Agricultural Company in the Pampas in 2004
We examine in this box the impact of taxation on the profitability of a mixed crops-livestock company in the
Pampas. Figures are from an actual farm located in the western part of Buenos Aires Province. The farm has 1,500
hectare of which 25% planted with sunflower, 32% with maize, 10% with wheat and 33% devoted to beef fattening.
Agricultural technology is average for the zone and the farm uses its own machinery. Yields are: 7.0 tons/hectare of
maize, 2.8 tons/hectare of wheat, and 2.0 tons/hectare of sunflower. The livestock yield is 384 kg/hectare. Prices are
those prevailing in the area in 2004. The farm is valued in AR$12.8 million. Enterprise results are shown in the
following table.
                                                   Pesos          Return on Assets (%)
             VALUE OF ASSETS                    12,782,875
             Gross Income                        2,209,392
               minus
             Livestock purchases                  349,578
             Inputs & interest payments           652,109
             Labor costs                          158,595
             Marketing costs                      339,497
             Indirect costs                        77,964
             Various taxes                         83,964
             Gross Profit                         547,685                    4.3
               minus
             Depreciation allowance               111,510                    0.9
             Net Profit                           436,175                    3.4
               minus
             Income tax (35%)                     149,662
             Distributable Profit                 286,513                    2.2
             Total taxation                       233,626                    1.8
             Net profit without taxation          520,139                    4.1


The return on assets is low, only 2.2% of the distributable profit. Total taxation is AR$233,626 and amounts to 45%
of the net profit without taxation. Two taxes are not included in the table because they are recoverable from the
income tax: the minimum income tax, and the diesel tax. These taxes amounted respectively to AR$76,697 and
8,570, with the latter being paid in advance by the owners. Had the net profit been less than the minimum tax, i.e.
AR$76,697, the distributable profit would have been negative. That was in fact the case in this farm in 1999.
Source: O‘Connor (2004).


4.9     Because of the importance of retenciones, agricultural taxation falls heavily on export
crops, especially on grains and oilseeds. Grains and oil seeds pay 23.5 percent and fruits,
horticultural products, honey, rice and other minor crop exports are taxed at 10 percent.
Regionally, this means that the Pampas bear a heavy burden of agricultural taxation relative to
the other regions. This is so for three reasons: (i) a much higher proportion of the Pampa‘s
agricultural production is exported than for the other regions; (ii) the tax rate for Pampa products
is higher; and (iii) agricultural incomes and the value of production is also higher. Despite the
higher export tax, the natural advantage of the Pampas in grains and oilseeds is so strong that
there is no evidence of substitution to other crops.


                                                         39
4.10 Lack of consistent rules of the game represents a serious constraint to investment in the
agricultural sector in Argentina. Unlike a tax on income, an export tax comes ―off the top‖,
leaving producers‘ incomes much more exposed to commodity price variability. To an unhealthy
measure the current system causes agricultural profitability to depend on year-to-year policy
decisions.

4.11 The main purpose of the minimum income tax (impuesto sobre ganancias mínimas
presuntas) is to prevent evasion in income taxation by taxing imputed rather than actual income,
which is often difficult to measure. The drawback is that it penalizes producers who because of
being at the start of an investment project or for other reasons, e.g. climatic or pest hazards, have
low or no profits. Vulnerable producers, more exposed to economic shocks, can be particularly
hit. Farming, where profits-to-assets ratios are normally lower than in other sectors, is also
especially penalized. Furthermore, like retenciones, the impuesto sobre ganacias mínimas
presuntas is not neutral with respect to the economic cycle; its negative impacts are felt mostly
during the downturn. Evasion could perhaps be better fought through other means, such as
simplifying the tax system and improving information and collection.

4.12 Evasion is also a problem in other areas of agricultural taxation. Thus, an AFIP (1999)
study estimates VAT evasion in 1997 and 1998 at around 26 percent for the national economy
but 67 percent for agriculture. Another study by Libonatti (2000) also shows VAT evasion in
agriculture to be well above the average. A different area of large evasion in the agricultural
sector is in the contributions to social security, following the high incidence of informal
employment in agriculture. From the 1997 input-output table, informal labor use in agriculture,
and hence the evasion of SS contributions, has been estimated by O‘Connor (2004) at 76 percent
in horticulture and fruit production, 63 percent in industrial crops, 61 percent in livestock
production, and 46 percent in grains.

4.13 Agricultural taxation does not seem to have a significant direct impact on poverty, since
poor producers generally do not pay income tax, retenciones (most of which fall on Pampean
grain production) or VAT. They may pay the municipal impuesto immobiliario rural, but this is
low. Indirect effects could be more significant to the extent, for instance, that retenciones lowers
the price of exportable products for all producers, not only for exporters. But this would depend
on whether poor rural producers are net producers or net consumers of the relevant foods.

4.14 Although this study contains a review of fiscal transfers to and from agricultural
(Background Paper II) we recommend a more fully-elaborated treatment of both fiscal and
implicit transfers to and from agriculture, including a more complete analysis of the issues of
export taxes, tax evasion in the sector, and local and provincial tax effort, and the impact of
agricultural taxation on relevant variables like prices and wage rates. The analysis needs to be
carried out within the context of Argentina‘s overall tax system and fiscal equilibrium needs, and
address the issue of regional inequalities and the large regional variation in economic rent to
land.




                                                 40
Public Expenditure in Agriculture

4.15 Contrary to taxation, which is overwhelmingly national, public expenditure in Argentina
is more or less equally shared between the national government and the provincial plus
municipal governments. There is, thus, a high degree of vertical fiscal inequality in Argentina
(Table 4.4).

4.16 National public expenditure in agriculture is extremely low by international standards.
Expenditure in 2005 was AR$613 million out of a national total of AR$77,918 million, which is
only 0.8 percent. This is less than in 1998 (Table 4.4), and much less than the share of agriculture
in GDP. We do not have aggregate figures for provincial government spending in agriculture, but
from a fiscal analysis of four provinces (Buenos Aires, Catamarca, Mendoza, and San Juan) it
seems that provincial spending in agriculture is larger than national spending but is also low
(Figure 4.1). Agriculture expenditure in these four provinces is also small as a proportion of their
total and agricultural GDP, ranging from 5.4 percent of provincial agricultural GDP in Mendoza
to 2.9 percent in Buenos Aires. Comparing with the taxation figures reported above, it is clear
that there is a strong imbalance between the fiscal flows coming out of and going into
agriculture.

                    Table 4.4: Argentina: Composition of Public Expenditure,
                               1998 and 2005 (million current AR$)
                                         National                    Agriculture*
                                                                                % of national
                                         AR$ (m)               AR$ (m)          expenditure
                     1998                 47,531                 516               1.09%
                     1999                 50,046                 473               0.95%
                     2000                 49,720                 449               0.90%
                     2001                 48,903                 384               0.79%
                     2002                 46,980                 254               0.54%
                     2003                 58,867                 348               0.59%
                     2004                 64,828                 465               0.72%
                     2005                 77,978                 613               0.79%
              Source: MECON (2006).
              * Includes SAGPyA, INTA, INV, INIDEP and INASE. SAGPyA expenditure includes
              the following programs: Formulación de políticas del sector primario, Programa social
              agropecuario - PROINDER, Promoción de comercio y producción de semillas (years
              2001-2003) ,and Atención del estado de emergencia por inundaciones.

4.17 Figure 4.2 shows the evolution of an index of total and agricultural expenditure from the
national government in real terms from 1998 to 2005, and Figure 4.3 shows the evolution of
national expenditure in agriculture as a share of agricultural GDP during the same period.
National expenditure, which grew between 1998 and 1999, fell dramatic in 2002 as a
consequence of the crisis. Contrariwise, national expenditure in agriculture fell from 1998 to
2002 but grew in the following years. As a share of agricultural GDP, national public
expenditure in agriculture decreased strongly after the crisis. This was due to a combination of
factors: (i) a change in relative prices in favor of agriculture due to the devaluation; (ii) the
increase in international prices of Argentina‘s export products; and (iii) the comparatively strong
performance of agriculture during the crisis.



                                                        41
    Figure 4.1: Public Expenditure in Agriculture in 2003 by Four
  Argentinean Provinces as a Proportion of all Provincial Expenditure,
    Provincial GDP and Provincial Agricultural GDP (percentages)

                       P.E. Prov.       GDP Prov.          GDP Ag Prov.
        6.0
                                        5.4
        5.0                                                5.0            4.6
                                3.9
        4.0
                        2.9
        3.0                                                         2.3
                1.8
        2.0
                                                  1.1
        1.0                         0.5                               0.4
                     0.2                             0.3
        0.0
                  Bs . As       Mendoza           Catamarca      San Juan
      Source: Based on O‘Connor (2004).



Figure 4.2: Index of Public National Expenditure Total and in Agriculture
               in Real Terms * from 1998 to 2005, 1998=100

                                      Agriculture          National


    120.0

    100.0

     80.0

     60.0

     40.0

     20.0

      0.0
              1998    1999     2000       2001      2002     2003     2004      2005

  Source: Calculated from Table 4.4.
  (*) Deflated using INDEC‘s GDP deflator.




                                             42
               Figure 4.3: National Public Expenditure in Agriculture as a Share of
                           Agricultural GDP, 1998 to 2005 (percentages)
                 4.5%
                                       3.9%
                 4.0%
                          3.4%                     3.5%
                                                           3.3%
                 3.5%
                 3.0%
                 2.5%
                 2.0%
                                                                                                     1.4%
                 1.5%                                                                        1.1%
                                                                      0.8%      0.9%
                 1.0%
                 0.5%
                 0.0%
                          1998         1999        2000    2001       2002      2003         2004    2005


                 Source: Table 4.4 for public expenditure and INDEC for agricultural GDP.

4.18 Government support to agriculture in Argentina has been historically low relative to other
LAC countries. Table 4.5 compares Argentina with selected comparator countries. We look at
government expenditure on agriculture as a proportion of agricultural value added, and as a
proportion of total government expenditure. The first measures the support to agriculture relative
to agriculture‘s importance in the economy. The second is an indicator of its priority relative to
other government expenditures.


                             Table 4.5: Government Expenditure on Agriculture
                                 Percent Agriculture Value Added
                          1997           1998             1999        2000         2001             2002      2003
         Argentina           --            --               --          5.7         6.1              1.9        --
         Australia           --            --               --           --        14.1             13.9      13.9
         Brazil             8.7           9.3               --           --          --               --        --
         Canada                 --         --               --           --        28.7             11.1      12.6
         Chile                  --         --               --           --          --               --       3.4
         Mexico                 --         --             10.3         10.4          --               --        --
         Uruguay                --         --              8.6          6.2          6                --        --
                                      Percent Total Government Expenditure
         Argentina               --           --           --          1.0             1.0           0.7       --
         Australia               --        --              --              --          1.5           1.5       1.5
         Brazil            2.6            2.5                   --      --              --               --     --
         Canada                  --        --              --           --             1.7           0.7       0.8
         Chile                   --        --              --           --              --            --       1.4
         Mexico                  --       4.1             3.1          2.7              --            --        --
         Uruguay                 --        --             1.5          1.2             1.2            --        --
         Source: 2004 Government Finance Statistics Yearbook, IMF.




                                                                 43
4.19 Although lack of consistent data coverage prevents firm conclusions, the overall
impression is that Argentine farmers receive substantially less than their competitors by both
measures.22 Looking at pre-devaluation numbers, Argentina‘s support to agriculture appears to
have been around 6 percentage points of agricultural GDP while that of Brazil was 9 percentage
points. Looking at post devaluation numbers, Chile‘s support is 3 percent of GDP and Mexico‘s
10 percent—compared to 2 percent for Argentina. As a percent of total government expenditure,
only Canada in 2002 falls to the same low level (0.7 percent) as Argentina.23 By this measure,
Uruguay appears to spend some 20-50 percent more than Argentina, and Brazil more than twice.
Note that in developed countries the agricultural sector is small relative to overall government
expenditure. Thus, for Canada and Australia large contributions relative to the size of the sector
take up a small proportion of the budget.

4.20 The FAO study of public expenditure in agriculture in LAC countries offers another set
of comparator estimates. Figure 4.4 shows data on public expenditure in agriculture per
agricultural worker for the average of 1996-2000, and Figure 4.5 shows an Orientation Index,
defined as the share of agriculture in national expenditure divided by the share of agriculture in
GDP.24 The dispersion of the figures of expenditure per worker is big, with some countries
spending twenty times more per agricultural worker than others. Chile is first, expending per
worker close to US$400, followed by Mexico with US$303. Argentina is below the LAC
average and also below its most direct competitors, Chile and Brazil. This is remarkable in view
of the high land-labor ratio characteristic of Argentinean agriculture.

4.21 The agricultural orientation index in Figure 4.5 measures the intensity of the fiscal effort
in agriculture relative to the economic importance of the sector. A value of one indicates that
expenditure in agriculture is in accordance with its economic importance, less than one means
―discrimination‖ against agriculture, and the opposite if it is more than one. Here again the
dispersion among countries is large. The low value of the index for Argentina, well below the
LAC average, confirms the scarce attention that public expenditure in agriculture has
traditionally received in Argentina, compared to other countries in LAC among which its direct
competitors, Brazil and Chile.




22
   Note that when comparing expenditure as a percent of agricultural value-added it is important to keep in mind the
effect of currency overvaluation on the agricultural value-added. As indicated in the text, the dramatic drop in
Argentina‘s ag expenditure/ag GDP in 2002 is largely a result of the increase in ag GDP from devaluation. In
comparing Southern Cone expenditure by this measure, note that all Southern Cone expenditure with the exception
of Argentina 2002 is prior to the major devaluations that each country experienced over the 1999-2002 period.
23
   Note that due to the much smaller size of Canada‘s agricultural sector relative to government expenditure, this 0.7
percent of total government expenditure translates into 11 percent of ag GDP in Canada, and only 2 percent of ag
GDP in Argentina.
24
   Figures refer to expenditure in production-related programs only, not to all rural development expenditures. They
are in current US dollars. For some countries the average is for 1996-1999 due to lack of data for 2000. Not all rural
development spending is included, only that devoted to productive development.


                                                         44
             Figure 4.4: Public Expenditure in Agriculture per Agricultural Worker
                              in LAC Countries, Average 1996-2000
               450
               400                                            388.4
               350        303.2
               300
               250                                                    200.8               189.6202.6
               200 160.2
                                                     134.6                                          146.1
               150
               100                       50.1 57.6
                50                23.6                                        24.2 18.6
                 0




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                     Figure 4.5: Agriculture Orientation Index in LAC Countries,
                                          Average 1996-2000
                2.0
                1.8      1.79
                1.6
                1.4
                1.2
                1.0
                0.8
                0.6           0.41                0.37                     0.37 0.33
                0.4 0.23                0.19                          0.20
                                   0.06      0.07      0.12 0.08 0.07
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4.22 With its low expenditure on agriculture, Argentina cannot afford to divert resources from
public to private goods. Yet, in 2003, 37 percent of Argentina‘s agricultural expenditure appears
to be so directed (Table 4.6). Expenditure on public goods includes agricultural research and
extension (INTA, 26 percent; INDEP, 1 percent; INV, 2 percent), sanitary and phytosanitary
control (SENASA, 20 percent), and seed quality (INASE, 0.5 percent). Additional expenditure of
a public good nature passed as transfers from the Secretariat of Agriculture (SAGPyA) to the
provinces, including externally financed projects directed to support small and medium
producers (PROSAP, PROINDER, PRODERNOA, PRODERNEA), and emergency for farmers
in zones affected by flooding.




                                                          45
                    Table 4.6: Public vs. Private Goods: Classification of Government
                                   Expenditures in Rural Sector, 2003
                                            Millions of AR$                         Percentage
                                        Public             Private           Public            Private
              SENASA                     128                 -----             20              -----
              INTA                       168                 -----             26              -----
              INIDEP                       9                 -----              1              -----
              INASE                        3                 -----              0              -----
              INV                         11                 -----              2              -----
              SAGPyA                      85                   52              13                8
              FET                        -----                187             -----             29
              TOTAL                      404                  239              63               37
             Source: O‘Connor (2004).

4.23 The largest expenditure of a private good type is the Fondo Especial del Tabaco (FET),
constituting some 30 percent of total national agricultural expenditure, and financed by an
earmarked tax on cigarette purchases. This tax provides price supports and other incentives to the
tobacco industry. In addition, nearly 40 percent of SAGPyA expenditure goes to subsidies for
forestry, sheep production, and subsidized credit, largely of a private good nature.

4.24 As shown recently by López,25 the cost to agricultural growth of subsidizing private
rather than public goods is high. For the nine countries in his study López calculated that
reallocating 10 percent of subsidy expenditures to supplying public goods may cause an increase
in per capita agricultural incomes of about 2.3 percent, without increasing total government
expenditures. At 37 percent, Argentina‘s agricultural expenditure on private goods is somewhat
under the 44 percent average for the nine LAC countries analyzed in López‘s study. 26 While
Argentina‘s private goods portion is not high by Latin American standards,27 coupling low
overall agricultural expenditure with a 37 percent proportion on private goods leads to the risk of
a substantial under-expenditure on vital public goods.


                             AGRICULTURAL PUBLIC SERVICE INSTITUTIONS

4.25 We examine briefly in this section the two main decentralized public institutions
providing vital services to the agricultural sector: the Instituo Nacional de Tecnología
Agropecuaria (INTA) and the Servicio Nacional de Sanidad y Calidad Alimentaria
(SENASA).28



25
   López, Ramón, 2004, Why Governments Should Stop Non-Social Subsidies: Measuring the Consequences for
Rural Latin America.
26
   These countries are Costa Rica, Dominican Republic, Honduras, Panama, Paraguay, Peru, Venezuela, Ecuador,
and Uruguay.
27
   In Lopez‘s study containing 9 Latin American countries, 4 spent a lower percent on private goods and 5 spent a
larger percent.
28
    For reasons of space we do not deal with other, less important decentralized public sector institutions operating in
the agricultural sector such as the Instituto Nacional de Semillas (INASE), the Instituto Nacional de Vitivinicultura
(INV) or the Instituto Nacional de Investigación y Desarrollo Pesquero (INIDEP).


                                                          46
INTA

4.26 INTA, a decentralized institute of the Secretariat of Agriculture, created in 1956, is
SAGPyA‘s arm for the development and transfer of food and agriculture technology. It has its
headquarters in Buenos Aires, and regional operational offices throughout the country. Its main
functions are: (i) the formulation of strategic and operational policies for research, innovation
and extension in food and agriculture; (ii) the design and implementation of work programs in
the area of food and agriculture research and extension; (iii) a liaison function with enterprises
and other institutions to implement joint programs in its area of specialization; and (iv) to design
and implement communication and institutional strengthening strategies. INTA participates in
various inter-institutional entities, and has agreements with many agricultural technology firms
and research bodies in and outside Argentina.

4.27 Overall guidance is ensured by a Governing Council integrated by a President, a Vice-
president, and eight members representing different institutions (university faculties of
agriculture and veterinary medicine, Federación Agraria, Sociedad Rural, CONINAGRO, CRA,
and AACREA). Day-to-day operations are under the responsibility of a National Director and
four Assistant Directors (for Scientific Research and Development Planning, Operations, Human
Resources, and Administration).

4.28 The territory is divided by INTA into 16 regions, each with a Centro Regional and a
Dirección Regional. There are 42 Experimental Stations in charge of basic and applied research
and extension activities, and 92 Rural Extension Agencies devoted to extension and participatory
research.

4.29 A number of important successes can be claimed by INTA over the last 10 or 15 years.
Major among them: (i) its contribution to the development and dissemination of the direct
planting, zero tillage technology (see Box 2.3 in Chapter 2); (ii) the development (or contribution
to development) of a number of specialized grain and fodder varieties suitable for particular
agro-ecological conditions; and (iii) the dissemination among small and medium farmers of
modern management techniques through the Cambio Rural program. Many of INTA‘s
contributions were frustrated by the extreme shortage of budgetary resources during the 1990s
and at the beginning of the 2000s, which resulted in the loss and insufficient renovation of
qualified staff, little staff training, and strong shortage of operational funds. Fortunately, the
budgetary constraint has been substantially reduced in the last years.

4.30 INTA faces a number of difficult but important challenges. Major among them is the
setting up of planning mechanisms and operational programs consistent with the big changes that
have been taking place in Argentina‘s food and agriculture sector over the last 15 years. We can
include here the development of biotechnology, the intensified participation of the private sector
in agricultural research, new environmental threats, and the difficult competitiveness conditions
faced by the small farm sector. The new Plan Estratégico of INTA has faced up to these
challenges, and defined appropriate areas of work, methods and activities.

4.31 There are, however, several strategic areas for technology development and
dissemination where action in the short and medium term seems particularly important:



                                                47
      Environmental sustainability. Technological and other developments in the sector are
       posing new or exacerbating old environmental hazards, which demand technology and
       extension answers. Among them are deforestation and loss of biodiversity due to the
       expansion of the crop frontier (see Chapter 6); soil and aquifer contamination from
       increased pesticide, herbicide, and fertilizer use; loss of soil fertility because of reduced
       mixed farming and crop rotations; and soil deterioration from inadequate irrigation
       practices.
      Irrigation. Irrigation is not included among INTA‘s priorities, yet research and extension
       are urgently needed in relation to irrigation efficiency, organization and governance of
       water schemes, water cost and charges, and others (see Chapter 8).
      Bioenergy. Bioenergy is expected to be in strong demand in the medium and long run. It
       is important to carry out the technology research that could permit Argentina to compete
       in this field, where it is already well behind Brazil. Important areas for research are the
       selection of primary materials, industrial plant characteristics and scale, logistics, and
       market aspects.
      Quality systems. INTA launched in 2001 the Programa Nacional de Calidad to
       disseminate production protocols and the certification of good practices, with training as
       the main instrument. This is an important program because of the need to enhance and
       standardize food quality in important food chains (see Chapter 7). The program could be
       enhanced by building stronger alliances with provincial governments and the private
       sector.
      Development of non-traditional and specialty products. Concentration of exports on a
       few products poses evident risks and signals an inadequate use of Argentina‘s high
       potential for diversification. There is hence the challenge of developing technologies for
       products with high value added in different agro-ecological niches.

SENASA

4.32 SENASA, the government‘s entity responsible for phytosanitary protection and food
quality and safety, is a decentralized agency. It operates under SAGPyA, and has 25 regional and
319 local offices. Its Government Council consists of 15 members representing producers, agro-
industry, consumers, the provinces, and SENASA staff. It has eight Departments: (1) Animal
Health, (2) Plant Protection, (3) Food Inspection, (4) Laboratory and Technical Control, (5)
Agrochemical, Pharmacological and Veterinary Products, (6) Technical, Legal, and
Administrative Coordination, (7) Operational Vigilance, and (8) International Coordination.
SENASA employs some 3,800 staff, of which slightly over one third have completed university
studies. The average age is over 50 years, and hence there will be a high rate of retirement over
the coming decade. SENASA‘s mandate has expanded rapidly over the past 15 years.

4.33 SENASA has broad powers to plan for, diagnose, and control or eradicate animal and
plant pests and diseases throughout the country. This includes certifying export quality,
establishing phytosanitary and epidemiological zones and frontiers, and applying whatever
measures are necessary to safeguard the health of Argentina‘s plant and animal assets. Also
included are all measures related to food safety, including slaughter, warehousing, transport, use
of additives, biotechnology, and veterinary medicine. In addition to its traditional role in
ensuring animal health (in particular controlling FMD), it has assumed primary responsibility for


                                                48
creating and maintaining access to export markets. The complexity of international food and
biosafety regulations imposes the need of continuous staff training, including not only
SENASA‘s own staff, but also that of other national, provincial and municipal institutions,
public and private.

4.34 SENASA‘s great strength is in its technical capacity and processes (see Chapter 7). Its
weaknesses, some of which are self-acknowledged,29 are in strategic planning, the continued
presence of double standards between domestic and export markets, communications and
information management, and insufficient capacity to create and sustain partnerships at the local
level. SENASA‘s management proposes a strategic reassessment of the institution‘s role with
emphasis on the following:

         Convergence of standards. A process of convergence of quality standards is proposed
          for the domestic and export markets, under a system of ―co-responsibility‖ of members of
          the product chains and sanitary authorities.
         Clarification of roles and responsibilities of different jurisdictions and the private
          sector. SENASA proposes clarifying roles in areas of overlapping federal and provincial
          jurisdictions, and, where appropriate, delegating certain responsibilities to private
          certification agencies or to producers.
         Decentralization to the regional level. The central level would retain the national
          functions of planning, strategizing, establishing norms, providing orientation, strengthen-
          ing capacity, and auditing performance. Operational functions would be decentralized
          with the objective of creating better opportunities for coordination with other public and
          private entities and bringing services closer to clients in the interior of the country.
         Ensuring financial resources. The new model of cooperation would require institutional
          agreements that guarantee the financing of agreed activities. Achieving a large degree of
          financial autarchy would be important for SENASA.

4.35 SENASA‘s new strategic plan shows a clear resolve to devolve and delegate
responsibility within a clear framework of shared responsibility. The challenge is to change its
culture as an inward looking institution which resists giving up historic tasks that may not be the
most strategic under the new circumstances. Its focus would be best kept on its role as the most
strategic player in its area aiming at ―making things happen‖ rather than ―doing things itself‖.


                       ANCILLARY SERVICES AND THE ROLE OF GOVERNMENT

4.36 We examine in this section two fundamental ancillary services to farm production on
which agricultural competitiveness strongly depends: agricultural infrastructure and processing
facilities, and rural finance. Shortcomings in the provision of these services are affecting the
profitability and competitiveness of the agricultural sector. We provide a brief diagnosis of the
situation of these services in Argentina today and give some suggestions as to possible
government interventions to improve them.


29
     See ―Change and Strengthening of SENASA‖, SENASA, 2004.



                                                    49
Infrastructure and Processing Facilities

4.37 Production of agro-based products requires support of four infrastructure pillars: roads,
navigable ways and ports, storage centers, and facilities for the preservation of fresh produce.
Lack of these facilities negatively impacts costs, timeliness of transport, quality of final products,
and the use of potential production areas for lack the necessary investments. It has thus a major
impact on competitiveness. Most affected are non-perishable bulky products and high value
perishable ones.

4.38 In Argentina, infrastructure needs relate mainly to three product groups: grains, which
require good storage and shipping infrastructure; meat, which demands quality processing
facilities; and fruits and vegetables, which need good conservation facilities. The combined
output of these three groups amounted to over 95 million tons in 2003 (more than 2.4 ton per
inhabitant), and is expected to grow at about 2.5 percent per year, reaching over 125 million tons
in a decade.

4.39 The importance of improved roads can be inferred from the following: transport of 70
percent of the grain crop (approximately 50 million tons) requires some 2 million truck trips for a
mean of 400 kilometers per trip during 6 months, concentrated during harvest time. Grain
classification requires some 35,000 storage centers with an individual capacity of 2,000 ton each.
These facilities are not available in Argentina nowadays.

4.40 The importance of improving slaughtering and meat processing facilities can be gauged
from the fact that equipment complying with international standards can serve at present only 25
percent of output, estimated at 13.5 million tons per year. Uniformity and quality is a requisite to
improve beef production and increase exports. Quality has an effect on price. Poor meat
processing results in price losses in processed products of approximately 15 percent. In an
industry that processes more than 13 million tons for approximately AR$54 billion, lack of
quality can result in losses of over AR$8 billion per year.

4.41 Cold storage of vegetables and fruit is essential to small and medium size producers.
Major fruit-producing areas like central Tucumán (lemon), Río Negro valley (apples, pears,
grapes, vegetables), northeast Entre Ríos and southern Corrientes (citrus) harbor small farmers,
but their production is linked to that of large ones, and hence their lack of cold storage facilities
is less acute. New production areas like the mountainous regions of Rio Negro, Santa Cruz, and
Neuquén, where production is in the hands of small farmers, show greater deficiencies. These
deficiencies are linked to products with a gate value of some AR$6,000 per ton, with high export
potential (especially cherries and bilberries).

4.42 Lack of adequate facilities results in a remarkable loss of opportunities to develop good
producing areas. This was shown by Peri et al (1998) with respect to fine fruits in Chubut. Del
Pino et al (2004), show that the availability of roads is one of the main causes of soybean and
other grain expansion in the north of the country.

4.43 Work by Pesce (2003) and U.N. del Sur (2001) assessing the infrastructure and logistics
needs for grain production in Argentina show the following hurdles in major Pampean areas:



                                                 50
      The condition of storage plants ranges from average to bad in Entre Ríos and from
       average to good in the South of Buenos Aires province. In both cases the storage, drying
       and reception capacities are compromised. Regarding equipment maintenance, quality of
       management and product losses, most plants in both areas range from partially adequate
       to deficient. Investments to upgrade these plants are feasible and would save some
       US$2.85 per stored ton. Extrapolating this information we obtain a national saving figure
       of over US$50 millions per year.
      Bagged grain is more than 20 percent of total output in Argentina (some 15 million tons).
       The storage cost per ton and per season in 2003 was AR$2.46, 1.8 times the cost of
       storage in ―fixed‖ storage centers (AR$1.36 per ton and per year). The difference in cost
       for a volume of 20 million tons is US$20 million, to which the classification and storage
       advantages of ―fixed‖ centers should be added.
      The increase of processing costs due to drying facilities using expensive energy sources
       (wood, gas-oil) instead of cheaper ones (gas) is significant. High drying costs causes loss
       of competitiveness equivalent to 0,72 percent of the value of grain production, equivalent
       to some AR$230 million.
      The proportion of road infrastructure in good repair is low (not higher than 15 percent) in
       the districts of the areas analyzed. However, the budgets of Provincial Road Departments
       have fallen during 1992- 2002 (but there is a remarkable rise in the period 2003-2004).
       Meanwhile output has doubled and the use of roads increased notably. Cost increases
       derived from bad road quality are estimated at 0.25 percent of grain value equivalent to
       AR$700 million.
      Transport by river could increase tenfold in volume from its current level of 2.8 million
       tons per year by taking advantage of multimode transport strategies. This would have
       important economic advantages since the energy cost of transport by barges is five times
       lower than by train and 11 times lower than by truck. There is, however, insufficient
       availability of barges and lack of competition in the provision of this service.

4.44 A strategy for the development of agroindustrial infrastructure (roads, navigable ways,
storage centers, ports, equipment for processing) involves the public and private sectors. Public
sector participation is required at different levels, because the orderly planning of roads and
storage facilities involves national, inter-provincial, provincial and municipal jurisdictions. A
national program for the development of infrastructure seems to be required. It could include
actions regarding diagnosis, training, planning, and institutional strengthening, and sources of
financing. The Ministry of Planning has already taken some steps in this direction.

4.45 Local participation could also be fostered. Road consortia with more than 10 years of
experience (albeit with some frustrations) could be evaluated and perhaps revived. The Chilean
experience in this regard could be analyzed. In Chile, the expansion of ports, roads and airport
facilities through a system of concessions to private firms, which resulted in large saving of
fiscal resources (Valdés, 2005), has been extended to the management of secondary roads (with a
government subsidy because of less traffic volume).




                                               51
Rural Finance

4.46 Monetary stability during 1992-98 influenced positively sector financing, but this was
reversed by the 2001-02 crisis, which led to the virtual disappearance of bank lending to
agriculture. Slow recovery started in 2003. In 2004, bank lending was below 12 percent of the
value of output of primary agriculture. This contrasts with the US (around 45 percent) and Chile
(around 40 percent). The deposits/loans ratio is also high and the availability of term financing
very exiguous.

4.47 Bank lending to agriculture comes mainly from government banks like the Banco Nación
and the Banco de la Provincia de Buenos Aires, with more than 70 percent of lending benefiting
medium and big producers. In 2000, the Secretaría de la Pequeña y Mediana Empresa together
with Banco Nación and other banks launched an important lending program for small and
medium enterprises for which rural producers are eligible. Few loans, however (no more than
2,000), have yet gone to the sector. Banco Nación has also a program for small and medium
producers jointly with the Consejo Federal de Inversiones, which has been on-going since 1994,
but the number of loans is also small and the approval procedures are complex.

4.48 There are other sources of funding for small producers from special programs and
international financial NGOs, such as the Grameen Foundation, Promujer and others. The work
of these institutions, however, is recent in Argentina and they have not yet granted many loans.
The special programs lacked financing capacity during 2002-2003 but there seems to have been a
recovery in 2004 and 2005, although no information on their recent lending was available. There
is policy interest to increase the number and volume of activities of financial institutions working
with small producers but no important results have come out yet.

4.49 An important source of agricultural financing is that provided by input companies. Client
lending by five of the larger agricultural supply companies in 2001-2002 was US$250 million
going to 30,000 producers. There is a wide dispersion in these loans, which range from
US$1,000 for a modest producer to US$1,000,000 for a big input retailer. Loans mostly finance
seeds and agrochemicals and are usually based on a relation of trust between the producer and
the local retailer who acts as intermediary. Payment is in accordance to the value the
merchandise in international prices at that time of repayment. This form of financing was
particularly useful during the banking crash, but is not generally accessible to small producers.

4.50 Insufficient and expensive term financing has traditionally been a major obstacle for the
modernization of agriculture in Argentina. Inadequate term financing can be explained by poor
institutional arrangements for this type of lending and macroeconomic imbalances which made it
extremely risky. In the case of grain production, pool arrangements of different types were
successfully used to overcome this constraint (see Chapter 2). Also, term financing is not us
much needed to innovate in grain production as to improve, for instance, irrigation systems or
the root stock of vineyards and fruit trees. The regional economies have suffered particularly
from the lack of adequate term financing.

4.51 Two main strategies could be envisaged to improve access to operation and term
financing in the rural sector. First, the present economic situation of commercial and fiscal



                                                52
surplus and reasonable monetary stability should be taken advantage of to enhance rural banking
and improve the deposits/loans ratio. Ordinary monetary policy instruments can be used, but
there is need to assess the particular requirements of the sector and use also persuasion and
incentive mechanism. To this effect, a task force could be created, possibly coordinated by the
Central Bank and including inter alia FINAGRO and SAGPyA, to assess the situation and needs
of operation and term lending in the rural sector and design an appropriate strategy. Actions such
as stimulating the functioning of investment funds and using new forms of rural financing could
be considered. The experience of the varied financing arrangements under the pools could serve
as inspiration for new policy proposals.

4.52 Second, special attention could be given to the needs of small producers. The financing
side of special programs could be expanded, operational procedures streamlined and the loan
amounts increased. It would be important to simultaneously introduce provisions to assist in the
preparation of investment projects by small producers, and to improve loan control. Also,
microfinance institutions could be attracted to work in rural areas, and technical support and
incentives provided for banking institutions to open microfinance divisions.


                   GOVERNMENT AS A CATALYST FOR COLLECTIVE ACTION

4.53 Perhaps no power of government is as strategically important as its power to support or
undermine efforts by individuals and groups to get together to solve problems—that is to support
or undermine collective action.

4.54 This role of government takes increasing importance in a global economy because global
procurement redefines the role of the supply chain. First, competition in a global economy
requires efficiency and quality in every level of the supply chain. It is not enough to produce a
cheap product of good quality if there are delays in transport, concerns over phytosanitary issues,
or poor market identification and promotion. Second, global competition is not simply for
exports. Global procurement by supermarkets in an increasingly liberalized world implies that
producers for the domestic market must meet the same quality and sanitary conditions as
exporters. Supermarkets compete vigorously for consumers, on the basis of price, quality, and
product differentiation and innovation, bringing about substantial restructuring of supply chains
(see Chapter 7 and Annex 3). Collective action to ensure good economic governance in the
supply chains becomes thus essential in a globalized world.

4.55 Also, firm level efficiency is not sufficient. Critically, each supply chain is only as strong
as its weakest link. In global competition, whether for exports or for a place on the shelves of
domestic supermarkets, every member of the supply chain loses if a link is weak. This adds an
important dimension of co-dependency to a naturally competitive and antagonistic relationship.
Historically, the relationship among members of the marketing chain is one of competition for
economic rent--resulting in antagonism and distrust. Increasingly, global competition dictates
that this antagonism be tempered with a recognition of the collective interest. In this
environment, government catalysis for the required collective action is critical. While good
government policy foments collective action, clientelistic practices undermine it. We examine
examples of this in subsequent chapters.



                                                53
4.56   We focus in this report on the following roles of government:

      Defend rules of the game that are stable, fair, and contain incentives that benefit the
       wider social good;
      Invest in public goods, including inter alia agricultural research and extension, the
       quality agenda, sanitary and phytosanitary standards, infrastructure, and education and
       health;
      Promote equity, protecting the weakest and more vulnerable sectors of society; and
      Support the development of local and regional collective action, especially in cases where
       the interests of individual links in the supply chain may be holding back competitiveness
       in the entire chain.

4.57 The dialogue about decentralization could become more focused on promoting an
incentive-compatible collective action. Nothing undermines collective action more than unclear
rules about who finances what—especially when the government sporadically finances semi-
public goods that require clear rules of cost recovery. Two examples where clientelistic financing
undermines local incentives for collective cost recovery are rural roads and irrigation
maintenance (see Chapter 8). Government is increasingly aware of the need for a new
institutional vision; one which gives it an important role as catalyst for coordination, provider of
key public goods, and negotiator and moderator of interests which threaten to block the
advancement of the larger common good. The role of promoter of collection action is extremely
important for public sector institutions like INTA and SENASA.


                                  SUMMARY AND CONCLUSIONS

4.58 Agriculture has traditionally paid a considerable amount of taxes in Argentina. Tax
pressure on the sector in 2003 was 26 percent, similar to that of the national economy. Most
taxation (97 percent in 2003) comes from national -- as opposed to provincial -- taxes. Tax
pressure on agriculture increased much upon the 2001 crisis, mostly as a result of the
introduction (or more exactly reintroduction) in 2002 of export taxes or retenciones. In 2003,
export taxes accounted for 43 percent of all taxes paid by the sector. The incidence on agriculture
of national taxes is rather different from that on other sectors; proportionally more is paid by
agriculture in export and income taxes and less in VAT and social security contributions.

4.59 Various elements in the tax structure are distortionary. One of them is export taxation.
For various reasons: (i) it discriminates against exportables in relation to importables and non
tradable; (ii) it is not neutral with respect to the economic cycle and interferes with the farm
investment and loan repayment cycle; (iii) it discriminates against some regions, especially the
Pampas; and (iv) coming ―off the top‖ leaves producers‘ incomes exposed to price variability,
and causes agricultural profitability to depend on year-to-year policy decisions. The introduction
of retenciones was understandable under the very special conditions created by the economic
crisis and subsequent devaluation, but there is need to investigate more its effects and reflect on
whether it could be substituted by other forms of taxation on a more continued basis. The
minimum tax on presumed income, similarly introduced in 2002, is also not neutral with respect
to the economic cycle. It penalizes vulnerable producers and producers starting investment


                                                54
projects, more likely to have abnormally low profits, as well as the farm sector as a whole
because of its characteristically low profits-to-assets ratio. The main purpose of this tax is to
prevent evasion, but there are other means to achieve this goal.

4.60 Public expenditure in agriculture is extremely low. There is a high imbalance between
what agriculture contributes to and takes away from the public purse. In 2003, agriculture only
received 1.1 percent of all national government expenditure, equivalent to 1.7 percent of
agricultural GDP. In real terms and as a share of agricultural GDP government expending in
agriculture fell drastically with the crisis. International comparisons confirm the discriminatory
treatment to the sector. Government spends per agricultural worker substantially less in
Argentina than in Brazil or Chile, and less than average in LAC. The ―orientation index‖ shows
also more discrimination against agriculture in Argentina than in Brazil or Chile or for the LAC
average.

4.61 Some 37 percent of government expenditure in agriculture is estimated to be in private
goods. This is less than the average for nine LAC countries studied by López (2004), but in view
of the extreme shortage of public funds going into the sector this may result in it being deprived
of essential public goods.

4.62 INTA and SENASA are the largest government institutions providing vital services to the
sector--agricultural technology research and extension the former, and phytosanitary protection
and food quality and safety services the latter. They are both decentralized public institutions
operating under SAGPyA. They jointly accounted in 2003 for 46 percent of national government
spending in agriculture and 73 percent of that estimated for public goods.

4.63 INTA can claim a number of important successes over the last years related to the
introduction of zero-tillage and biotechnology, and the improvement of management practices by
small farmers. Many challenges remain, however, to keep pace with the deep changes taking
place in agriculture in Argentina in the last 15 years. INTA‘s strategic planning faces up to these
challenges but there are several important areas in need of fresh technological research and
extension efforts which seem to require more emphasis. They include environmental
sustainability, irrigation, bioenergy, quality systems, and the development of non-traditional and
specialty products.

4.64 SENASA has good technical capacity and has been able over the years to establish
regulatory systems and a number of valuable regulatory and policing processes. But there are
also weaknesses which require a strategic strengthening of the institution‘s role. The emphasis
could be on the convergence of quality standards for domestic and export markets, the
clarification of roles and responsibilities with other jurisdictions and the private sector,
decentralization to the regional level, and insuring financial resources to be able to operate fully.
The challenge is also to change the institutional culture towards more focus on ―making things
happen‖ rather than ―doing them itself‖.

4.65 Two essential services to ensure competitiveness of farming and of the supply chains are
infrastructure (including processing facilities), and rural finance. Shortcomings in the provision
of these services have historically undermined the performance of the sector.



                                                 55
4.66 Infrastructure and processing needs refer to three product groups -- grains, meat, and fruit
and vegetables -- whose requirements are different. There is large room for improvement in each
of these groups. Improvements would reduce costs, improve quality and hence prices, expand
export markets, and allow the development of new production areas. A joint public-private
strategy would be useful to develop these services, together with a national program to organize
the actions of the public sector. The Ministry of Planning is taking steps in this direction.

4.67 Shortage of bank lending, particularly term lending, is a historic problem in Argentina‘s
agriculture. The pool arrangements that have flourished in the Pampas are to a large extent an
answer to this. Lack of term financing has hold back considerably the modernization of regional
agricultures. Small farmers are particularly deprived of access to loans. Conditions became
especially dramatic upon the crisis, but have slowly started to improve since 2003. Two main
strategies are recommended to deal with this situation. The first one is to take advantage of the
present situation of reasonable monetary stability to enhance rural banking and improve the
deposits/loan ration. To that effect, the creation of a task force is suggested to design an
appropriate strategy, which could include new policies and instruments alongside traditional
ones. Second, particular attention could be given to the needs of small rural producers.
Expanding the financing side of special programs, attracting microfinance institutions to work in
rural areas, and promoting the opening of microfinance division by banking institutions are
possible options.

4.68 Supporting collective action in the supply chains is one of the most strategic roles of
government, impelled by globalizations, which internationalizes procurement standards not only
for exports but also for domestic supermarkets. Good economic governance of the supply chains
through collective action is underscored by the enhanced importance of co-dependency in the
traditionally antagonistic relationship among the actors of supply chains. Decentralization of
service provision could become ever more focused on promoting incentive-compatible collective
actions. Public sector institutions like INTA and SENASA could be at the forefront of this.




                                               56
           5. LABOR, INCOME AND POVERTY IN RURAL AREAS

5.1     There seem to be three main types of livelihood strategies of the rural population in
Argentina: (i) on-farm, agriculture-based livelihood, where some 15 percent of the rural
population are engaged; (ii) off-farm, agriculture and non-agriculture employment and transfers,
which comprises some 21 percent of population; and (iii) a combination of the former two,
which is the livelihood strategy of the majority, some 64 percent of the rural population. This
chapter throws light on these livelihood strategies examining household and labor characteristics
in rural areas as well as the characteristics and incidence of rural poverty. We refer mainly to the
population resident in dispersed rural areas, as defined by INDEC, i.e. areas in the open
countryside where households are not linked through urban streets or enjoy urban services. The
remaining rural areas, up to settlements with 2,000 residents, are defined as ―grouped‖ rural
areas.

5.2     Most of the information presented in the chapter is based on a rural household survey
carried out in 2003 (RHS or RHS 2003) in dispersed rural areas of four provinces, Chaco,
Mendoza, Santa Fe and Santiago del Estero. These provinces contain one third of the rural
population in Argentina. Altogether, 441 households were surveyed. It should be kept in mind
that results from the survey are representative for the aggregate of the four provinces without
crossing of variables. As soon as variables are crossed, as in most tables in this chapter, results
can only be referred to the sample. It is unfortunate that no other large survey information was
available, but household surveying in Argentina is only carried out in urban areas.


                                   THE RURAL LABOR FORCE

Characteristics and Employment

5.3     The Argentinean rural labor force is highly feminized. Women are strongly engaged in
rural labor markets; in 2003, 48 percent of rural workers were women (Table 5.1). Linked to this,
the participation of family and unpaid workers is low compared to other countries in the region.
In 2003, unpaid family workers accounted only for 4 percent of all workers in dispersed rural
areas. Education levels of rural workers are generally low, with an average of 6.7 years of
schooling. Male and female workers with completed primary education were 64.2 percent (Table
5.1), while only 8.5 percent had completed secondary schooling.

5.4    Argentina is well known for its relatively high education levels in comparison with other
LAC countries. Yet, disparities are large between rural and urban areas and across regions.
Youngsters 12-14 and 15-17 old in dispersed rural areas register school attendance rates 12 and
20 percent lower than those of their urban peers. School attendance in rural areas in poor
provinces is considerable less than in rich provinces. Thus, 28 percent of youngsters in the 15-17
age group in Santiago del Estero attend school, compared to 72 in the Province of Buenos Aires.

5.5    The agricultural sector is the main rural employer, even if farm employment has fallen by
roughly 34 percent from 1991 to 2001 according to the population censuses. According to RHS


                                                57
2003, 72 percent of workers were engaged in agriculture (Table 5.2).30 Males work
proportionally more in agriculture than females: 77 percent versus 50 percent. Of the rural
working population primarily engaged in non-agricultural activities, most work in services,
followed by industry and government.

               Table 5.1: Characteristics of the Labor Force in Dispersed Rural Areas
                                   in Argentina, 2003 (percent)
               Gender
               - Male                                                            52.4
               - Female                                                          47.6
               Labor Status
               - Salaried worker                                                 41.5
               - Self-employed                                                   46.3
               - Employer                                                         8.4
               - Family & Unpaid Workers                                          3.7
               Education
               - No Education & Primary Incomplete                               35.7
               - Primary Complete                                                52.7
               - Secondary Complete                                               7.6
               - Higher Education Complete                                        3.9
               Source: Verner (2004), based on RHS 2003.


                      Table 5.2: Distribution of Workers among Sectors Dispersed
                                Rural Areas in Argentina, 2003 (percent)
                                                             Male      Female    Total Sample
                 Industry                                     4.2        5.8             4.4
                 Services and Commerce                        9.8       36.0            15.3
                 Agriculture and Livestock                   77.1       50.4            71.6
                 Public Administration                        3.4        6.3             4.0
                 Other Sectors                                5.6        1.5             4.7
                 Source: Verner (2004). Based on RHS 2003.


5.6     We show in Figure 5.1 the distribution of household heads by labor status distinguishing
farm and non-farm households.31 While the majority of heads of non-farm households are
salaried workers the majority of heads of farm households are self-employed. Most jobs in
dispersed rural areas are informal in nature. In 2003, only 28 percent of Argentina's heads of
household in dispersed rural areas were engaged in the formal labor market.




30
   Unfortunately, there are no data on rural sector employment in Argentina with which to compare the results from
the RHS survey.
31
   The distinction is based on whether the majority of household income comes from farm or non-farm sources.


                                                           58
                   Figure 5.1: Distribution of Household Heads by Labor Status in
               Dispersed Rural Areas, 2003, Farm and Non-Farm Households (percent)
                  Percentage of HH heads
                     80
                     70                                                 Farm
                     60                                                 Non-farm households
                     50
                     40
                     30
                     20
                     10
                      0
                           Salaried Worker      Self-Employed         Employe           Family &Unpaid
                                                                      r                   Worker

             Source: Verner (2004). Based on RHS 2003.



Participation in Non-Farm Occupations

5.7     The rural non-farm sector is important in a number of ways in rural areas.32 It helps
absorbing a growing rural labor force, slows down rural-urban migration, contributes to national
growth, and can promote a more equitable distribution of rural incomes (Lanjouw and Lanjouw,
2001). What determines participation in the non-farm sector? We present an exercise based on
the RHS 2003, using a probit model to determine the probability of individual involvement in
non-farm activities as primary occupation, conditional on some personal, household and
geographic characteristics.33 Because of limitations in the RHS survey, some important variables
likely to influence employment options cannot be considered, including ethnicity and social
networks.

5.8     Recent research has pointed out that the non-farm sector can be seen as a source of high-
return employment or as a ―last resort‖ occupational option (Ferreira and Lanjouw, 2001;
Verner, 2004b). To capture this, we estimate two additional models, one for high-return and the
other for low-return non-farm activities.34 Table 5.3 shows the results for the three models. The
first model indicates, for all activities, the probability that the principal occupation of the worker
be in the non-farm sector. The second and third models split activities into two groups, of low-
and high-return. We review the results in the following paragraphs.




32
   See Lanjouw and Lanjouw (2001) and Reardon, Berdegué and Escobar (2001) for two recent surveys.
33
   Rather than reporting parameter estimates, difficult to interpret, we present the marginal effects associated with
each explanatory variable. They can be interpreted as the effect of a percentage change in the explanatory variable
on the probability of involvement in non-farm activities, taking all other variables at their means. For dummy
variables, the marginal effect is the change in the dependent variable associated with a change from zero to one,
holding all other variables constant at mean values.
34
   Activities are designated as high- or low-return depending on average monthly earnings. If the earning is below
the poverty line, the activity is considered low-return. It is considered high-return if it is above the line.


                                                         59
5.9      Gender. Women have considerable higher probability than men to participate in both
low- and high-return activities, but men are more likely than women to find high-return
employment. The difference between male and female participation rates tends to level out in
high–return activities. We conclude that women do not have less access than men to high-return
activities in Argentina, although the probability of men participating in non-farm occupations to
be in high-return activities is larger than that of women.

5.10 Age. The probability of non-farm employment increases with age, which may be taken as
a proxy for skill level. Age is positively associated with non-farm employment in general and
with high-return activities, but not with low-return ones. There is no evidence that participation
begins to decline at a certain age35. This finding contrasts with a similar one from Brazil where
older workers have smaller probability of being employed off-farm (Ferreira and Lanjouw 2001).


                  Table 5.3: Probability of being Employed in the Nonagricultural Sector,
                                Rural Dispersed Areas in Argentina, 2003
                                                                          Low-return               High-return
                                               Nonagricultural
                                                                        Nonagricultural          Nonagricultural
                                                Employment
                                                                         Employment                Employment
        Worker Characteristics:                dF/dx       P>|z|        dF/dx      P>|z|         DF/dx     P>|z|
        Education
          Primary complete                     0.069       0.000      -0.075         0.000       0.186           0.000
          Secondary Complete                   0.189       0.000        -0.076        0.000       0.389          0.000
          University Complete                  0.434       0.000        -0.041        0.000       0.524          0.000
        Skills
          Age                                  0.010       0.000        -0.003       0.000       0.002           0.000
        Gender
          Male                                -0.202       0.000        -0.246       0.000       -0.017          0.000
        Land
          Land per capita                     -0.001       0.000        -0.001       0.000       0.000           0.660
        Family characteristics
          Family size                         -0.013       0.000        -0.013       0.000       -0.003          0.000
        Region
          Mendoza                             0.055      0.000          -0.033      0.000        0.102         0.000
          Santiago del Estero                  0.196     0.000          0.135       0.000        0.108         0.000
          Chaco                                0.288     0.000          0.172       0.000        0.187         0.000
        Pseudos R2:                                 0.118                     0.160                       0.074
        Source: Verner (2004b). Based on RHS 2003.
        Notes: Excluded categories: No education or primary incomplete for Education, and Santa Fe for Region.



5.11 Education. Participation in the non-farm sector is significantly correlated to education.
As education attainment rises, so does the probability of being employed in the non-farm sector
in general, and also in high-return occupations. At average values of other variables, completing
primary and secondary education raises the probability of employment in high-return jobs by 19


35
     An ―Age Squared‖ variable was tested but was not significant.



                                                              60
and 39 percent, respectively. Contrarily, education decreases the probability of participation in
low-return activities.

5.12 Land. Access to land slightly reduces the probability of employment in rural non-farm
activities. At average values of other variables, increasing the land holding by one hectare
reduces the probability of employment in non-farm low-return jobs by 0.1 percent. Participation
in high-return activities does not appear to be affected by land size.

5.13 Region. Workers in poorer regions are more likely to participate in rural non-farm
activities in general and also in high-return ones. Relative to those in Santa Fe, workers in
Chaco, Mendoza, and Santiago del Estero are more likely to be employed in high-return non-
farm jobs and in non-farm jobs in general, controlling for individual characteristics.


                                   LABOR EARNINGS IN RURAL AREAS

5.14 Wage levels in rural Argentina have remained low, except for high skilled, well-
educated workers, even in times of relatively high economic growth. This seems to be a
consequence of population growth in rural areas in previous decades, which has resulted in an
abundant supply of unskilled labor, and the type of technical and crop mix changes that have
been taking place in Argentina, especially in the Pampas, which are labor displacing.

5.15 Rural earnings are related to labor status. Formal sector workers, i.e. those contributing to
the pension system, earn more than their peers in the informal sector, and permanent workers
earn more than temporary workers (Table 5.4). Employers earn roughly double than the self-
employed and four times more than wage-workers. Self-employed workers are generally better
off than wage-workers, unless when they are temporarily employed.

                Table 5.4: Average Annual Earnings for Permanent and Temporary
                   Workers in Disperse Rural Areas of Argentina in 2003 (AR$)
                                         Permanent      Temporary        Formal         Informal
           Self-employed                   4,325.2          1,441.7      7,895.1         2,602.5
           Wage-worker                     3,811.4          1,507.7      4,122.8         2,061.8
           Source: Verner (2004). Based on RHS 2003.


5.16 Child labor still exists in disperse rural areas in Argentina, but to a much lower extent
than in other countries in the region. RHS data reveal that 4 percent of children in Mendoza and
Chaco worked in 2003. Hence, child labor does not appear to be a serious problem in rural
Argentina, and working children may be both working and studying.

5.17 We investigate factors related to the level of earnings using quantile regression
analysis.36 Results are shown in Table 5.5. All variables in the model are significantly different


36
   Quantile regression makes it possible to examine the relation between wages and the explanatory variables in
different parts of the distribution. Incomes are modeled using log annual labor incomes as the dependent variable.


                                                       61
from zero for all income quantiles. Findings indicate that earnings are not related in the same
way to the explanatory variables at the different levels of the earnings distribution. For example,
females earn much less than males in the low end of the distribution relative to their peers in the
high end, and returns to lower levels of education are smaller in the lower income quantiles than
in the higher ones. We review the results below.

           Table 5.5: Determinants of Labor Income in Disperse Rural Areas of Argentina,
                               OLS and Quantile Regressions, 2003
                                      OLS                25th               50th               75th               90th


                                 Return       Return       Return       Return       Return
                                   %    P>|t|   %    P>|t|   %    P>|t|   %    P>|t|   %    P>|t|
   Age                            0.30  0.00   0.30  0.00   1.21  0.00   0.80  0.00   1.11  0.00
   Female                        -53.51 0.00 -43.33 0.00 -35.21 0.00 -34.56 0.00 -17.06 0.00
Education
    Primary education             7.79       0.00     9.75      0.00    27.12      0.00    25.99      0.00    15.60      0.00
    Secondary education          144.49      0.00    58.57      0.00    72.12      0.00    55.89      0.00    88.89      0.00
    University education
  complete                       353.13      0.00   192.41      0.00   135.84      0.00    92.13      0.00    52.50      0.00
Labor status
    Has a permanent job          121.00      0.00   138.69      0.00     42.19     0.00    34.72      0.00    54.19      0.00
    Has a formal job             149.93      0.00    66.36      0.00     59.84     0.00    40.07      0.00    16.53      0.00
    Self-employed                -23.43      0.00   -35.60      0.00    -26.36     0.00     4.50      0.00    24.23      0.00
    Wage-worker                  -16.14      0.00    -5.45      0.00     -3.34     0.00    12.30      0.00    -7.96      0.00
Sector
    Commerce and
Services                          -72.11     0.00    -43.62     0.00    -22.59     0.00   -21.96      0.00    -9.06      0.00
    Agriculture-Livestock         -71.75     0.00    -35.92     0.00    -27.67     0.00   -21.26      0.00   -13.24      0.00
    Other sector                  -13.93     0.00     2.74      0.00    -15.72     0.00   -15.21      0.00    -9.43      0.00
    Public Administration         -81.33     0.00    -36.87     0.00    -31.55     0.00   -27.82      0.00   -12.89      0.00
Province
    Santiago del Estero          -33.44      0.00   -18.37      0.00   -25.40      0.00   -32.23      0.00   -46.74      0.00
    Chaco                        -68.75      0.00   -83.29      0.00   -43.62      0.00   -36.43      0.00   -55.34      0.00
     Mendoza                     -20.23      0.00    1.82       0.00   -26.36      0.00   -33.77      0.00   -48.93      0.00
Constant                         222286      0.00   103177      0.00   156612      0.00   262705      0.00   436673      0.00
Adjusted R2 (OLS) and
Pseudo R2                             0.13              0.085              0.097              0.103              0.136
Source: Verner (2004). Based on RHS 2003.
Notes: Excluded categories: no education or primary incomplete for Education, piece-worker for Labor Status, industrial sector
for Sector, and Santa Fe province for Province. The percentage return is calculated as (exp (coefficient estimate) – 1) * 100.

5.18 Education. The education earning premium increases rapidly with the level of education
and is positive for all quantiles. Compared to the earnings of non- educated workers and those
with incomplete primary education, median earnings of workers with complete primary
education were 27 percent higher, with complete secondary schooling 72 percent higher, and


The general model contains explanatory variables in levels and allows for non linearities in the data. For example,
the log labor income equation is found to be nonlinear in education.


                                                                62
with tertiary education 136 percent higher.37 Workers with complete secondary education face
increasing returns across the earnings distribution. The poorest (25th quantile) receive a wage
premium for complete secondary education of 59 percent, while the richest (90th quantile)
receive 89 percent. In the case of tertiary education the education premium clearly decreases as
we move up the income distribution. In general, results would seem to indicate that: (i) there is
wide heterogeneity in the quality of education in rural areas; (ii) the capacity of workers to
convert their educational capital into higher earnings through labor market networks is variable;
and (iii) opportunities vary by locality.

5.19 Labor Market Status. Labor status is an important correlate of earnings. Coefficients
for all the included occupational groups are statistically significant and different from zero.
Looking at the median of the distribution, wage and autonomous workers earn less than piece-
workers, controlling for other factors such as education. For the 75th and 90th quantile, the
premium-gap changes in favor of the self-employed and the autonomous workers.

5.20 Age. Age increases earnings. Two questions are addressed: (i) is age important in the
earnings determination process?; and (ii) are returns to age homogeneous across income levels?
The answer is yes to the first question and no to the second one. Age is statistically significant
for all reported quantiles, controlling for other individual characteristics. However, returns to age
are low: only 0.3 percent in the 25th quintile, 1.2 percent in the 50th, and 1.1 percent in the 90th
quantile.

5.21 Formal vs. Informal Workers. The positive effect on rural earnings of formal sector
employment decreases across the distribution: a worker in the 25th quantile obtains an income
premium of 66 percent whereas one in the 90th quantile and above receives a 17 percent
premium. Workers in the informal sector are disadvantaged in at least two ways: they do not
have access to social security, and they obtain lower incomes with possibly greater seasonal
variation in earnings. Since the formal sector generally consists of higher productivity jobs, and
since higher productivity may require more skills, the informal sector variable may be partly
capturing skill differences not signaled by other variables in the model.

5.22 Gender. Large measurable inequalities persist in rural areas between men and women.
Female earnings are significantly lower than male wages in all quintiles. Moreover, the gender
gap decreases as we move up in the distribution. The largest earning gap appears at 25th quantile
where women receive around 43 percent lower earnings than men, narrowing to 17 percent at the
90th quantile. The gender-earning gap may, to some degree, be explained by choice of jobs by
women. Women are more likely than men to select more flexible jobs; they may choose, for
example, part time jobs or jobs with lower working hours.

5.23 Location. Location matters. Thus, Santa Fe workers enjoy a premium with respect to
other provinces as they have earnings significantly larger than those in Chaco, Santiago del
Estero, and Mendoza. Controlling for other characteristics, the poorest workers earn in Chaco 83
percent less that their peers in Santa Fe. At the top end of the distribution, workers in Chaco,
Mendoza, and Santiago del Estero earn between 47 and 55 percent less than in Santa Fe.

37
   Recent research shows that returns to education and skills in urban areas in Argentina have increased for all three
levels of education in the last decade, but more pronouncedly for tertiary education (World Bank 2004).


                                                         63
5.24 We complete this analysis of rural earnings examining in more detail farming incomes
applying an augmented earnings function. Log annual income from farming activities is the
dependent variable. The model contains explanatory variables in levels and allows for
nonlinearities in data. Findings are presented in Table 5.6. All coefficients of the explanatory
variables included have the expected signs and they all are statistically significantly different
from zero.

5.25 As in the case of rural earnings in general, education is strongly correlated with income
levels. Controlling for other characteristics, returns to primary, secondary, and tertiary education
were statistically significantly different from zero and positive,38 showing a rapidly increasing
premium to educational attainment. More-educated farmers earn significantly higher incomes
than their less educated peers.

                        Table 5.6: Determinants of Farm Incomes in Argentina in 2003
                                                                             Marginal impact (%)            P>|t|
             Gender
               Male                                                                    -7.13                 0.00
             Education
                Primary education complete                                             10.96                 0.00
                Secondary complete                                                    124.34                 0.00
               University studies                                                     185.48                 0.00
             Land
                2-10 hectares                                                         100.77                 0.00
                11-35 hectares                                                        283.44                 0.00
                36-100 hectares                                                       312.06                 0.00
                101-250 hectares                                                      877.67                 0.00
                More than 250 hectares                                               1880.63                 0.00
                % rented hectares/ total hectares                                      0.10                  0.00
                % owned hectares/ total hectares                                       0.00                  0.01
                % shared hectares/ total hectares                                      -1.09                 0.00
                % occupied hectares/ total hectares                                    0.40                  0.00
             Infrastructure and production inputs
                Access to a paved road                                                 29.30                 0.00
                Access to electricity                                                  43.48                 0.00
                Use fertilizer                                                         25.61                 0.00
                Access to irrigation                                                   28.27                 0.00
             Constant                                                                63170.23                0.00
             Adjusted R2: 0.35
             Source: Verner (2004) Annex III .Own calculation based on RHS 2003.
             Notes: Excluded variables: No education or primary incomplete for Education, and <2 hectares for
             Land. The marginal impact/percentage return is calculated as (exp (coefficient estimate) – 1) * 100.
             Number of observations: 124.




38
     Rates of return are calculated by the earnings function method due to Mincer (1974).


                                                               64
5.26 Farm size is important. All farm size variables included are statistically significant and
positive. At average values of other variables, income increases with farm size, in a nonlinear
fashion. Compared to farmers with less than two hectares, farmers with farms of 2-10, 11-35, 36-
100, 101-250, and 250 or more hectares have incomes 101, 283, 312, 878 and 1881 percent
higher, respectively. Larger farms earn dramatically higher incomes than smaller ones, but
whether the farmland is rented or owned has little measurable effect on incomes. Gender also
matters although not in an important way. Farms run by women are 7 percent more profitable
than those run by men. Access to infrastructure increases the profitability of farms, and so does
the access to paved roads and electricity, which increase income by 29 and 44 percent
respectively. The use of production enhancing techniques is also important. Fertilizer and
irrigation are both significantly positive determinants of farm income, although there may be
endogeneity at play. Farms using irrigation and fertilizer experience 28 and 26 percent higher
incomes, respectively, than farms not using them.


                                             RURAL POVERTY

Incidence

5.27 Measured by income, there were 1.2 million extreme poor in rural Argentina in 2003,
accounting for some 15 percent of the extreme poor in the country. Incidence of extreme poverty
is greater in rural than in urban areas. By the income measure, nearly 40 percent of rural
households are in extreme poverty, compared to just over 30 percent in urban areas. 39 With an
average household size just under six, this means that there are more than 200,000 rural
households in extreme poverty in Argentina, most of them in dispersed areas.40

5.28 High poverty incidence in rural areas and wide rural-urban differences are confirmed by
other poverty measures. Thus, in 2001, 33 percent of the rural population had unmet basic needs
(UBN)--a significantly larger share than in urban areas where the percentage was 14. A rural
UBN of 33 percent is high for a middle-income country like Argentina. Measured by UBN, the
rural poor account for 19 percent of the poor, while rural residents only account for 11 percent of
the population.

Location

5.29 There are large differences in poverty among regions. In 2003, the extreme poverty rate
in dispersed rural areas in Santa Fe, in the Pampean region, reached 7.6 percent; one fourth of
that in Santiago del Estero, in the Northwest region, where the poverty headcount was 29.1
percent. The Pampean poverty figure also contrasts with that of Chaco, in the Northeast region,


39
   This poverty comparison refers to income poverty because consumption poverty estimates are not available for
urban areas. However, since consumption poverty rates give a more accurate picture of household poverty we will
use them for rural areas in the rest of the report unless stated otherwise. In 2003, the poverty line was set at
AR$118.61per month (some US$40) and the extreme poverty or indigence line at AR$69.65 (some US$21) per
adult equivalent (Gerardi 2003).
40
   We should mention that due to the effect of the 2002 economic crisis rural poverty in 2003 was probably well
above the historical trend. Lack of data prevents knowing the evolution of rural poverty over time.


                                                      65
where 20.7 percent were poor, and of Mendoza, with 26.6 percent.41 The variation in UBN
across provinces is also large. Data from 2001 reveal that the Northeast and Northwest regions
have the largest share of the rural population with UBN. In Salta and Formosa, more than 50
percent of the rural population has UBN, while only around 15 percent of the rural population in
Buenos Aires and the Pampa provinces face this situation.

Characteristics

5.30 Table 5.7 gives a profile of the characteristics of poor households in dispersed rural areas.
Poverty is concentrated in younger households and tends to be transitory. Thus, the strong
incidence of poverty is in households headed by a person under 25, and it dramatically drops off
as age increases. The probit regression analysis presented in Table 5.8 shows that the probability
of being extremely poor falls by 0.2 percent for every year of age of the household head. The
Decline in poverty with increasing age of the household head is strongly related to the average
number of children in the household (Figure 5.2). Probit results indicate that indigent poverty
falls by nearly 0.4 percentage points when the dependency ratio falls by one percent (Table 5.8).




41
   Mendoza illustrates the difficulty of interpreting these numbers. While headcount poverty is high, indicators of
basic needs of dispersed rural populations in Mendoza are much better than those of the other provinces sampled.
Labor earnings are also high relative to other provinces —especially in the lowest quintile— and Mendoza is one of
the few provinces where rural population grew over the last decade. All this suggests that high headcount poverty in
Mendoza is likely to be due to an influx of yet-unabsorbed unskilled workers. In short, poverty is more likely to be a
temporary condition than a structural problem.


                                                         66
           Table 5.7: Poverty Profile of Households in Dispersed Rural Areas of Argentina
             in 2003. Consumption Poverty (Percent of Rural Households in the Sample)
                                                                 Consumption           Consumption
                                                                    Poor                 Indigent
                  Gender          Male                               45.4                   20.4
                                  Female                             64.4                   27.0
                                  <25                               100.0                  100.0
                                  25-44                              46.5                   24.3
                                  45-65                              54.4                   22.9
                                  >65                                37.1                    8.9
                  Literacy        Literate                           47.2                   20.3
                                  Illiterate                         60.8                   33.8
            Years of schooling
                                  None or less than 1                 66.0                  31.5
                                  1-4                                 56.6                  25.2
                                  5-8                                 45.8                  20.5
                                  9-12                                30.3                  10.7
                                  More than 12                         0.0                   0.0
               Work position      Wage-worker                         53.3                  23.2
                                  Self-employed                       43.1                  18.7
                                  Piece-worker                        50.9                  26.0
                                  Employer                            14.8                   4.4
                Work Sector       Agriculture & Livestock             43.3                  24.5
                                  Industry                            51.6                   5.2
                                  Commerce & Services                 54.9                  25.7
                                  Other sectors                       57.6                   0.0
              Work condition      Formal                              38.6                  21.2
                                  Informal                            50.1                  14.6
                Family Size       1-3 members                         23.2                   4.1
                                  4-5 members                         44.2                  14.8
                                  More than 5 members                 80.5                  47.4
               Land Tenure        No land                             45.0                  12.9
                                  0-1 ha                              74.9                  23.8
                                  1.1-10 ha                           62.8                  18.4
                                  10.1-35 ha                          26.4                  30.8
                                  35.1-100 ha                          8.9                  30.5
                                  100.1-250 ha                        16.4                  13.3
                                  More than 250 ha                    11.4                   2.6
             Source: Verner (2004). Based on RHS.

5.31 Other characteristics of rural poverty emerging from Tables 5.7 and 5.8, which mirror
those regarding earnings discussed before, can be summarized as follows.42 First, education is
strongly related to poverty: as the years of schooling go up the incidence of poverty goes down.
Second, poverty incidence is larger among female- than among male-headed households. Third,
poverty seems to be more prevalent among wage-workers than among the self-employed. Fourth,
households involved in agriculture seem to be less prone to poverty than those in other work
sectors. Fifth, poverty incidence is less among formal than informal workers (although this result
does not hold for the extreme poor). Sixth, households without land seem to be less prone to
poverty than those with small farms, but more than those with large farms.


42
  It should be emphasized that the results here commented refer only to the 441 households in the sample. In view
of the small sample size, results cannot be expanded to the entire population of households in dispersed rural areas.


                                                         67
5.32 Remittances and transfers are a significant source of income in general in rural areas,
accounting for 19 percent of the income of the non-poor and 27 percent of that of the poor (Table
5.9). This suggests that as children leave the household they continue to contribute significantly
to their parents‘ earnings. These transfers are mostly private, as only some public programs are
actually available for the rural poor. For example, the Familia program is only implemented in
urban area. The Jefas and Becas programs are implemented in both rural and urban areas, but no
disaggregate data were available to evaluate rural participation in these programs. Some
observers contend that Jefas encourages rural-urban migration, as some household heads
traveling to the city to collect their allowances end up staying.


                     Table 5.8: Probability of Being an Extreme Poor Household
                             in Dispersed Rural Areas in Argentina, 2003
                                                             dF/dx          P>|z|   x-bar
   Skill characteristics
        Age                                                  -0.002         0.000   48.87
        Education                                            -0.022         0.000    5.84
   Gender
        Male                                                  -0..58        0.000   0.87
   Family characteristics
   Dependency ration (children < 15/household size)           0.386         0.000   0.25
   Land Holdings*
        0.1–100 ha.                                           0.057         0.000   0.633
        100.1–250 ha.                                         -0.014        0.003   0.089
        >250 ha.                                              -0.025        0.000   0.059
   Pseudo R2: 0.1173           Observed P: 0.189       Predicted P: 0.160
   Source: Verner (2004). Based on RHS 2003.
   Note: Excluded categories: No land



5.33 Table 5.9 shows that the rural poor are less dependent on agriculture (54 percent) than the
non-poor (68 percent), which is consistent with the observed consolidation of smaller farms into
bigger ones. In any case, the pattern of large, young families, high rate of departure of maturing
children from the household, relatively lower agricultural dependence, and significant
remittances, go a long way towards explaining the observed fall in poverty with household head
age.




                                                      68
           Figure 5.2: Average Number of Children and Children under 15 Resident in
                Rural Households by Age of Household Head in Argentina, 2003
                                          4.0


                                          3.5
                                                                                                     All children <15 yrs old
                                                                                                     All children of the head of the household
                                          3.0
             Average number of children




                                          2.5


                                          2.0


                                          1.5


                                          1.0


                                          0.5


                                          0.0
                                                 18 -   25-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 66-70 71-75 76-80 81-85 86-88
                                                  23
                                                                                 Head of household age cohort

               Source: Verner (2004). Based on RHS 2003.



                                                Table 5.9: Household Income Shares in Dispersed Rural Areas
                                                                 Argentina, 2003 (percent)
                                                                                                   Poor                        Non-poor
           Independent farming                                                                      28.7                           50.4
           Agricultural wage labor                                                                  24.9                           17.8
                Total agricultural income                                                           53.6                           68.2
           Non–agricultural income                                                                  19.8                           12.8
           Other Sources (transfers and remittances)                                                26.6                           19.0
                Total non-agricultural Income                                                       46.4                           31.8
           Source: Verner (2004). Based on RHS 2003.



Is Land a Poverty Trap for Small Farmers?

5.34 Poverty rates are higher among households with little land than among those with no
land. According to the cross tabulations of Table 5.7, consumption poverty among landless rural-
dwellers is less than among landholding households with less than 100 hectares. Thus, extreme
poverty for landless households is 13 percent, compared to 24 percent for those with < 1 hectare,
18 percent for 1-10 hectares, and 30 percent for 10-100 hectares. There seems to be a "poverty
drag" of small-scale land ownership. Small farm ownership may be closely correlated with other
variables that might increase poverty like low education or high dependency ratio. If so, Table
5.7 would overstate the poverty drag.

5.35 The results of the probit analysis shown in Table 5.8 give a more reliable indication of
the independent effect of farm size on poverty. Controlling for age, household dependency ratio,
education, and gender, the conclusion holds. Thus, Table 5.8 suggests a small but statistically


                                                                                        69
significant impact of land ownership on extreme poverty, with farmers with holdings < 100
hectares having a probability approximately 6 percent higher of experiencing extreme poverty
than landless laborers. On the other hand, having > 100 hectares decreases the probability of
being poor.


                                 SUMMARY AND IMPLICATIONS

5.36 This chapter has shown a number of features of the labor force, poverty and livelihoods
in the dispersed rural areas of Argentina. We synthesize them below:

      Participation of women in the labor force as paid or-self employed workers (not as non-
       paid family members) is important in rural Argentina.
      Agriculture is the main employment sector, with the poor deriving less of their income
       from agriculture than the non-poor. Informal laborers constitute the vast majority of the
       rural labor force.
      Women have higher probability than men to participate in rural non-farm activities, and
       are not confined to low-return employment. Involvement in the non-farm sector is
       positively associated with education attainment. Workers in poorer regions are more
       likely to be employed in the non-farm sector.
      There is an earning gap between men and women, which is wider at low income levels.
      Earnings are strongly correlated with education but the education premium decreases as
       we move up in the earnings ladder.
      Non-farm income and employment are highly correlated with gender, age, access to land,
       and education.
      Farm incomes increase with land size, education levels, road access, and the use of
       electricity, fertilizer, and irrigation.
      Poverty incidence is higher in rural than in urban areas; 40 vs. 30 percent in 2003. Fifteen
       percent of the extreme poor are in rural areas compared to 11 percent of the population.
      There are some 200,000 extreme poor rural families. They tend to be large and young,
       and tend to escape from extreme poverty as they mature and children leave the household
       (and often continue contributing to it). They live largely in the Northeast and Northwest
       and in dispersed areas where basic service provision is often weak and delivery is
       difficult. They are more likely to be small landholders than landless laborers. Remittances
       and other transfers are an important source of income (27 percent) for these families.

5.37 A comprehensive vision of rural development, beyond the sectoral approach, emerges
from the above findings. The rural world is not only an agricultural world -- although it is more
so in Argentina than, for example, in Mexico -- and the rural economy is not only an agricultural
economy; the combination of economic activities is the dominant feature of rural Argentina.
Demographic and labor force changes in rural areas reflect a rural society in transformation, with
education offering increasingly better prospects in the farm and non-farm sectors. Some
differences, however, can be observed when non-farm occupations are divided into low- return
and high-return activities, since education is a particularly important determinant of employment
in the better-paid ones. The complexity of the income determination process in rural areas is
illustrated by our analysis of earnings, which shows a heterogeneous impact on earnings of


                                               70
individual characteristics across the income distribution. The magnitude of effects varies
depending on workers being comparatively rich, poor or placed in the median of the distribution.

5.38 The importance of the rural non-farm economy is a major conclusion of our analysis in
this chapter. Pursuing rural non-farm growth should not be seen as an impediment or an
alternative to agricultural development; there are strong synergies between the farm and non-
farm sectors and no contradiction in supporting the development of the two, as shown by
Lanjouw and Lanjouw (2001). What is needed is a comprehensive rural development policy
where the contributions of both sector are acknowledged.

5.39 Our findings suggest concentrating the fight of rural poverty on young and small farming
families in dispersed rural areas, particularly in the Northeast and Northwest. This would require
a targeted focus on education for poor families and on the acquisition of skills needed to compete
in an increasingly competitive world. Increased access to infrastructure, markets, and productive
inputs for poor rural farmers would also be important. Poor small farmers need assistance to
improve productivity, which crucially depends on access to research and extension, land, and
rural finance. A rural development strategy could usefully include specific recommendations for
the rural poor. In this regard, PROINDER (a government small-farmer support program) has
shown that: (i) it is desirable to tailor strategies to the regional and local characteristics of the
rural poor, and that (ii) interventions aimed at increasing the productivity and sustainability of
poor small farmers are viable provided that there is institutional support available to them.

5.40   Options to reduce poverty in rural areas could consider four dimensions:

      Targeting extreme poor households and linking income transfers to education.
       Young large families could be targeted with transfers linked to education through the
       secondary level, by means of social programs such as Becas and Familias.
      Increasing access to productive inputs for small farms and rural firms. In addition to
       education, other mechanisms could be explored to facilitate small farmers and rural firms
       moving up the productivity ladder. They might range from work to improve social
       linkages between households in dispersed and grouped areas to programs to increase
       access to productive inputs and to ensure titling of land.
      Creating jobs through investment in the regional economies. Many households are
       poor because they are trapped on low-productivity land or are in low paying, low
       productivity jobs in the informal sector. We argue elsewhere in this report that high
       productivity jobs can be created in the regional economies by improving, inter alia, the
       provision of public goods and the environment for collective action in irrigated
       agriculture.
      Developing a rural development strategy. The design and implementation of a rural
       development strategy would be a useful tool to address the issues of Argentinean rural
       poverty.




                                                 71
     6. THE CROP FRONTIER EXPANDS AND THE PAMPAS INTENSIFY


6.1     Land in annual crops in Argentina grew by 5.5 million hectares (40 percent) between
1988 and 2002. This increase in cropland derives from both expansion of the crop frontier and
intensification through shortening of rotations and elimination of pastures. These changes have
raised environmental and social concerns. As indicated in Chapter 2, much of the expansion of
the crop frontier is related to the technical advances and expanding market opportunities
registered for soybeans. In this chapter we look first at expansion of the frontier in the Northeast
and Northwest, and second, at some evidence concerning the intensification of land use in the
Pampas. The purpose of is to shed light on environmental and social outcomes and to assess
whether or not a stronger role for government is justified.

6.2     To better understand the social and environmental implications of frontier expansion, the
Laboratorio de Análisis Regional y Teledetección (LART) undertook a detailed study of land use
in the six Northern provinces (LART/FAUBA, 2005). This study was carried out at two levels.
First, a department-level analysis based on census data for each of the provinces (96
departments). Second, a detailed analysis in the northeastern part of Salta and the western part of
Santiago del Estero based on interpretation of LANDSAT 5 TM images from 1998-1999 and
MODIS-TERRA images for 2002-2003. Comparison of these images, together with data on the
transportation network, location of urban areas, quality of life indicators, and other information
permitted a detailed characterization of the nature and effects of frontier expansion.


                              HOW MUCH HAS THE FRONTIER EXPANDED?

6.3     Data from the 1988 and 2002 National Agricultural and Livestock Censuses show that in
the study area,43 agricultural land increased 70 percent from 2.5 to 4.3 million hectares, or 3.9
percent annually. Nearly 120,000 hectares of the study area were incorporated into agriculture
each year, accounting for approximately 14 percent of the total increase in agricultural land in
Argentina during this period. Land expansion concentrated in four well-defined areas:

        Northeastern Salta (Tartagal)
        Southeastern Salta (Las Lajitas)
        Northeastern Santiago del Estero and southwestern Chaco (Charata)
        Southeastern Santiago del Estero and northwestern Santa Fe (Bandera)

Salta

6.4     In the extreme north of Salta the increase in area occurs toward the east of agricultural
lots existing in 1988. Soybeans account for most of the nearly 200,000 hectare of crop area
43
   The study area encompasses 96 departments in 6 provinces of northern Argentina: Formosa, Chaco, Santiago del
Estero, Salta, Santa Fe, and Corrientes. This area includes a large part of the Argentine Republic‘s Chaco Region,
with the exception of a portion of the province of Corrientes, which is located outside the region sensu stricto. The
study area consists of 568,664 km2, which represents approximately 15 percent of the country‘s territory.


                                                         72
expansion; from about 114,000 hectares in 1988 to almost 311,000 in 2002. New lots have
reduced the areas of natural habitat between the lots. Nearly all the area previously occupied by
natural vegetation has thus been covered. One can observe evidence of abandonment of
previously farmed areas. Some relatively large patches that had been cultivated in 1989 do not
appear with crops in 2003. They are located on the western edge of the agricultural zone, in the
transition area between Chaco forests and the piedmont jungles of the Yungas. Grau et al. (in
publication) indicate that in mountainous areas agricultural lots are being abandoned, as a result
of migration to urban centers.

Eastern Santiago del Estero and Western Chaco

6.5    In this zone, the estimated total crop area for the 1988-89 agricultural year (based on a
LANDSAT 5 TM image) was 142,158 hectares (9 percent of the total area analyzed). In the
2002-03 agricultural year (based on MODIS satellite images) it was 454,964 hectares (28 percent
of the area). Sixty-six percent of the increase in agricultural area in the region studied was
explained by soybean cropping, 24 percent by wheat, and 7.2 percent by corn. The area planted
with other crops like beans, cotton, sorghum, and sunflower decreased during this period.


              THE ADVANCE OF SOYBEAN CROPS: WHAT HAVE THEY REPLACED?

6.6     Crops replaced by soybeans varied by department. In Salta, only 25 percent of the current
soybean area is on lands which were planted with soybeans in 1988-89. Another 24 percent is in
areas with different agricultural use in 1988-89, about half of which in beans. In the Chaco–
Santiago del Estero zone, 13 percent of the area planted with soybeans was in areas already used
for agriculture, especially cotton. There is little evidence of competition with cattle. In
departments where the agricultural area increased, there generally was little significant change in
the cattle population (Figure 6.1).

6.7     New crops mostly replaced forest in northern Salta. In 2002-03, 50.6 percent of soybean
cultivation, approximately 157,409 hectares, was in areas previously covered by natural
vegetation. Eighty-nine percent of the natural vegetation replaced by soybeans was dry Chaco
vegetation (quebracho, palosanto, duraznillo, and other species), 5 percent rainforests, and 6
percent Chaco Serrano, according to the vegetation unit classification proposed by Zapater de
del Castillo (1985). Table 6.1 shows the loss of hectares of each type of natural vegetation due to
the advance of agriculture (principally soybeans) in the zone, with the most severely affected
vegetation type decreasing by nearly 13 percent. Areas that are less fertile, flood-prone, or have
excessive salinity were not converted to agriculture.




                                                73
                     Figure 6.1: Relationship between Changes in Heads of Cattle and
                        Changes in Agricultural Area in the Departments Analyzed




                          Relative changes in heads of bovine
                                       cattle (%)




                                                                Relative changes in agricultural area (%)




                  Source: LART (2002).

          Table 6.1: Encroachment of Agriculture on Natural Vegetation in Northern Salta
                                                                         Area (hectares)                            Loss
  Vegetation type
                                                                 1988-89          2002-03            Hectares              Percent
  Montane and Piedmont Forest                                    794,935           784,374             10,561                 1.3
  Cebillar quebrachal                                            452,763           394,484             58,280                12.9
  Red and White quebracho, typical variant                      1,454,908        1,326,982            127,926                 8.8
  Hardwood with palm in zones prone to water                     102,870           102,870                     0              0.0
 logging and with salinity
  Exposed soils                                                  214,396           213,725                   671              0.3
  Quebracho in paleo-riverbeds and wetlands                      577,410           566,221             11,189                 1.9
  Duraznillo quebracho with palosanto in                         735,469           735,362                   107              0.0
 depressed areas

  Palosanto quebracho                                            201,575           201,463                   113              0.1
  Quebracho with duraznillo in runoff areas                      292,843           260,928             31,914                10.9
  Thin forests of algarrobo and madrejones                       464,484           463,861                   623              0.1
  Duraznillo in runoff areas and white quebracho                 371,032           370,624                   408              0.1
  Palosanto on alluvial slopes                                     16,051           15,922                   129              0.8
  Riparian vegetation                                              16,770           16,647                   123              0.7
  Chaco Serrano                                                  138,240           129,015                  9,225             6.7
  Waterlogged soils                                                 5,388            5,383                     5              0.1
  Total                                                         5,914,243        5,662,808            251,435                 4.3
Source: LART/FAUBA (2005).



                                                                    74
6.8     In Eastern Santiago del Estero–Western Chaco, 86 percent of the new agriculture
activity (with soybeans as the principal crop) was carried out in areas with natural vegetation in
1988–89. The advance of soybeans on natural vegetation occurred mainly on open forest
(quebracho, palosanto, duraznillo, and other species, 43.2 percent), grazing land and savannas
(33 percent), and areas with exposed soils (16.4 percent). See Table 6.2.

                     Table 6.2: Encroachment of Agriculture on Natural Vegetation
                             In Eastern Santiago del Estero-Western Chaco

                                               Area (hectares)                Loss
                 Vegetation type               1988-89         2002-03    Hectares   Percent
                 Open forest                   770,002         612,969     157,034      20.4
                 Pastures and savannas         383,949         264,148     119,801      31.2
                 Exposed soils                  93,216          33,422      59,793      64.1
                 Closed forest                  76,456          58,194      18,262      23.9
                 Páramo (moorland)              36,240          29,800       6,440      17.8
                 Flood-prone areas              96,731          94,922       1,808       1.9
                 Total                       1,456,594        1,093,455    363,138      24.9

                  Source: LART/FAUBA (2005).



                   FACTORS EXPLAINING THE LOCATION OF SOYBEAN EXPANSION

6.9      The factors associated with expansion of the soybean frontier were analyzed
statistically.44 This analysis consisted of stepwise regression to select the variables most strongly
associated with the percent of soybeans in each of the 74 departments in the study area.
Explanatory variables include size structure of farms, type of tenancy (rented, private, corporate),
irrigation, population density, drainage and soil characteristics, climate, and transportation
access. Models were selected that best explained the variation in percent of land in soybeans
among departments in 1988 and 2003, as well as the change between 1988 and 2003.

Regression Results for 1988

6.10 Table 6.3 presents the results for model that best explains the cross section spatial
variation in the area in soybeans in 1988. The model is the following:

% soybeans = -0.013 + 0.00019 PROF + 13.72 Km roads/ha -0.06Sc-0.01 ALKA-0.22 Riego

6.11 Approximately 44 percent of the variation is explained by soil characteristics and 7
percent by road density. The percentage of land in small farms and the percentage in irrigated
land explained an additional 10 percent, with both variables carrying a negative coefficient.
                         Table 6.3: Spatial Variation in the Area of Soybeans in 1988
44
     For details see LART/FAUBA (2005).




                                                         75
       Variable                        Partial R2    Model R2           F              P
       Soil density (PROF)               0.398           0.398        47.71          <0.0001
       Road density (km roads/ha)        0.072           0.471        9.74           0.0026

       Proportion of department‘s        0.055           0.526        8.25           0.0054
       land area occupied by
       agricultural enterprises with
       fewer than 100 has (Sc)

       Alkalinity Index (ALKA)           0.036           0.562        5.68           0.0199

       Proportion of department‘s        0.041           0.604        7.17           0.0093
       land area under irrigation
       (RIEGO)




Regression Results for 2002

6.12 Table 6.4 presents the results for model that best explains the cross section spatial
variation in the area in soybeans in 2002. The model is the following:

% Soybeans= -0.09 +0.44 Scm + 0.001 IP -0.77 Sc + 0.09 DREN

6.13 In this year, approximately 48 percent of the variation was explained by farm size, with
the proportion of land under soybeans increasing with the dominance of large farms and
decreasing with that of small farms. Soils-related variables explained the remaining 16.5 percent.
IP, a synthetic variable that summarizes climatic and soils-related dimensions explained 12.4
percent, and DREN, a variable related to soil texture and topography, explained the remaining
4.1 percent of variance.

6.14 At the end of the 1980s the area planted with soybeans was mainly associated with soil
variables while by the beginning of the present decade it was associated with variables that relate
to farm size. Both the statistical model obtained to explain the change in the area planted with
soybeans and analyses based on teledetection showed conclusive results: the increase in the area
planted with soybeans was carried out mainly at the expense of natural vegetation and
independent of environmental variables (climate and soil). The replacement of other crops by
soybeans was less important in explaining soybean expansion but very important in explaining
the decrease in the area of the crops replaced.




                      Table 6.4: Spatial Variation in the Area of Soybeans in 2002


                                                    76
        Variable                               Partial R2   Model R2     F          P
        Proportion of department‘s area          0.403       0.403     58.08     <0.0001
        occupied by agricultural enterprises
        with over 100 and fewer than 1,000
        has (Scm)
        Index of cartographic productivity       0.124       0.527     22.34     <0.0001
        (IP)
        Proportion of department‘s area          0.083        0.61     17.93     <0.0001
        occupied by agricultural enterprises
        with fewer than 100 ha (Sc)
        Drainage Index (DREN)                    0.041        0.65     9.92       0.0023




6.15 The change in the relative importance of environmental variables (i.e., soils) and
socioeconomic variables (i.e., scales of farm size) may reflect the relaxing of environmental
constraints, stemming from the use of new technologies. Access to new genotypes and
agronomic practices requires capital and knowledge that is not equally available to all producers.
The positive association between the area planted with soybeans and the proportion of large-
scale producers suggests that the latter, which generally use more technology and have greater
access to information, were able to incorporate more quickly soybean crops in their productive
schemes. In addition, the cost of obtaining information, which makes it possible to determine the
best planting date or the fertilizer dose to be applied, does not vary according to the number of
hectares on which it will be used. Thus the benefit obtained from this information will be greater
when the cultivated area is greater.

6.16 Road accessibility is a factor. Although a large part of the increase in agriculture in the
period analyzed (1988-2003) occurred in areas of natural vegetation, the start of this expansion is
clearly associated with accessibility (roads and urban centers). Once the replacement process
began, the agricultural area expanded ―contagiously‖. This phenomenon generated large
agricultural patches, with small ―islands‖ of natural vegetation--pattern particularly clear in
Salta.

6.17 In both regions examined the growth of agricultural areas took place on Argiustoll soils.
The ustic soil regime indicates that these soils were formed under conditions of less water
availability. This suggests that the conditions of favorable water balance currently experienced
may well not persist in the future. Contrary to what one might expect, average annual
precipitation did not contribute to explaining the variability of the area used for soybeans,
probably because of the limited variation of rainfall in the study area.

Regression Results for the Change in 1988-2002

6.18 The following model explains the variation among departments in the change in the area
in soybeans between 1988 and 2002:

% Difference in Soybeans = -0.13 – 0.8 DSc + 0.0007 PROF +0.14 DREN +0.36 DSArr
+0.06 ALKA


                                                     77
6.19 Table 6.5 shows the statistical results. A change in farm size variable is the most
important correlate with soybean expansion, with the proportion of land in small farms
explaining 14 percent of the variation (negative coefficient). Together with the percent of land
being rented (positive coefficient) socioeconomic variables explained 23 percent of the variation.
Soils-related variables explained the remaining 27 percent of the variation.

Discussion

6.20 The statistical analysis reported above suggests a change in the relative importance of
edaphic and socioeconomic variables in determining the expansion of the soybean frontier. In the
earlier period edaphic variables and transportation explained 51 percent of the variation and
socioeconomic variables (percentage land in small farms) 4.5 percent. In 2002, on the other
hand, farm size variables accounted for 48 percent of the variation, with edaphic variables
explaining only 16.5 percent. To explain the change in area devoted to soybeans, the importance
of edaphic and socioeconomic variables was about equal, although the single most important
variable was the change in the number of small farms.


                  Table 6.5: Change in the Area of Soybeans between 1988 and 2002

      Variable                          Partial R2        Model R2       F            P
      Difference in proportion of
      department‘s land area
      occupied by agricultural            0.144            0.144        13.68       0.0004
      enterprises with fewer than 100
      has (DSc)

      Soil depth (PROF)                   0.135            0.279        15.02       0.0002

      Drainage Index (DREN)               0.086            0.365        10.74       0.0016

      Difference in the proportion of
      department‘s land area rented       0.082            0.448        11.68        0.001
      (DSArr)

      Alkalinity Index (ALKA)             0.046            0.495        7.09         0.009



6.21 These results are consistent with the observation that zero tillage and fertilization
practices have strongly widened the range of edaphic conditions under which soybeans can be
profitably cultivated. Similarly, the results in farm size and tenancy are consistent with the bias
of modern soybean technology toward large management units.

6.22 The positive association between the area planted with soybeans and the proportion of
large-scale producers at departmental level suggests that the latter, generally with greater
technical improvements and greater access to information, were more quickly able to incorporate
soybeans in their productive systems.




                                                     78
                                IMPACT ON LIVING STANDARDS

6.23 Adequate data is not available to properly assess the impact of this agricultural expansion
on living standards, including those of the poor. The only indicator available is the index of
Unsatisfied Basic Needs (UBN). Analyzing departmental level data, we did found no systematic
relationship between change in land use and change in the UBN in the inter-census period.

6.24 Over the period analyzed the population in the study area increased 18 percent--from 3.4
million to almost 4 million, while that with UBN decreased by 3.6 percent. The change in a
department‘s area used for annual crops showed no relation to the proportion of the population
with unsatisfied basic needs (Figure 6.2).


            Figure 6.2: Relationship between Changes in UBN and in Land Area used
                        by Agriculture at Departmental Level (1988 -2002)




       Source: LART (2002).

6.25 Independence between social well-being and increase in agricultural area, principally
with soybeans, could be related to the following:

   (i) The income generated by this economic activity was fundamentally of a private, highly
        concentrated nature, and in many cases was repatriated to other areas. Added to this
        would be the over 50 percent increase in the proportion of leased areas between 1988 and
        2002 in the area under study. Rental contracts often involve non-local enterprises who
        allocate income to their investors many residing outside the region.
   (ii) There may be a delay between the increase of economic activity and its influence on an
        index such as the UBN.




                                              79
   (iii)The effect of changes in agricultural area may be masked by the scale utilized for this
        analysis (there may be effects at municipal scale that are not reflected at the departmental
        scale of the analysis).
   (iv) Local tax collection is very poor, generating little in the way of increased expenditure on
        public goods.

6.26 There is no evidence from either the census or the detailed LANDSAT analysis that small
farmers are being significantly displaced by the expansion of the frontier mainly because
expansion took mostly place on unoccupied lands. Consistent with this picture of occupation of
previously unused land, analysis of population change in the 6 departments in the Chaco
ecosystem experiencing rapid soybean expansion, revealed a 14 percent rate of population
increase in these departments over the 1991-2001 period, suggesting a modest net positive
employment effect of the soybeans expansion in this area.

6.27 Surprisingly, the expansion of soybeans area exhibited no clear influence on average
farm size. Over the 96 departments in the expansion area the average farm size fell by 32 percent
in 1988-2002. The effect of increasing soy cultivation showed no clear influence on average
farm size, however: of the 21 departments with greatest proportional increase in soybeans, 4 had
a significant decrease in average farm size, 11 had no significant change, and 6 had a significant
increase.

6.28 Over the full study area (96 departments) the area under rental contracts increased 50
percent. Of the 21 departments with the most rapid growth of soybeans, 15 evidenced a
significant increase in the land under rental contracts. These data suggest that despite the finding
that increases in soybean hectares is preferentially related to areas with larger farms units, small
farmers may be benefiting from land transactions with the new soybean entrants.

6.29 Our analysis suggests that the expansion of soybeans is not likely to have been associated
with a significant net loss of agricultural jobs in the region, but is, on the other hand, having a
major impact on biodiversity.


                                INTENSIFICATION IN THE PAMPAS

6.30 New technology and management techniques not only helped spread soybeans into
frontiers areas where it was not previously planted, but resulted also in the intensification of land
use in the Pampas. Here we look at some evidence of this intensification. Given the clear trend
towards larger management units discussed in Chapter 2, we look at environmental and social
dimensions by tenure category.

6.31 Soil Management. The technical and institutional changes that occurred in the Pampas
over the past decade have drastically reduced pasture in rotation cycles. Pasture has been the
traditional form of recovering organic material and soil fertility following intensive cropping.
Zero-tillage technology is different however. Under zero tillage, it is necessary to rotate
soybeans, which leave little stubble, with crops such as wheat and corn that contribute a good
quantity of stubble (Michelena, 2004), and because their root system contributes to maintain soil



                                                 80
structure. Monocropping also fosters the growth and spread of soil pathogens and increases the
dangers of land deterioration and environmental destruction (Kobayashi 2004). Correctly
utilized, zero-tillage allows soil resources to be conserved. The incentives for correct utilization
must be in place, however.

6.32 The agricultural census asks if farmers conduct soil analysis, which we use here as a
proxy for adequate soil management. According to census data, soil analysis is most widespread
in the province of Buenos Aires (33 percent of EAPs), followed by Córdoba (25 percent), Santa
Fe, and La Pampa (21 percent) (Figure 6.3). In all cases there is greater use of soil analysis in
operations that use leased land than in those that do not, although the overall adoption rate
remains low. Intensification is generally associated with both scale economies and the
operation's technological level.

                             Figure 6.3: Soil Analyses by Agricultural EAPs

         40%
                      33%34%
         35%
                   30%
         30%                                    26%                   27%
                                             24%                   25%
         25%                                                                           23%
                                          21%                                       21%
         20%                                                                     18%
                                                                14%
         15%
         10%
          5%
          0%
                   Buenos Aires              Córdoba             Entre Ríos         Santa Fe

           Land Owners       Leaseholders       People farming 80% to 100% of land under contract

         Source: Bertolassi (2004). Based on CNA (2002).


6.33 Pest monitoring. This consists of monitoring the population density of pests to
determine when the minimum threshold is reached to begin applying pesticides. This practice is
positively correlated with environmental protection and ecosystem maintenance, and is closely
linked to the operation‘s technological level. As in the case of soil analysis, pest monitoring is
more common among leaseholders, although the overall adoption of the practice remains low
(Figure 6.4).




                                                           81
                                     Figure 6.4: Pest Monitoring by EAPs

  60%                                                                            55%
                                                                           49%
  50%
                                                                                                    41% 42%
  40%                                                                                        35%
                    31% 34%
  30%         24%
                                               20% 21%             22%
  20%                                    14%

  10%

   0%
               Buenos Aires                  Córdoba                     Entre Ríos             Santa Fe

                 Land Owners        Leaseholders       People farming 80% to 100% of land under contract
     Source: Bertolassi (2004). Based on CNA (2002).



6.34 Pesticide Management. This refers primarily to the management of the risks of
contamination from empty agrochemical containers through reuse, recovery, dumping, or
collection. This practice is not considered to exist when environmental regulations are not taken
into account (operations burn or abandon containers or reuse them for other purposes). This
practice is directly related to protecting the environment and human health, not only for
agricultural workers but also for others who may have contact with containers, such as children,
who are particularly susceptible to poisoning and long-term health effects. Again, adoption of
good practices appears to be related to modern management under rental and ―pooling
arrangements‖. However, the rate of adoption is low in all cases (Figure 6.5).

                   Figure 6.5: Safe Handling of Empty Pesticide Containers by EAPs
        35
                                                 29%
        30                               24% 28%
        25                    22%                                      25% 25%               23% 25%
                        20%                                                            20%
        20        17%

        15
                                                                 10%
        10
          5
          0
                   Buenos Aires             Cordoba               Entre Rios             Santa Fe

              Land Owners         Leaseholders         People farming 80% to 100% of land under contract

              Source: Based on CNA 2002. See Bertolassi Working Paper.




                                                          82
                                   SUMMARY AND IMPLICATIONS

6.35 The current rapid expansion of the crops frontier and the intensification of land use in the
Pampas raise three concerns of potential public interest: social, environmental and sustainability
concerns.

6.36 Social concerns exist over whether the expanding agricultural frontier displaces more
labor intensive activities and eliminates jobs. In general, the picture that emerges is one of
relatively little effect of the expansion of the frontier, either positive or negative. The frontier has
advanced primarily onto natural ecosystems in areas of low population density. While it would
be useful to maintain a continued review of rural employment generation as an element of
provincial regional strategies, we identify no serious social threat at this time.

6.37 Environmental concerns arise from soybean cultivation expanding mainly at the
expense of natural vegetation. As mentioned above, cropland conversion is taking place largely
in forest ecosystems. The development and implementation of provincial and eco-regional plans
to better ensure the conservation of critical representative ecosystems, particularly in the highly
threatened Chaco ecosystem would be an option to address this concern. In addition, there
remains the concern that a significant portion of frontier expansion has been made possible by
recent shifts in the rainfall regime of uncertain duration. These doubts strengthen the justification
for creating reserves of representative ecosystems, as the economic sustainability of commercial
agriculture in these marginal ecosystems is yet to be proven.

6.38 Sustainability concerns exist due to the relatively low level of scientific resource
management, whether of soil, pests, or pesticides themselves. While no-till cropping has made
possible cultivation of hillier land and shallower soils, it would be important to monitor the threat
of soil deterioration and declining yields due to nutrient depletion. In the Pampas, there is clear
evidence of a shift to ever higher intensity rotations and monocultivation, especially under
annual rental contracts, and pool arrangements. In general, professional management associated
with pooling arrangements improves adoption of soil analysis, and pest monitoring. Farmers who
wish to buy or rent land probably have no difficulty identifying the effects of previous husbandry
on the land. There is undoubtedly a short time horizon, however, especially in light of the
current difficulties in financial intermediation in Argentina. The establishment of a credible
monitoring system of trends in land management and soil conditions from an agricultural
sustainability point of view would be an option to address this concern. The system would
provide credible land resource information to farmers‘ organizations, extension workers and
participants in the land market.




                                                  83
       7. FOOD QUALITY, SAFETY AND PHYTOSANITARY ISSUES

7.1      A new agenda for quality and safety has emerged over the last decades not only in
Argentina but throughout the world – driven mostly by consumer pressures (see Annex III for
details). Government and producers have reacted swiftly in Argentina to this pressure.
Institutions have been created or reformed, new regulations have been issued, special programs
have been launched, and new preventive systems have been established. The reaction, however,
has been uneven and has had unequal success.

7.2     This chapter deals with the progress made in Argentina to meet the challenges mentioned
above. It briefly explains the institutional and regulatory set up, and then presents and discusses
several areas where phytosanitary control issues and experiences have been important. These
areas are:

      The fruit fly eradication program;
      The carpocapsa control program;
      The problems experienced with the foot and mouth disease (FMD);
      The phytosanitary restrictions to the export of lemons to the US and EU markets; and
      The threat posed by the soybean rust.

7.3    Issues related to the importance of quality and strong institutions for the development of
food industries are then examined and illustrated with the cases of:

      The differentiation of wheat qualities;
      The exploitation of the export potential of the honey industry; and
      The unequal standards in the beef industry.

7.4    Finally, the issues posed by biotechnology and the use of genetically modified (GM)
crop varieties are examined, and the experience with the establishment of risk assessment
procedures for GM seeds is reviewed. The chapter concludes with some reflections and policy
options based on the analysis of the above issues and experiences.


                                   THE REGULATORY SETUP

7.5     Animal and plant health, and food quality issues are institutionally complex. While strong
technical expertise is needed at all levels, it would also be important to clearly define
responsibilities between national and provincial governments and between them and the private
sector. Within the private sector, there is a strong need for effective collective action.

Institutions and Norms

7.6    Argentina has been remarkably active in improving its regulatory framework for food
quality and safety over the last decade. New international norms refer both to (i) quality
standards voluntarily adopted by producers, and (ii) sanitary norms of compulsory observance.


                                                84
The former require establishing quality standards, developing procedures for identifying product
types and qualities, and setting up systems for the accreditation of producers, the certification of
processes and products, and the necessary monitoring and auditing (Gutman, 2003). The latter
demand establishing sanitary norms and standards, and creating ex post control systems to ensure
compliance with the norms as well as ex ante systems to promote good sanitary practices
throughout the production chain.

7.7     Contrary to quality regulations, particularly voluntary ones, which are rather recent and
of new design, sanitary and phytosanitary (SPS) norms have a long history in Argentina. Much
work has been done nevertheless in recent years to update the regulatory framework related to
sanitary systems so as to respond to the needs posed by new production technologies, new
laboratory methods, and new consumer demands.

7.8     The legal basis of the food quality and sanitary system is the Código Alimentario
Argentino (CAA). To ensure the application of the CAA in a more modern form, the Sistema
Nacional de Control de Alimentos (SNCA) was created in 1999. The SNCA designates the
Servicio Nacional de Sanidad y Calidad Agroalimentaria (SENASA) and the Administración
Nacional de Medicamentos, Alimentos y Tecnologías Médicas (ANMAT) as the responsible
entities for the safety and quality aspects of animal and vegetable foods. SENASA focuses on
fresh and frozen foods whereas ANMAT is mandated to focus on industrially processed
foods. A crucial issue is the articulation of these entities with provincial SPS authorities. SPS
control of export products is carried out by SENASA, and is done more rigorously than the
control of domestic market products, which is fragmented among different entities.

7.9     In the case of horticultural products, special norms were issued in 2001 to complement
the SNCA by means of a Sistema Nacional de Control de Productos Frutihortícolas Frescos
(SICOFHOR). This system operates through a Comité Técnico Asesor Frutihortícola, under the
jurisdiction of SENASA. SICOFHOR establishes norms and procedures to ensure the safety and
traceability of products, determining their quality, and detecting the presence of pesticide
residues and contaminating microorganisms. Four stages are envisaged to establish the
SICOFHOR, of which the first one, related to the identification of product types and qualities, is
now underway.

7.10 The global regulatory framework for quality standards voluntarily adopted by
individual producers and firms is the Sistema Nacional de Normas de Calidad y Certificación
(SNNCC). This system, which applies to all kind of products and not just to foods, is directed by
a national council, the Consejo Nacional de Normas de Calidad y Certificación (CNNCC), and
has two operational bodies, the Instituto Argentino de Normalización y Certificación (IRAM)
and the Organismo Argentino de Acreditación (OAA). IRAM is responsible for establishing and
disseminating quality standards and norms, while OAA is responsible for regulating laboratories,
accreditation and certification entities, and auditors.

7.11    In the case of foods, quality certification operates through SENASA‘s Programa
Nacional de Certificación de Calidad de Alimentos (PNCCA), introduced in 2001. This program
provides a regulatory framework for quality standards voluntarily applied by private producers or
processors. The standards can be set by the producers themselves, who may want to have them



                                                85
independently certified and thus acknowledged, or derive from international good practices like
ISO norms or HACCP, or reflect particular standards requested by foreign importers. The system
lays down the accreditation and certification procedures for food quality, regulating individual
producers or firms willing to certificate the quality of their products, and also the authorization to
operate of independent certification firms.

7.12 There is superposition of regulatory norms between the PNCCA system and the SNNCC,
and there is superposition of functions between SENASA as the entity designated by PNCCA to
establish norms, carry out the accreditation of firms, and certificate processes and products in the
area of food quality, on the one hand, and IRAM and OAA, which have similar responsibilities
with respect to products in general, on the other hand. Another issue is that SENASA has both
accreditation and certification functions, which in principle should not be held by the same
entity.

7.13 Progress has also been made in other aspects of voluntary quality regulation of foods.
Thus, a law of 2001 regulates the so-called ―Indicación de Procedencia‖ (IP) or source
indication, and ―Denominación de Origen‖ (DO) or origin denomination. SAGPyA is
responsible for registering the IPs and DOs. Other voluntary regulations refer to the certification
of organic products, introduced in 1992 and 1993. SENASA is the responsible entity for
supervising organic production and applying the organic certification system. Also the project
Sistema Integrado de Calidad INTA (SIC-INTA) promotes actions to improve food quality, and
has developed good practice manuals for agriculture production, handling and packaging, and
fruits and vegetables. Finally, in 2000 an agreement was signed by INTA, IRAM and Fundación
ArgenINTA to establish a joint Sistema de Normas Agroalimentarias, Insumos Agropecuarios,
Producción Forestal and Maquinaria Agrícola to set standards regarding processes, products
and associated services. As a consequence of this agreement, joint norms have been developed
for several agricultural products.


                PHYTOSANITARY CONTROL PROGRAMS: ISSUES AND EXPERIENCES

7.14 We illustrate in this part some of the main issues and programs in phytosanitary
promotion and control in Argentina and glance at the strengths and weaknesses of the
institutional SPS system and especially SENASA.

The National Fruit Fly Control and Eradication Program (PROCEM)

7.15 The fruit fly in Argentina causes significant losses to fruits and vegetables and constitutes
the principal non-tariff barrier hindering international trade of these agricultural products.
Argentina had to restrict exports to the EU and various Asian countries due to the fruit fly. 45 To



45
  Argentina has two species of fruit flies: Ceratitis capitata (Wiedemann) (Diptera: Tepphritidae) known as the
Mediterranean fruit fly, originally from Africa and introduced to the country in the early 20 th century, and
Anastrepha fraterculus (Wiedemann) (Diptera: Tephritidae), the South American fruit fly, a native species that is
widespread in the Neotropical Region.


                                                       86
manage these restrictions, PROCEM46 was created to (i) certify fruit fly-free zones in Argentina
for national and international recognition, and (ii) protect the zones free from fruit flies.
PROCEM is executed through the Patagonia Barrier Foundation (FUNBAPA), a joint agency
that includes SENASA, the Provinces, and producers‘ associations, and uses the following
technical instruments to combat the fruit fly: (i) integrated Pest Management (IPM), (ii) detection
systems for pest monitoring, (iii) chemical crop control efforts, (iv) direct pest control by means
of the Sterile Insect Technique (SIT), and (v) a quarantine protection system through the
isolation of regions under the Program.

7.16     PROCEM‘s principal achievements may be summarized as follows:

        National and Chilean recognition of the Andean Patagonian Valleys as Argentina‘s first
         economically important area free of fruit flies;
        Maintaining the status of areas with little prevalence of fruit flies in the Patagonia Region
         and in Mendoza;
        Decreasing the pest population in the remaining PROCEM areas (Provinces of San Juan
         and La Rioja); and
        Implementing a protocol with Chile for free transit of fruit fly-hosting fruits, for export
         from ports located on the Pacific Ocean.

7.17 PROCEM faces significant challenges, however, chief among which that of controlling
fruit flies in NOA and NEA (including those provinces without commercial crops), consolidating
the achievements reached in La Rioja and San Juan, reversing the setbacks observed in recent
years, and maintaining the fruit-fly free status already achieved.

The Carpocapsa Control Program (PLCC) and the Closing of the Brazilian Border to
Pomaceous Fruit

7.18 Apple and pear exports to Brazil, Argentina's main market, have been affected by
Carpocapsa, a moth. To combat it, the Patagonia Region Carpocapsa Control Program (PLCC)
was created in 1994, in order to: (i) improve the health and quality of pomaceous fruit (mostly
apples and pears) by reducing the levels of damage caused by Carpocapsa; (ii) intensify
phytosanitary surveillance of the production of fresh pomaceous fruit and by-products
throughout the entire productive chain; (iii) increase pest control through the eradication of
abandoned orchards and/or those with phytosanitary risks; (iv) disseminate the adoption of non-
contaminating, alternative techniques for pest management by means of a communications
campaign aimed at the fruit producers of the region; (v) coordinate the operation of Comisiones
Fitosanitarias Locales (CFL) for pest control, granting producers greater participation in the
PLCC‘s design and the use of resources; and (vi) support the generation and adaptation of
alternative techniques for pest management that are environmentally friendly and favor the
production of fruit with low levels of residues.

7.19 The achievements under PLCC since 1994 have been modest, and include: (i) the
formation of fourteen CFLs in Río Negro and Neuquén; (ii) the training and technical assistance
46
  PROCEM, Programa Nacional de Control y Erradicación de la Mosca de la Fruta, or National Program for the
Control and Eradication of the Fruit Fly.


                                                   87
for fruit sector producers and technicians in integrated orchard management techniques; (iii) the
surveying and eradication of abandoned orchards and those with phytosanitary risks; (iv) the
control of the pest monitoring network; and (v) operational assistance to the Programa de
Agroinsumos Regional (PAR) aimed at financing pesticides for producers through a trust fund
system.

7.20 In mid-May 2002, Brazil closed its borders to pomaceous fruit from Argentina, due to the
magnitude of Carpocapsa infestation. Although the closure lasted 45 days, the decision
represented a serious economic problem for the Province of Río Negro. The measure was lifted
through an agreement between both parties to create in the Río Negro Valley—the principal
apple- and pear-producing area—a bi-national technical commission to inspect and certify future
fruit shipments to Brazil. Thus, the potential damage caused by Carpocapsa remains an obstacle
to these exports, which represent an average value of US$62 million per year. The importance of
the ban on exports to Brazil lies partly in the fact that fruits not exported must be placed on the
internal market, provoking a significant drop in price.

7.21 The current and potential negative effects of this phytosanitary problem have been
estimated as follows: (i) US$1.5 million per year for the control system established at Brazil‘s
request in 2002; (ii) US$34.3 million per year for a possible total closure of the Brazilian market;
and (iii) US$17.0 million per year in light of a possible total embargo by the US market.

7.22 The 2002 border closing for pomaceous fruit reflects the combination of factors that has
made Carpocapsa difficult to control. Principal among these has been the lack of profitability of
the so-called ―traditional fruit orchards‖, in turn a consequence of the lack of rootstock and
technological improvements among many small- and medium-scale producers. The costs of
converting to new techniques and changing to higher yielding more marketable varieties or from
apples to pears are not affordable for small- and medium-scale producers. In addition, when an
orchard is found to be ―abandoned,‖ and a decision is made to eradicate it, strong legal
impediments may be encountered which make SPS regulations difficult to apply. To get around
this, any plant health policy aimed at reducing the prevalence of Carpocapsa could consider the
strengthening of current legislation.

7.23 A serious limitation of PLCC‘s lies in its financing, collected by means of the Canon
Contributivo –similar to an excise tax on producers–, the resources from which are insufficient to
reach the program‘s objectives. Financial restrictions adversely impact the dissemination of
available new pest control technologies (e.g. sexual confusion pheromones) and hinder adequate
pest monitoring and surveillance. As is the case with the fruit-fly under PROCEM, ensuring the
proper functioning of the quarantine protection system and overall compliance with legal
regulations on plant health is crucial to attaining suppression of Carpocapsa. Unfortunately, no
fruit production development plan or program is currently being carried out in the Upper Valley
of the Río Negro to regain the growth that characterized the region until the 1960s. This
illustrates the difficulty of developing a regional program that works with all stakeholders,
including small and medium-scale producers.




                                                88
The Foot and Mouth Disease (FMD) and PHEFA

7.24 In 1987, the countries of South America signed a Hemispheric Plan for the Eradication of
the Foot-and-Mouth Disease (PHEFA). Under PHEFA, the region applied an average of 250
million FMD vaccinations annually, resulting in a 94 percent vaccination rate of the combined
South American cattle herd by 1995. By 1999, clinical signs of FMD were absent in 60 percent
of all geographic area of the continent. Largely because of PHEFA, the average number of
reported FMD outbreaks in South America decreased from 955 in 1990 to 130 in 1999 (PHEFA,
1999). PHEFA also contributed substantially to the strengthening of national veterinary systems
throughout the continent, and promoted private sector cooperation in the administration and
execution of FMD control and eradication activities, yielding an overall improvement in the
effectiveness of national animal health programs and services in nearly all South American
countries. Argentina, through its efforts under PHEFA, was recognized by the World
Organization of Animal Health (OIE) as ―FMD-free with vaccination‖ in 1997 and ―FMD-free
without vaccination‖ in May 2000. Once the ―FMD-free with vaccination‖ status was granted,
the US and Canadian export markets were opened to Argentine fresh beef. Exporters also led
trade missions to Japan and other Asian countries in anticipation of a sustained ―FMD-free
without vaccination‖ status.

7.25 The successes of the MFD control program under PHEFA during the 1990‘s generated
favorable recognition of SENASA, both nationally and internationally. That success was due to a
combination of factors, including: (i) a firm political decision to control FMD, which in turn
translated into (ii) a solid legal and institutional framework involving the provinces and sectoral
agencies; and (iii) adequate technology and technical assistance to the producers. Thus, PHEFA
was able to manage the competing and conflicting interests within the commercial beef sector by
creating a public good for society at large in the efforts to eradicate FMD in Argentina.

7.26 In 2000, new outbreaks of FMD occurred, which were made worse by the fact that
vaccination had ceased in April 1998. Cattle in three provinces in the northeast part of the
country were involved and the situation was linked to illegal imports of cattle. The disease
spread rapidly to Brazil and Uruguay. To combat the epidemic, the three countries used a
combination of slaughter and ring vaccination, which was effective in quickly controlling the
outbreak. By October 2000, based on findings from an in-country assessment team, the OIE
announced that Argentina would remain on the list of countries recognized as ―FMD-free
without vaccination.‖ Fresh beef exports to the United States, which had been suspended in
August 2000, were restarted in December 2000, with an additional requirement for certification
of origin. Then, in February 2001, the first cases of what was to become a massive FMD
outbreak in Argentina, Brazil and Uruguay were reported to SENASA. However, these incidents
were kept from the Argentine public, importers of Argentine beef and the international
authorities until March 2001. The OIE suspended Argentina‘s ―FMD-free without vaccination‖
status and, in June 2001, the US issued a ban on imports of Argentine fresh and frozen beef,
retroactive to February 19, 2001. The outbreak peaked in May 2001, with 605 reported cases
during that month, and more than 2,400 cases were reported during 2001 before FMD was
brought under control (Smitsaar, et al 2002) (Figure 7.1).




                                                89
7.27 The subsequent closure of foreign markets reduced export volume by 53 percent and
export value by 65 percent within the first eight months of 2001 compared to the previous year.
The overall losses to Argentina‘s beef industry have been estimated at over US$450 million from
lost exports, with additional losses resulting from lower livestock prices (Reca, 2002). The dairy
industry was also affected because of reduced productivity per cow and restricted market access.

                    Figure 7.1: Foot and Mouth Disease Outbreaks in Argentina




             Source: Smitsaar, et al 2002.

7.28 With this historical record, the reputation of SENASA was severely tarnished. The failure
of SENASA to provide prompt and official notification of the disease outbreak created an issue
of trust with foreign regulatory agencies of lasting consequences. This loss of trust is a likely
contributing factor to the reticence of the US to reopen its market. Even the region of Argentina
south of the 42nd parallel, which has retained its ―FMD-free without vaccination‖ status, remains
excluded from the US market, at a combined cost of approximately US$150 million per year.

Phytosanitary Controls and the Export of Tucumán Lemons

7.29 Citrus production in Argentina, which accounted for 2.5 percent of the world total in
2003, is found largely in the Northwest (NOA) and the Northeast (NEA) regions of the country.
Of this, 90 percent of lemon production comes from the province of Tucumán. The high acid
content of Tucumán lemons makes them more appropriate for use as juice, essential oil and dry
skin than for whole fruit consumption. Tucumán exports some 350,000 tons of fresh lemons per
year and processes a further 800,000 tons, accounting for 40 percent of the world‘s market for
processed lemon products (FAS, 2004). In 2001, lemons and lemon by-products accounted for
41 percent of all exports from Tucumán with a value of US$169 million. The main countries of
destination are Greece, Italy, the Netherlands, Spain, Russian Federation and the US. Sustaining
and expanding Tucumán‘s lemon export industry depends on ensuring that lemons satisfy the
SPS requirements of importing countries.

7.30 Exporting Lemons to the EU. The markets of Southern EU member states were long
closed to citrus imports from countries where citrus diseases such as citrus canker, citrus black
spot, and citrus leaf spot were known to occur. In 1998, the EU introduced a system of protective



                                               90
measures that allowed imports even if the exporting country was not free of the disease of
concern if a set of criteria was met ensuring that the product as well as the soil where it was
grown was disease-free. In 1998, the European Commission recognized the citrus producing
provinces of the NOA, namely Catamarca, Jujuy, Salta, and Tucumán, as free from
Xanthamonas campestris (causal agent of citrus canker).47 This was not extended to the rest of
Argentina including the NEA, which remains affected. This same Commission decision
recognized Argentina as free from the fungus Cercospora angolensis (causal agent of citrus leaf
spot). In 1999,48 the Commission did not recognize any part of Argentina as being free from
Guignardia citricarpa (causal agent of citrus black spot).

7.31 In 2003, Spain reported the adoption of emergency measures prohibiting the introduction
of citrus fruits originating from Argentina and Brazil. Spain indicated that it had received
consignments of citrus fruits from both countries infected with the prohibited pathogens
Guignardia citricarpa, Xanthomonas campestris pv. citri and Elsinoe spp. in 2000, 2001, 2002
and 2003, with significant increases in 2003. Similar infestations of citrus fruits with G.
citricarpa were also reported by the Netherlands and the United Kingdom in 2003.49 Imports
were stopped in November of that year. These EU emergency measures, as applied by SENASA,
continue to exclude some of the largest citrus producers and exporters in Argentina.

7.32 Exporting Lemons to the US. The US has the potential to become the world‘s largest
importer of fresh lemons as domestic lemon production in the states of California and Arizona
has peaked but countrywide demand has not. Projections (Spreen, T.H. 2001) estimate that the
US could account for 20 percent of the world‘s lemon imports by 2010. However, Argentina is
currently shut out of the US citrus market because of phytosanitary restrictions.

7.33 In 2000, following years of negotiation, the US allowed imports of Argentine lemons for
the first time, and Argentina quickly became the dominant supplier from outside the US.
Argentine imports were also permitted in 2001. However, by September, 2001, imports were
discontinued when, as a result of a law suit brought by US growers, the US agreement was
suspended. US citrus producers, anxious to prevent the entry of Argentine citrus, particularly
lemons, successfully used SENASA‘s corporate history to undermine its reputation as a
trustworthy regulator. In the case of Harlan Land Co. v. USDA, brought by US citrus growers,
SENASA‘s failure to disclose a serious outbreak of FMD in Argentina became an issue in the
court‘s deliberations: ―…the court is concerned about whether SENASA can be entrusted to
enforce the mitigation measures used by the systems approach. Although the President of
SENASA and the Argentine Minister of Agriculture have been replaced, the court is not
convinced that other SENASA officials who were involved in the cover-up have been removed
from office.‖50




47
   Commission Decision 98/83/EC (OJ N° L 15, 21.1.1998, p.41) and amendment 2001/440/EC (OJ N° 155,
12.6.2001, p.13).
48
   Commission Decision 1999/104/EC (OJ N° L 33, 6.2.1999, p.27).
49
   Commission Decision of 29 April 2004 on temporary emergency measures in respect of certain citrus fruits
originating in Argentina or Brazil. Official Journal of the European Union (L 208/68-70).
50
   https://web01.aphis.usda.gov/PRAStatusWeb2.nsf


                                                    91
7.34 Since then, US technical teams have visited Argentina to carry out a pest risk assessments
on citrus plantations in NOA, but there has been no new phytosanitary agreement between the
US and Argentina.

The Impending Threat of the Asiatic Soybean Rust

7.35 In recent years a new pest, the Asiatic soybean rust (Phakospora pachyrizi), a fungus
which attacks soybean plants, has penetrated Argentina seriously threatening soybean
production. This form of rust is more virulent than the American soybean rust (Phakospora
meiboniae) already present in South America.51. The Asiatic soybean rust is already present in
Brazil, Paraguay, northern Argentina (in 2001/2) and Bolivia (in 2003). It is hence likely that it
will soon attack the soy crops of the Pampas. In the 2003/4 season, it attacked commercial crops
in localized parts of Misiones, Corrientes, northern Santa Fe, Entre Ríos and El Chaco.

7.36 The losses from this pest can be enormous. In the 2001/02 season the Asiatic rust affected
90 percent of Brazil‘s soybean area causing major losses. Because of the prevention and control
measures introduced, at a cost estimated in US$576 million, losses were much reduced during
the 2002/03 season.

7.37 To prevent and combat the Asiatic rust, SAGPyA created in 2003 the Programa Nacional
de Roya de la Soja with the participation of SENASA, INTA, the experimental station Obispo
Colombres of Tucumán, provincial administrations and private entities. The program has three
components: prevention and monitoring, training and dissemination of control practices, and
research. So far there are no varieties resistant to the American rust, and hence the importance of
the research component. Control is carried out through agronomic practices and chemical means,
which are to be promoted through the training and dissemination component. INTA is working
on the identification of resistant genes. There is a sufficient stock of fungicide in the country, so
there is no need of quarantine measures. However, the cost of control measures could be high –
as it has been in Brazil.

Improving Knowledge on Pesticide Management and Occupational Safety Issues

7.38 In general, the Argentinean Government has insufficient information to move beyond the
current, scattered actions in order to implement a more integrated policy towards pesticide
handling and worker safety. The current legal framework on these issues is cumbersome and of
doubtful validity in some cases. Analysts and authorities agree that the large number of current
regulations imposes a serious problem for effective interventions. It would be useful the carrying
out of a study to provide a comprehensive diagnostic of such issues. The study would need to
consider pest management protocols as well. The diagnostic could contain an analysis of
shortcomings in the institutional capacity of agencies that are operating or should operate, and an
evaluation of the most relevant institutional overlaps and omissions. Other policy options to
support worker safety include: (i) strengthening the Occupational Safety Law, with special

51
   It is a biotrophic parasite that affects the number of pods and the formation of beans and therefore the potential
soybean yield. In serious situations it may kill the plant. It is not transmitted by seed or stubble but it spreads easily
through its windborne spores. It is thought that the spores arrived in America from Africa through the Atlantic
Ocean carried by the winds.


                                                           92
attention to pesticide-induced chronic illnesses; (ii) tightening controls on unregistered
employment (which reduces employers‘ incentives to promote rural labor safety);52 and (iii)
strengthening the surveillance and enforcement capacity of SENASA and the provincial
authorities, and repealing ad hoc regulations of questionable legality.


            QUALITY, INSTITUTIONS AND THE DEVELOPMENT OF THE FOOD INDUSTRY

7.39 Food quality and safety issues are as important as SPS measures for improving market
access and the development of a healthy agro-export industry. As indicated earlier in this
chapter, SPS issues are not new to Argentinean regulators, but regulating food quality is mostly
new. Much has been done in this regard in the last decade, in particular on the normative
framework for voluntary regulations related to the quality of food production processes and
products. Many quality and safety issues remain, however, such as (a) the lack or insufficient
differentiation of standard qualities in various products, and (b) the double standards applied to
production oriented to the export and domestic markets. These issues are illustrated here with
reference to three very different industries: the wheat industry, the honey industry, and the beef
industry.

Differentiation and Quality in the Wheat Industry

7.40 Argentina is a renowned producer and exporter of wheat. It accounted for 25 percent of
world exports in the 1930s. Today it is the world's 5th exporter with a 7 percent share of the
world market. Domestically, wheat is the 3rd largest crop in area planted, after soybeans and
maize, but it is a main staple in the Argentinean diet. Since domestic demand is inelastic, it can
only grow at the pace of population. Total domestic utilization is around 5 million tons per year,
or approximately one third of total output. Production increased in the mid-90s as a result of
technical change, but is flat now. Further growth depends on the possibility of expanding exports
on advantageous terms. Product differentiation and quality issues are important for this.

7.41 There have been important changes in the international market for wheat over the last two
decades. Thus, there is a tendency for wheat to become ―decommoditized‖, with demand being
more differentiated and more focused on the characteristics of the grain such as flour extraction,
cleanness, and functional properties (gluten content, elasticity, baking strength, stability, protein
content, and other parameters) (Gutman and Lavarello, 2003). Also, the market increasingly
demands uniform characteristics of the different quality groups. Three main factors have
influenced these changes. The first is increasing consumer sophistication in the demand for
wheat products, transmitted to the grain market through the milling and secondary processing
industries. The second is the privatization of the import marketing of grains by the main
importers, since private importers deal in smaller quantities and are more interested in quality
than government import companies operating through large contracts of mixed quality grains.
Finally, the industrialization of wheat products demands a system of clearly identifiable quality
groups of uniform characteristics. There have been changes on the supply side also, with Eastern

52
  The Occupational Safety Law is currently being analyzed and revised in accordance with an important decision by
the Supreme Court of Justice on the scope of a worker‘s lawsuit against a company, a matter that unleashed a
technical and legal debate on this Law and the authority to implement it.


                                                       93
European, ex-Soviet Union countries and India coming in as significant world exporters of
mixed grains of generally modest quality, thus putting pressure on the less differentiated part of
the market.

7.42 Argentina exports around 8 to 10 million tons per year, of which 85 to 90 percent as grain
and the rest as flour. Brazil is the main market due to low transport costs and the Mercosur tariff
preference. Argentina has also traditionally exported to Chile and other Andean countries, and to
some Asian and African countries (Indonesia, Iran, Kenya and South Africa), although exports to
these markets have decreased under the pressure of the new export incomers.

7.43 Argentina exports mixed, non differentiated grain, mainly ―Argentina trigo-pan‖. In
contrast, Argentina's main competitors –US, Canada and Australia— have sophisticated wheat
classification systems and export different standard varieties of uniform quality. There are
several reasons for Argentina‘s not having been able to catch up with its competitors in this
respect. One is that contrary to what happens in other countries, wheat varieties in Argentina are
not associated with geographical production zones, and classification is hence more difficult.
Another reason is that Brazil, which is Argentina's main buyer, is not very demanding in terms of
quality. Third, storage plants do not normally have classification facilities. Fourth, producers
have little information as to the agricultural requirements of different varieties, price advantages,
and possible trade-offs between grain quality and yield. Finally, although there has been
awareness of the wheat quality issue for a number of years, there was little public action to
promote quality until recently. This may be due to the absence of effective institutions ―bringing
together actors from the different parts of the chain to design production, technology and
marketing strategies, coordinate actions, and negotiate sectoral agreements as well as joint action
with government authorities‖ (Gutman and Lavarello, 2003).

7.44 As a consequence of this lack of differentiation and quality control, Argentinean exports
receive a lower price than those of its major competitors. Between 1993 and 2003 the average
unit value in US$ per ton for wheat exports was 154.1 for Canada, 151.8 for Australia, 147.7 for
the US, and 132.2 for Argentina.53 The average difference between the unit value received by
these three countries and Argentina during the 11 year period was US$18.3 per ton exported.
Since Argentina exported a total of 91.0 million tons over the whole period, the aggregate
implicit loss was US$1.7 billion or US$151 million per year. The evolution of unit values is
shown in Figure 7.2. It can be observed that (i) differences in unit values have increased since
1996, and (ii) differences tend to move inversely with unit value levels. This is logical since in
years of excess supply quality differences become more important as price determinants than in
years of excess demand.

7.45 Action has been taken in recent years to improve the quality situation. Thus, since 1995
protein content analysis has been made compulsory for commercial consignments. The
Asociación Argentina Protrigo (AAPROTRIGO) and INTA have proposed a classification
system of wheat varieties based on quality groups and protein bands, to be adopted on a
voluntary basis. In 2003 SAGPyA launched a Programa Nacional de Calidad de Trigo to
promote the competitiveness of Argentinean wheat through improved quality, the promotion of

53
     Calculated from FAO‘s AGROSTAT. Includes the wheat equivalent of flour exports.



                                                       94
wheat classification, the identification of quality requirements from importers, and measures
regarding wheat seeds to facilitate the differentiation or grouping of cultivars according to
quality and type of use. Also in 2003, SAGPyA approved the Red de Ensayos Comparativos de
Variedades de Trigo to be applied to all registered wheat cultivars as a means to create a quality
index to serve as the basis for a Sistema de Clasificación de Variedades por Grupo de Calidad
(Cuniberti, 2003).

                                           Figure 7.2: Evolution of Unit Value of Exported Wheat
                                   250.0

                                   200.0
            Unit value (US$/ton)




                                   150.0

                                   100.0


                                    50.0

                                     0.0
                                            1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

                                                     US         Canada        Australia      Argentina

         Source: FAOSTATS data (2005).

7.46 The actions underway from INTA, SAGPyA and AAPROTRIGO will continue and may
eventually result in the generalized application of a system of segregation of wheat varieties.
Other measures that would contribute to that end are the dissemination of information among
producers as to the markets, prices, and production and post-harvest technologies for quality
wheat, incentives for the introduction of segregation technologies in storage plants, support to
the association of wheat farmers and AAPROTRIGO, and the enhancement of the regulatory
system with the introduction of an official classification of group qualities to facilitate more
generalized segregation. Differences in unit values for quality wheat fully justify investments
along the above lines. They would allow Argentina to make full use of the advantages offered by
its comparatively low labor costs, its favorable agro-ecological conditions, and its good genetic
materials with ecological adaptation.

Promises and Needs of the Honey Industry

7.47 With an output of some 80 thousand tons per year, Argentina is one of the world's largest
producers of bee honey, together with China and the US. Honey production represents an annual
value of some US$120 million, and has expanded rapidly in recent years due to good export
opportunities following strong demand, the exclusion of China from the EU market (due to the




                                                                    95
presence of nitrofurane residues in Chinese honey), and climatic problems affecting production
in Australia, the US and Europe.

7.48 There are some 25,000 honey producers in Argentina with around 2.5 million beehives,
and it is estimated that the number of beehives could be expanded to 4.5 millions without major
changes. Argentina has very favorable conditions for the production of quality honey capable of
satisfying high demand standards. It can produce honeys of different types and botanical origins
as well as other quality apicultural products, including live queens. Domestic consumption is
small, and more than 90 percent of output is exported.

7.49 There have been important advances in the regulatory and support system for honey
production in recent years. A traceability system was introduced in December 2003. SAGPyA
opened a registry of honey producers, which has already registered more than 17,000 producers.
In addition, a quality protocol to certify Argentinean premium honey is underway. SENASA has
put in practice a Plan de Control de Residuos for the sector, and many enterprises have
introduced their own quality norms and control systems. The establishment of a country-of-
origin trade mark for Argentine honey, linked to specific quality parameters, is being considered.

7.50 Notwithstanding the above measures, Argentina‘s exports experienced two setbacks in
recent years. One was the imposition of a compensatory tariff for exports to the US market based
on alleged subsidies and the application of antidumping dues to a number of Argentinean
exporters. The second setback was the presence of nitrofurane residues in honey shipments to the
United Kingdom and Canada, apparently due to the illegal production and use of a beehive
disinfectant. The illegality compromised some 40 percent of Argentina‘s exports. Urgent
measures were taken by SENASA and this situation is now under control.

7.51 Argentina‘s honey industry enjoys a significant competitive advantage. Its main
weaknesses are the inability so far of adding value by exporting honey fractioned rather than in
bulk form, and the vulnerability of the sector to sanitary issues and commercial retaliation. These
weaknesses are to a large extent the result of deficient governance in the production chain, with
atomized and poorly organized producers facing a concentrated industrial and export sector.
There is no strong value chain organization. Collective action to ensure sanitary standards,
regulate commercial practices, and adding value to honey exports is thus encumbered by the low
level of economic governance in the chain.

Economic Governance and the Unequal Regulatory Situation in the Beef Industry

7.52 Argentina‘s comparative advantage for the production and export of beef has a long
tradition. There is a large potential to increase the production and export of beef but, as examined
in Chapter 3, both production and stock have remained stagnant during the last two decades at a
level of 2.0 to 2.5 million tons per year (from around 50 million heads), although with increasing
trends in the last three years. Exports, which oscillate between 5 and 15 percent of output, rose to
nearly 20 percent in 2004 and may continue strong in 2005 due to favorable market conditions.
In view of stagnant output, however, this is at the expense of domestic consumption and
domestic price rises.




                                                96
7.53 The reduction of the pasture area over the last 10 to 15 years, particularly due to soybean
expansion, is a factor affecting the beef industry, and further cropland expansion would certainly
put a downward pressure on beef output. Even so, there is space for considerable increase in
output and exports if a technological revolution parallel to that experienced in the grain sector
took place in the beef industry. This would involve intensified field production, mainly through
improved fodder varieties, higher fertilization, enhanced use of supplementary feeding and of
mixed feed lot-grass systems, and improved livestock management.

7.54 For such an intensification to take place, beef producers evidently need strong market
incentives. Incremental demand should come from the external market -- where prospects are
good -- since domestic consumption only grows at the slow pace of the Argentine population.
The processing sector would also have to invest in bridging the differences in sanitary and
quality aspects that currently exist between domestic and export markets.

7.55 It has been convincingly argued that an important reason why beef production in
Argentina does not awaken is the economic governance situation of the beef chain, which is not
conducive to growth. At issue here is the difficulty of chain actors to cooperate in ways that
would increase the competitiveness of the entire industry, with increased returns to its various
components. Poor economic governance ―results in disincentives for (i) an efficient division of
activities, (ii) adequate coordination of the productive stages; (iii) the generation of synergies
that would result in higher joint competitiveness; and (iv) the adequate distribution of the income
generated‖ (Bisang, 2003).

7.56 The beef chain is structured in the following way. At the farmers‘ end there are two main
actors: those breeding the steers and those fattening them. Fattening in Argentina starts at a
younger age than in competing countries, and slaughtering also takes place at a younger age and
lower weight (350 to 400 kg.)--except when the animals are raised for the export market since
foreign markets usually demand cuts from bigger animals (around 500 kg.). Fattening is mostly
done with grass with eventual ration supplements. Feed lot fattening is not common, although is
increasing.

7.57 Slaughtering is carried out in four types of abattoirs. Type A plants satisfy all the sanitary
requirements and quality regulations and are able to export to the most demanding markets. Type
B plants satisfy lower sanitary and quality standards, usually have lower technology but still can
sell at the national level and to the less demanding export markets. Plants type A and B are
supervised by SENASA. Type C plants are regulated at the provincial level and can sell their
meat within the boundaries of the province only. They normally have lower technology and
safety standards than those of A and B. Finally, there are small slaughterhouses regulated by
municipalities.

7.58 The weak monitoring capacity of provincial and municipal authorities introduces
differences in the application of sanitary and quality regulations. The current system of cuenta
única, whereby the resources coming from sanitary inspections and fines revert to the provincial
treasury and not to the provincial sanitary authority, undermines incentives and withdraws
resources for good monitoring. The unequal application of rules to processors extends also to
taxes (in particular the VAT and company profit taxes) and to labor legislation.



                                                97
7.59 Much of the economic governance problem is related to different regulatory systems
being applied to producers and processors according to the type of market. In the case of exports,
different standards apply for the Hilton Quota54, FMD-free, and FMD markets. In the current
system, rents are created in favor of processors subject to lower standards and less exacting
monitoring, which typically occupy the less formal end of the market. Current incentives, thus,
discriminate against exports, favor informality, and foster divergence of interests in the industry,
obstructing economic governance of the value chain.

7.60 There are other reasons for inadequate economic governance. An important one is the
lack of a standard objective classification of product types and qualities, without which it is
difficult to pass on incentives to steer producers in the form of price differentials for different
qualities. Steers are sold according to live weight without regard to the quality of the final
product. Because of the involvement of different authorities in sanitary and quality regulation,
the diversity of norms, and the absence of an objective classification of types and qualities of
final products, domestic standards are largely determined unilaterally by the actors themselves.
They usually follow the norms that, because of marketing image or other reasons, large
slaughtering plants and supermarkets decide to apply to themselves or impose on the up-stream
links in the chain.

7.61 A contributing factor to poor economic governance is that only one product is marketed
domestically at the intermediate stage: the half carcass, which is the only output that abattoirs
usually sell to retailers. This introduces unnecessary rigidities and inefficiencies in the down-
market system.

7.62 Improving the competitive ability of Argentina‘s beef depends on meeting required
standards for safety and quality, which is linked to rebuilding confidence in SENASA. There are
some signs of positive change. As of August 2003, SENASA required that all ranches and
feedlots registered for exports identify all animals with a tag for traceability purposes. This was
the result of increased sanitary demands from importing countries, particularly the EU. In
addition, there is recent regional recognition of the need to revitalize a concerted and sustained
regional eradication program. Because of the porous nature of national boundaries, maintaining
disease-free status without vaccination in some countries while neighboring countries remain
infected is nearly impossible. This will require a reorientation of some national priorities in favor
of regional objectives, and stronger alliances with the livestock industry so that even small
producers become interested in, and supportive of disease control and eradication programs.


                                    BIOTECHNOLOGY AND BIOSAFETY

7.63 Biotechnology erupted in agricultural production in Argentina in the second part of the
1990s, linked to the use of the transgenic Roundup Ready (RR) variety of soybeans. It was
introduced by Nidera and released in 1996, less than two years after genetically modified (GM)

54
   The Hilton Quota, a favorable tariff rate quota of 20 percent (compared to the full tariff of 104 percent), was
established by the EU for high quality beef imports. It is currently of around 58,000 tons and it is shared with six
other countries: Australia, Brazil, New Zealand, the US, Canada, and Uruguay. Argentina is the main beneficiary
with 28,000 tons, some 47 percent of the total.


                                                        98
soybean seeds started being planted in the US. As shown in Figure 7.3 the area planted with the
RR soybean seed grew rapidly. The fast dissemination of the GM variety is a major success story
in contemporary Argentina agriculture. After soybeans, came GM maize and cotton although not
with the same dissemination speed. In 2003 Argentina had 13.9 million hectares planted with
GM soybeans, second in the world to the US, which had 42.8 million, and ahead of Canada (4.4
million), Brazil (3.0 million), China (2.8 million) and Australia (2.1 million).55 By 2004, 90
percent of planted soybeans, 50 percent of maize and 30 percent of cotton used GM varieties.

                          Figure 7.3: Area Cultivated with GMO (million hectares)

                 45
                 40
                 35
                 30
                 25
                 20
                 15
                 10
                   5
                   0
                        1995      1996   1997   1998        1999   2000   2001   2002     2003

                  USA           Argentina        Canada              China       Brasil

         Source: ISAAA, 2004.



7.64 The extremely rapid expansion of the planting of RR soybean seed (see Figure 7.4) can
only be explained because of its role as an ideal complement to the new agronomic package
being adopted by soybean farmers, consisting of direct planting plus double cropping (in rotation
with maize and wheat) plus intensified fertilizer use. By allowing Glysophate to substitute for a
combination of various herbicides, the modified seed simplifies cultivation, reduces labor inputs
and production costs, and increases yields although modestly so. The production cycle is also
shortened, thus allowing cultivation to be expanded to some areas with climatic restrictions
(Bisang, 2003).




55
     Figures from ISAAA (2004).


                                                       99
                    Figure 7.4: Evolution of the Surface Planted with GMOs in Argentina

           100%


            90%            Cotton          Corn       Soy


            80%


            70%


            60%


            50%


            40%


            30%


            20%


            10%


             0%
                  1996 -1997   1997-1998      1998 -1999    1999-2000   2000 -2001   2001 -2002   2002-2003   2003 -2004   2004-2005



        Source: ASA (2005).


7.65 The utilization of GM seeds in Argentina was facilitated by the introduction of
institutional innovations, which allowed the opportune release to the market of GM seeds while
systematically conducting the risk analyses required to ensure the protection of public health, the
environment, and national commercial interests. Institutional innovations consisted of the
creation of new organizations and the introduction of new regulations.

7.66 The institutional response to the biotechnology challenge can be considered a best
practice case of public policy in food quality and safety aspects in Argentina in recent years. The
core of this response was the establishment of a regulatory framework which defines clear steps
for the release of GM seeds with clear institutional responsibilities within each step. Key was the
creation of a specialized committee -- the Comisión Nacional Asesora de Biotecnología
Agropecuaria (CONABIA) -- with representatives from the public, private and academic sectors,
and the entrusting to this committee of the main technical and scientific responsibilities. The
system makes good use of the comparative advantages of the relevant entities in the country--
public, private and academic.56


56
   The members of CONABIA include the Instituto Nacional de Tecnología Agropecuaria (INTA), the national
universities of Buenos Aires, Mar del Plata, Quilmes, and Comahue, the Foro Argentino de Biotecnología, the
Comité de Biotecnología de la Asociación de Semilleros Argentinos (ASA); the Consejo Nacional de
Investigaciones Científicas y Técnicas (CONICET), the Instituto Nacional de Semillas (INASE), the Servicio
Nacional de Sanidad y Calidad Agroalimentaria (SENASA), the Secretaría de Ambiente y Desarrollo Sustentable
and the Secretaría de Políticas, Regulación y Relaciones Sanitarias of the Ministerio de Salud, the Sociedad
Argentina de Ecología, the Cámara de Sanidad Agropecuaria y Fertilizantes (CASAFE), private sector
representatives of crop, animal and fish production, the Instituto Nacional de Investigación y Desarrollo Pesquero,


                                                                 100
7.67 Risk analyses are based on the differences between the GMO and the non-GM
equivalent. It is by examining these differences that the environmental impact and the safety or
not of the new organism are appraised. The regulatory system includes risk analyses related to (i)
the environment, under the responsibility of CONABIA; (ii) the consumption by humans or
animals of foods produced with the GMO, under the responsibility of SENASA; and (iii) the
potentially negative impacts on markets and international trade, assessed by the trade department
of SAGPyA.

7.68    For a new GMO to be released the following steps must be followed:

       First, the interested party should present a request to CONABIA accompanied by the
        relevant technical documentation.
       The request can be to carry out laboratory, greenhouse or field tests of new organisms or
        to release to the market GMOs already tested.
       In the first case CONABIA gives a recommendation to SAGPyA regarding the
        authorization to carry out the testing, indicating the biosafety conditions under which it
        should be conducted. SENASA and INS are responsible for monitoring the tests by
        means of direct inspections.
       For the release to the market of the GMO three independent reports are needed: (i) from
        CONABIA, regarding impacts on the environment; (ii) from SENASA, regarding the
        safety of the new organism; and (iii) from the trade department of SAGPyA, regarding
        market impact.
       The authorization to release the GMO is given by the Secretary of SAGPyA based on the
        recommendations made in the above reports, which, however, are not binding for the
        Secretary.

7.69 Altogether ten GM seed varieties have been released so far in Argentina, one for
soybeans, seven for maize, and two for cotton. Tolerance to herbicides and resistance to insects
were the central characteristics of the genes introduced. These varieties are shown in Table 7.1.

7.70 As indicated by Trigo et al (2002), the biotechnology-biosafety system has worked
effectively since 1991, and has shown its capacity to evolve according to needs. The
International Service for National Agricultural Research (ISNAR) has indicated that ―the
regulatory system for biotechnology in Argentina is a good model for other countries facing the
challenge of ensuring the safe and responsible use of agricultural biotechnology‖ (Burachik. and
Trynor, 2002).




and the Coordinador General of the Oficina de Biotecnología of the Secretaría de Agricultura, Ganadería, Pesca y
Alimentos (SAGPyA), who is the Executive Secretary and Technical Coordinator of Biosecurity of CONABIA.


                                                     101
                          Table 7.1: GM Crop Varieties Released in Argentina
          Seed      Identification         Company                 Characteristics          Year
        Soybeans      ―40-3-2‖‖       Nidera-Monsanto      Tolerance to glyphosate          1996
        Maize           ―176‖         Ciba-Geigy           Resistance to lepidopters        1998
        Maize           ―T25‖         AgrEvo               Tolerance to ammonium            1998
                                                           gluphosinate
        Maize         ―Mon 810‖       Monsanto             Resistance to lepidopterists     1998
        Maize           ―Bt 11‖       Novartis-Agrosem     Resistance to lepidopters        2001
        Maize         ―NK 603‖        Monsanto             Tolerance to glyphosate          2004
        Maize         ―TC 1507‖       Dow Agro-            Tolerance to ammonium            2005
                                      Sciences & Pioneer   gluphosinate and Resistence to
                                      Argentina            lepidopters
        Maize          ―GA 21‖        Syngenta Seeds       Tolerance to gluphosate          2005
        Cotton        ―Mon 531‖       Monsanto             Resistance to lepidopters        1998
        Cotton       ―Mon 1445‖       Monsanto             Tolerance to glyphosate          2001
        Source: Oficina de Biotecnología, SAGPyA.

7.71 The introduction, however, of GM seeds, especially of the RR soybean seed, has not been
without conflict. For a number of years Monsanto, the owner of the RR technology, has clashed
with Argentinean producers and the Argentinean Government in connection with the payment of
intellectual property rights for the commercial use of the RR seed. The characteristics of this
conflict are summarized in Box 7.1.


                         LESSONS, CONCLUSIONS, AND RECOMMENDATIONS

Lessons on Sanitary and Phyto-Sanitary Issues

7.72 Economic Losses. Table 7.2 characterizes the direct annual economic losses caused by
pests in pear, apple, and citrus crops in different regions of the country. Annual losses are
conservatively estimated at US$75 million. These direct losses are historically between 15 and
20 percent of production.57 There are also indirect costs caused by quarantine restrictions—both
for exports and among regions within the country. These costs may be manifested as: (i)
rejection or rerouting of shipments and destinations, with a corresponding price penalty; and (ii)
quarantine requirements that generate additional marketing costs. These requirements affect all
types of shipments of fresh fruit or vegetables considered to be hosts for quarantine pests (e.g.,
methyl bromide or cold treatments for fruit flies). Most important however, is the opportunity
cost of lost export markets and loss of market confidence.

57
   Values of losses caused by pests and diseases were drawn from (i) Phytosanitary Program for Northwest
Argentina, Tucumán Citrus Health Program. Provincial Agricultural Services Program (PROSAP/SAGPyA), August
2002; (ii) Phytosanitary Project ―Reduction of the Prevalence of Fruit Flies in the Northeast Region.‖
PROSAP/SAGPyA, July 2002; (iii) Technical-Economic Evaluation Report, ―Impact of Carpocapsa on Pomaceous
Fruit in Northern Patagonia, Argentina.‖ Fundación Barreras Patagónicas (FUNBAPA), February 2003; and (iv)
Phytosanitary Project ―Suppression of Carpocapsa in Fruit Orchards of the Río Negro Valley. PROSAP/SAGPyA,
July 2002.


                                                     102
                   Box 7.1: Intellectual Property Conflict over the RR Soybean Seed
With more than 2 million tons of grain seeds marketed each year, Argentina is the second largest Latin American
market for grain seeds. Moreover, Argentina is a world leading market for soybean seeds, more than 90 percent of
which is the genetically modified RR variety (some 14 million hectare planted with RR seed in the 2004-05 season).
There is a standing conflict between Monsanto, the San Luis based agribusiness company, developer and owner of
the RR technology, and producers, exporters and Government in Argentina. There are two aspects to this conflict.
First, Monsanto does not produce and sell directly RR seeds in Argentina; it licensed the right to use the technology
to seed companies operating in the country. Hence, Monsanto cannot charge directly to farmers for the use of RR
seeds. These seeds have not been patented in Argentina, where the country‘s legislation to protect intellectual
property over living organisms is based on a breeder‘s rights approach, not on patent registration.
The second aspect concerns the freedom of farmers under Argentina‘s seed law (art. 27 of Law 20,247) to reuse
their own seed without paying any intellectual property fee. From a technical perspective, reuse of the RR seed is
entirely possible. Farmers do not only reuse it, but an active informal market of second generation seed has
developed which government finds difficult to stop--the so called bolsa blanca. Monsanto complains that through
the bolsa blanca producers avoid paying any fee for the use of the RR technology.
Monsanto negotiated with government and producers‘ representatives to try to reach a global agreement for the
payment of a technology fee for the use of the RR seed. This had been done in Brazil where a compensation fee is
paid to the company per ton of soybeans produced. Negotiations, however, did not prosper, and in 2003 Monsanto
discontinued its soybean genetic improvement program in Argentina. Part of the problem is that, initially, the major
business for Monsanto was not the seed itself but selling the associated glyphosate pesticide of which Monsanto had
the patent. This patent, however, has now expired and glyphosate is being imported from China at a lower price.
In March 2005 Monsanto made a strong move by deciding to charge no fees to the seed companies producing and
selling RR seeds in Argentina, and seeking compensation directly from exporters of GM soybeans to Europe.
Monsanto has patented the RR technology in EU importing countries and is counting on legal action in these
countries against Argentina‘s exporters to obtain payment for the use of seeds where the RR technology is
incorporated. This decision has met strong opposition from Argentina‘s producers and government, but in the end it
may force a negotiation. Going from the experience of the agreements reached by Monsanto with Paraguay and
Brazil, a payment of between 3 and 5 US dollars per ton seems possible.


7.73 Reputational Issues. On two occasions, lack of confidence in the regulator has impacted
rulings in importing countries against Argentina's interests. One was the ability of US citrus
growers to overturn an agreement with SENASA in order to block citrus imports, and the other is
the continuing poor access of Argentine beef exports to the US market. Not only did the 2001
FMD crisis have a big economic impact on the Argentinean beef sector, with losses estimated at
over US$450 million, but it also created a crisis of confidence in SENASA. Confidence in the
integrity of regulatory bodies is fundamental to maintaining good working relationships with
foreign agencies.

          Table 7.2: Estimate of Annual Losses to Fruit Crops Caused by Pests and Diseases
         Pest or disease                   Crop                    Regions affected            Values of losses
                                                                                                (US$ million)
     Carpocapsa or             Pears, apples, walnuts, and       Patagonia and Cuyo                 19.0
     Pear Moth                 quince
     Fruit fly                 Citrus and stone fruits           Northwest, Northeast                21.2
                                                                 and Cuyo
     Cankers                   Citrus, especially lemon          Northwest                           35.6

     Source: Huerga and San Juan (2004). Based on FUNBAPA (2003).
     Note: Direct losses caused by Carpocapsa allude only to those occurring in the Upper Río Negro Valley.




                                                           103
7.74 The Importance of Collective Action. The FMD experience leaves interesting lessons
regarding (i) how a program based on a regionally concerted effort and strongly supported over a
number of years with adequate legal, technical and financial means meets success; (ii) the
importance of the involvement of the private sector through the COPROSAs in achieving that
success; (iii) the importance of collective action at the regional level epitomized by the PHEFA
program; and (iv) how failure to maintain the conditions leading to success turned back the clock
for FMD control in Argentina as shown by the 2001 crisis.

7.75 Monitoring. A major contributor to the reemergence of FMD in Argentina was the
weakening of the high levels of prevention and surveillance required to maintain the disease-free
status that had been achieved. Once the economic and political pressure to reach this milestone
had subsided, there was deterioration in the veterinary infrastructure, reduction in cooperative
efforts with the private sector, and decrease in FMD awareness-raising activities with producers.
This was not unique to Argentina, and data from FMD programs in South America indicate that
once a country declared the disease eradicated, there was a shift in government resources and
support to other high-priority needs (Correa Melo et al, 2002).

7.76 Pesticide Handling and Worker Safety. The current legal framework on pesticide
handling and worker safety is cumbersome and of doubtful validity in some cases. A study
would be useful to provide a comprehensive diagnostic of the issues involved.

Lessons on Food Quality and Safety Issues

7.77 Wheat Industry. This industry exemplifies the economic opportunities missed from the
lack of product differentiation according to quality, which constitutes a dynamic disadvantage
vis-à-vis a progressively ―decommoditized‖ wheat market. Little government action in the past
and weak chain organization are to be blamed for this. Institutional actions would be required to
stimulate changes across the entire chain.

7.78 Honey Industry. This case exemplifies the economic opportunities missed because of
not adding value to the exported product. The strong presence of Argentina in the honey market
and the quality and variety of Argentinean honey should allow for more high-value honey
exports. Again, the weakness of chain organization is at least partly to blame for this.

7.79 Beef Industry. The economic opportunities missed due to insufficient quality
differentiation are also the central theme in this case. The beef industry also exemplifies the
discrimination against the export sector due to unequal industry standards according to market
destination. The absence of an objective standard classification of the final product and the
unequal regulatory system are partly responsible for this.

Biotechnology

7.80 Opportune institutional and regulatory action was crucial to the successful introduction of
GM seeds in Argentina, especially soybean GM seeds. Part of the explanation for the good
results rest on the fact that innovative institutions were created which were capable of mobilizing
within a flexible administrative framework and with a minimum of legal change much of the



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knowledge existing or being developed in the country on biotechnology. The concurrence of
public, private and academic experts in joint committees with the clear purpose of giving advice
to the Secretary of SAGPyA was the right approach. There was also transparency in the process
of releasing GMOs, and respect to the autonomy of CONABIA. This contributed to its
legitimacy as a responsible scientific regulatory body with advisory functions. Conflict, however,
emerged over the payment of intellectual property rights for the new seeds, which has yet to be
resolved.

Final Conclusions and Recommendations

7.81 We have seen in this chapter, through various illustrations, the progress being made in
Argentina in some of the critical SPS and food quality issues. On the whole, Argentina has
reacted swiftly to the challenges posed by the new SPS and food quality agenda. Nowhere is this
more apparent than in the institutional system put in place to adapt to the opportunities and risks
posed by biotechnology. Some challenges remain, however, and continuing efforts to strengthen
the food safety and quality system deserve priority in the policy agenda. The next section
indicates some of the systemic areas where Government could act to accelerate the on-going
process of improving food quality, safety and phytosanitary standards.

7.82 Clearer definition of roles. There seems to be needed to define clear roles and
responsibilities among national and provincial, public and private agencies, and the
corresponding budget resources. Thus, for PROCEM (fruit flies), for example, it would be useful
to define specific actions for NEA and NOA, and to identify the corresponding institutional
roles, including for example the provision of sterile flies for the investment program being
prepared. A particularly serious problem for combating Carpocapsa is that of abandoned
orchards. Similar institutional issues of coordination and delegation remain in the beef (both
FMD and quality issues), wheat, and honey examples cited above.

7.83 Strengthening SENASA’s Police and Quality Control Functions. A strong national-
level surveillance and enforcement power of SENASA is a critical, non-delegable attribution of
this government entity. It is important that SENASA‘s enforcement measures are upheld in the
courts of law, and that there are adequate budget allocations to support the police function.

7.84 Another area of clear SENASA responsibility is the quality control of commercially
marketed fresh products. This control is currently conducted on only a small proportion of the
total produce marketed. Support could be given to the efforts of SENASA‘s current management
to obtain financing to improve the Fresh Fruit and Vegetable Control System (SICOFHOR).
First, however, it would be important to analyze the alternative systems, especially to compare
procedures based on the analysis of market samples, with alternatives based on traceability and
supported by fruit and vegetable producers.

7.85 Separating SENASA's Police Function from Promotion and Policy Coordination.
Strengthening the capacity of SENASA to carry out SPS, and food and worker safety
surveillance and enforcement would be facilitated by transferring policy and coordination
functions out of SENASA to a plant protection and quality enhancement unit in SAGPyA. This
division of responsibilities would have several advantages. First, it would focus SENASA‘s



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capacity on the technical aspects where it is most qualified. Second, it would create a unit
specialized in SAGPyA focused on the promotion of collective action (for pest control, food
safety and quality, and worker safety). This demands a very different skill mix, and often a
different mentality than that required and desired for the police functions of SENASA, with an
emphasis on negotiation and conflict resolution and the economic analysis of alternatives. Third,
it would eliminate corporatist incentives to centralize activities. Despite SENASA‘s current
expressed willingness to do so, past experience is that internal corporatist tendencies have
interfered with efforts to decentralize and delegate. Finally, as discussed above, a strong police
function in SENASA would create the incentive framework for the promotion of collective
action by SAGPyA. Placing these functions in separate institutions removes also potential
conflicts of interest and focuses efforts.

7.86 To conclude, we offer several other specific suggestions to strengthen the country's SPS
and food quality agencies:

      Strengthening the international negotiation role of SENASA. SENASA‘s role in
       negotiating international agreements is important, but it requires (i) strengthening human
       resources to more effectively carry out this work, and (ii) working with SAGPyA to
       ensure that local entities participate in the definition of standards and protocols.
      Seeking the convergence of regulatory standards. More pro-activity in seeking the
       convergence of double standards between domestic and export markets would be
       welcome. This could be accomplished not by reducing export standards but by improving
       those for the domestic market. Market forces led by supermarkets and consumer demand
       are bringing this about in any case.
      Establishing objective standards and norms for different food qualities. Quality
       improvements generally depend on producers receiving signals from the market in the
       form of premium prices. Setting up objective quality standards and disseminating them
       promotes market transparency and facilitates transferring to primary producers the
       premiums paid for final products of better quality.
      Strengthening financing and transparency. Budgetary processes could be reviewed to
       provide greater clarity in the rules of the game. This could include (i) transparent budgets
       by program to strengthen social control, (ii) clear definition of tasks for which a service
       fee could be charged, and of those for which their public goods nature suggests that they
       be paid from the general budget.
      Generating a forward-looking capacity. SAGPyA could help catalyze and lead regional
       institutions with strong private sector participation to anticipate changes in market
       requirements and conditions (e.g. variety changes and sanitary standards). These
       institutions could also take the lead, in partnership with INTA, in research and extension
       in themes related to sanitary control and market demand. Finally, these institutions could
       serve as observatories, monitoring the impact of on-going activities to identify sanitary
       and other threats to local and regional production.

7.87 Overall, the investments required to carry out the above suggestions do not seem
particularly expensive and the pay-off is potentially very large.




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                       8.     THE IRRIGATION SUBSECTOR

                                 IMPORTANCE OF THE SECTOR

8.1   This chapter reviews the importance of the irrigation subsector, especially in the Regional
economies. It looks at indicators of performance, and examines policy options for reform.

8.2      Argentina‘s irrigated area reached 1.7 million hectares in 2001, of which some 70 percent
(1.1 million has) is located in the arid or semiarid regions. Fruits and vegetables make up the
most important part (28 percent) followed by sugar cane, tobacco and aromatics (15 percent),
forage crops and cereals (14 percent), orchard crops (12 percent), forest crops (9.1 percent),
citrus, olives, and nuts (3.3 percent), cotton (1.9 percent), and others (16 percent).58

8.3    In terms of economic value, production from irrigated lands represents some 26 percent
of Argentina‘s total. In several arid provinces such as Mendoza, San Juan, and Río Negro,
however, agriculture is virtually dependent on irrigation, with irrigated production surpassing 90
percent of total agricultural output value. In these provinces, irrigated agriculture represents
between 22 percent and 45 percent of the provincial value added, and is a major source of
employment.

8.4    Approximately 80,000 farms use irrigation out of a national total of 300,000 in 2001
(CNA, 2002). Irrigated agriculture includes many farm types. Thus, 75,000 farmers (nearly 92
percent of the total) have farms of less than 25 hectares, while 30,000 farmers (more than 36
percent of the total) have farms of less than 9 hectares (World Bank, 2000).

8.5     The irrigated area increased from slightly over 500,000 hectares in 1958 to some 1
million hectares in 1988 and 1.7 million hectares today. Irrigation expanded substantially
following the 1950s with the use of tube-wells for groundwater irrigation, which increased both
the area and the efficiency of irrigation. The quality of groundwater, however, is better in humid
than in arid areas. In the latter, the overexploitation of aquifers and obsolescence of the wells
have contaminated many underground sources.

8.6     Growth took place largely in two distinct periods: 1979-1982, and 1988-2003. The first
period corresponds to the carrying out of irrigation infrastructure development projects financed
by international donors in Río Negro, San Juan, Santiago del Estero, and other provinces. The
second and more recent period was private-sector led but with a strong influence of provincial
expenditures in several provinces, and with irrigation based on groundwater. This period saw an
active incorporation of innovative technologies for products directed to export markets, in
particular table olives, olive oil, and table grapes.

8.7     In a number of areas, recent years have seen substantial growth in the value of output per
irrigated hectare. For example, in Mendoza, where irrigation is oriented to wine grapes, the
replacement of low quality grapes with grapes appropriate for fine wines has nearly doubled the

58
     Data for 2000.



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value of irrigated production. The Valle Central in the province of San Juan has also replaced
low quality grapes with high quality wine grapes, but has specialized in quality table grapes
which command high prices in international markets.


                                 THE POTENTIAL OF IRRIGATION

8.8      There is good additional potential for irrigation in Argentina. The country‘s water
regulatory capacity consists of 124 functioning water storage structures. Water stored in these
structures is destined for various uses, but 116 systems are used for irrigation. The total capacity
of water storage is of the order of 160 km3 (World Bank, 2000). Similarly, the country has 125
public and private irrigation zones. The potential irrigated area is 6.3 million hectares, of which
2.5 million could rely on irrigation all year around. With 1.75 million hectares currently under
full irrigation, this implies that with favorable economic conditions some 700,000 hectares could
be added.

8.9     Much of current irrigation infrastructure is underutilized, however. In San Juan, Santiago
del Estero, Tucumán, Chubut, and Formosa irrigated agriculture utilizes only about 50 percent of
areas with irrigation facilities. This figure is particularly striking when it is noted that more than
80 percent of the crops under irrigation have had favorable conditions in international markets
since mid-2001. As discussed below, underutilization is largely due to institutional constraints.

8.10 There is a serious problem of technical efficiency. Average efficiency of irrigation
schemes -- including water conveyance and distribution -- does not exceed 30 percent. This
figure is low or very low when compared to irrigation leaders in Europe, but also in relation to
neighboring countries in South America. The area with highly efficient technology (tube
conveyance, localized distribution) does not exceed 3 percent of the irrigated surface.

8.11 Inefficient water use leads to water shortages. These are not a generalized problem in
Argentina, but local shortages are important. We give two examples:

      Inefficiency in water intake and distribution makes it impossible to adequately irrigate
       high productivity plantations and high return cherries in Las Golondrinas and El Hoyo in
       the province of Chubut;
      Water use inefficiency limits also irrigation in Coronel Moldes, Salta, to low value
       tobacco and horticultural crops.

Examples of this nature can be repeated throughout the length and width of the country. Low
efficiency in water use on existing scheme prevents the expansion of the irrigated area.

8.12 Water scarcity at the scheme level is also related to the availability of infrastructure. First,
there is lack of critical works. Thus, for example, lack of adequate structures for intake and
distribution creates water shortages in Chubut‘s Valle de Octubre system. Second, there is lack
of maintenance. For instance, the poor state of storage infrastructure in Chicoana, Salta, prevents
the irrigation of about 40 percent of the available area.




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8.13 Finally, some 20 to 30 percent of irrigated areas have high salinity problems due to
deficient drainage. This results in large economic losses due to foregone production.

8.14 The main features of contemporary irrigation development in Argentina can be
synthesized as follows:

      Large increase in irrigated surface, production and value of output over the last decade.
      Expansion of the production in irrigated lands of export crops with sustained prices in
       international markets.
      Complementary irrigation grows more than full irrigation; the benefits, hence, of
       incremental irrigation go proportionally more to middle and large scale farms in the
       Pampas, who are the main users of complementary irrigation.
      Irrigated areas are incorporating technical improvements in the genetic material, crop
       management, post-harvest practices and processing, but there is little technical
       improvement in irrigation techniques and water management.
      Low technical efficiency in irrigation continues and is mostly determined by limited
       technical capacity of water users and poor state of irrigation infrastructures.
      In several provinces where irrigated production is relatively stagnant, irrigation mostly
       benefits small poor farmers. Production stagnation has hence a social impact.


                  CONSTRAINTS TO ACHIEVING DEVELOPMENT POTENTIAL

8.15 Achieving the development potential of the regional economies will require considerable
improvements in water institutions and policies as well as in SPS and quality improvements to
gain market access. The major impediments to better water use are: (i) an incomplete and
imperfect legal framework; (ii) weak and poorly articulated water institutions; and (iii) unclear
rules of the game for financial independence of water users associations.

Incomplete Legal Framework

8.16 Argentina does not have a general water law and a master plan for the use of water
resources. A national legal framework and a long term national water management strategy
would be important in order to (i) establish national level criteria for the allocation of water
resources and national guidelines for water management; (ii) prevent and solve conflicts related
to waters shared by different jurisdictions; (iii) establish national water standards; and (iv)
establish uniform norms for the protection of water sources.

8.17 Provinces have their own legislation for water management, which is complex and
heterogeneous (World Bank, 2000; FAO, 1996; Alvarez, 1997). The main problems in the
provincial legal frameworks are that they do not give security to users, and the overlapping of
management responsibilities and competences. Also, regulatory frameworks diverge much
across provinces. Development and streamlining of water legislation could be done in
conjunction with the revision of environmental and soil use norms. This could be done jointly by
COHIFE and COFEMA.




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Weak and Poorly Articulated Water Institutions

8.18 Weak water institutions affect not just technical efficiency but, more fundamentally, the
capacity to mobilize resources, both financial and human. There is overall weakness in the
institutional framework at the federal, provincial and scheme levels. Reasons for the weaknesses,
which vary at each level, are analyzed separately below.

Federal Level

8.19 For various reasons the coordination and development of Argentina‘s water resources
requires strategic direction from the national level. First, the scale of investment is large relative
to the financial means of individual users. Second, efficient and equitable rules of the game must
be established for federal assistance to provincial (and local) resource development.

8.20 The coordination and strategizing roles are compromised by lack of planning resources.
Thus, the top agency responsible for water resource policies (the Under-Secretariat for Water
Resources in the Ministry of Infrastructure, Planning and Public Works) has (in 2005) only one
full-time professional dedicated to irrigation59. INTA does not include irrigation among the
strategic areas included in the new Strategic Plan 2005-2015. The Secretariat of Health and the
Environment has no projects for the environmental monitoring of natural resources in irrigated
areas.60 In SAGPyA, irrigation depends of a management unit (PROSAP) that does not appear
in the institution‘s organizational chart and has no clearly defined responsibilities related to the
planning and management of irrigation. PROSAP has been very active and useful, however, in
capacity building, technical assistance, and the formulation of investment projects.

8.21 In addition to material scarcity there is scarce coordination among the relevant
agencies (the three agencies mentioned above). It is critical in this regard that all the institutions
related to irrigation participate in the recently created research network for the integrated
management of water resources. Current participants include the Secretariat of Science,
Innovation and Technology (SECyT), the Under-Secretariat of Water Resources, the Universities
of Santa Fe, Cuyo, and others.

8.22 The third factor is the weak system of information to support irrigation development.
This weakness crosses all levels and actors, including public sector institutions and local
irrigation consortia. This situation could be remedied with the rapid development of a complete
information system, such as the one proposed at the meetings of the Federal Irrigation Council in
2003 and 2004.

Provincial and Local Levels

8.23 Annex IV summarizes the status of irrigation agencies in the provinces. The first factor
affecting their performance is lack of autonomy, stemming from their weak position in the
organizational structure of provincial governments. Only two agencies are autonomous and can

59
   Other professionals in the institution collaborate part time.
60
  It should be mentioned, however, that this Secretariat recently formulated a program to evaluate the contamination
of agricultural soils.


                                                       110
administer their own budgets—in Mendoza and Río Negro. In many provinces, irrigation
authorities are Direcciones Generales located in the third or fourth level of the administrative
hierarchy. Their resources are so limited that in some cases (like in Jujuy and Formosa) they lack
vehicles and fuel to carry out basic surveillance.

8.24 A second factor is the scarce endowment of technically qualified human resources.
Without an increase in the minimum endowment, efforts at capacity building are futile. Staff
numbers are large in some provinces but that of professionals is minimal. In Santiago del Estero
and Jujuy, for example, there are insufficient engineers specializing in project works, and current
legislation and budgetary restrictions prevent additional hiring. The excessive number of
unqualified workers suggests that the public irrigation agencies act in some cases as a refuge
against open unemployment. Of additional concern is the fact that many professional staff are
reaching a relatively advanced age and will retire soon. Also, the training of technical staff in
provincial agencies is weak, especially in management techniques. The active participation of
PROSAP has brought about substantial improvement in various provinces (like Tucumán,
Chubut, Neuquén) but the challenge remains.

8.25 Other factors are the scarcity of heavy equipment for irrigation work maintenance, and
the weakness of the information system for irrigation development. Poor information prevents
adequate planning for capturing resources because there is no updated list of irrigators--not even
in Mendoza and Río Negro where management standards are highest. Nor does available
information allow the precise calculations of water demand. In some systems even the number of
farms with water rights is not known.

Decentralization Issues

8.26 All provinces have promoted the formation and functioning of water users associations
(WUA), especially since the beginning of the 1990s. The objective has been to increase irrigation
efficiency by moving decision making closer to the users, and to reduce management costs and
the budgetary burden on the provinces. In virtually all cases the first step was to give this
decentralized structure a legal basis, either directly within the provincial water code (código de
aguas) or through administrative regulations.

8.27 Decentralization effectiveness varies across and within provinces. Provinces which have
progressed the most in decentralization are Mendoza (in practically all local schemes) and Río
Negro (in most of the systems, although several are still managed by the provincial authority). In
the other provinces a minority of decentralized, locally managed systems coexist with others
which have not yet formed associations or whose associations are not functioning. In general,
local management is more effective in associations of large- and medium-scale holdings.
Schemes mostly formed by small farmers, with low economic and technical level tend to depend
still on the provincial agency.

8.28 The rate of formation of WUAs decreased after 1997, due to the economic and
institutional impacts of the economic crisis. There are signs, however, of recovery, and various
provinces are once again promoting the creation and functioning of WUAs.




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8.29 Notwithstanding some failures, decentralized management has brought important
benefits. It has lowered costs, increased flexibility, improved the participation of local farmers,
and increased the capacity to mobilize local resources. These results lead to the conclusion
that establishing local management mechanisms, together with improving the pricing of
water, are the most critical components in a strategy of irrigation development over the
next years.

8.30 Experience in recent years also shows the importance of developing a greater
commitment on the part of the associations to medium-term planning and financial management.
The Upper and Middle Valleys of Río Negro, the Río Tunuyán watershed in Mendoza, and the
Valle 12 de Octubre of Chubut all are examples of the benefits of greater financial involvement
and commitment.

Difficulties Associated with Water Pricing and Water Charges

8.31   Problems related to water pricing and charges can be summarized as follows:

      Difficulties in transferring water between users or even among uses for the same user;
      Low pricing of water that results in low water fees (canon) in most provinces;
      High rates of default, even on low water charges.

8.32 A problem for more efficient water use is the lack of transferability of water due to
provincial water norms that prevent selling or otherwise transferring water even among members
of the same association. Worse yet, the law even prevents an owner of water rights from using
the water to irrigate those parts of his/her own landholding without water rights. Lack of
transferability reduces the potential productivity of the available water. Users may simply not use
the water, through lack of authorization to transfer it to others, or may use it in excess for a given
use, through lack of incentives to manage it efficiently. Both outcomes worsen the technical
efficiency and productivity of water (for instance in Mendoza, and La Rioja). Not surprisingly,
legal constraints have not managed to totally prevent water exchanges that are mutually
beneficial to buyers and sellers. It is well known that covert markets operate despite legal
restrictions (for example in La Rioja), but under conditions that affect the system‘s transparency
and efficacy.

8.33 Low water charges is another problem which, fortunately, has been somewhat
ameliorated recently in a number of provinces. Existing water charges, however, fully cover the
costs of providing water in one province only--Mendoza. In many others, water charges are not
sufficient to cover operating costs, much less to recover investment costs in infrastructure. In a
number of provinces administrative costs are inflated by the employment of a large number of
unqualified personnel (for instance in Santiago del Estero, Jujuy, and La Rioja). In these
provinces, however, water charges would continue to be insufficient, even in the hypothesis of
substantial improvements in organizational management.

8.34 The difficulties of cost recovery worsen with the high rates of default on water charges
in most provinces. This problem has two roots. The first is the poor financial health of many
farmers, especially as a result of the economic crisis. With devaluation and good prices for


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exports, however, many farmers are now beginning to work their way out of debt. The second
root is the weak governance of irrigation institutions. Weak governance can be traced to lack of a
credible commitment on the part of water institutions to provide a good service, and to the lack
of a system to reward good payers and punish defaulters. In the absence of these incentives
―free-riding‖ becomes endemic. ―Cheating practices‖ can only be corrected through solid
improvements in the capacity of federal, provincial, and WUAs to enter into credible
commitments to provide strategic and technical assistance, but not to bail out failing water
associations. WUAs should provide services efficiently in return for water charges, and enforce
sanctions against those who attempt to free-ride.

Difficulties Related to Infrastructure

8.35       This type of difficulties can be summarized as follows:

          The advanced state of deterioration of much of the irrigation infrastructure, constructed
           from the 1940s through the 1980s;
          The absence of complementary investments which would make it possible to modernize
           the functioning of irrigation systems - for example computerized gate valves and flow
           meters;
          Slow incorporation of modern, mechanized irrigation methods, such as drip or pulse
           irrigation.

8.36 The degree of infrastructure deterioration varies substantially across provinces. The
most deteriorated infrastructures are found in Santiago del Estero, Salta, Catamarca, La Rioja,
and Formosa. The highest quality infrastructures are found, not surprisingly, in the provinces
with the highest quality management and the most advanced institutional development -
Mendoza and Río Negro. Infrastructure deterioration is also less serious in ―rich‖ provinces like
Santa Cruz, Chubut, and Buenos Aires. Nevertheless, problems of infrastructure maintenance are
relevant in all provinces, even in richer ones. In a number of provinces, including San Juan,
Santiago del Estero, Tucumán, Chubut, and Formosa, the installed irrigation area which is not
irrigated is almost as large as the area effectively irrigated.61 The absence of modern irrigation
equipment at both the system and the farm level is generalized in all provinces. The potential
impact of improving deteriorated works, such as intakes and canal sections, is very high.

Difficulties Related to Financing

8.37 Shortage and unpredictability of financing has fundamentally affected the development of
irrigation infrastructure, and has prevented its active and orderly recovery. These difficulties
have three important aspects:

          The macroeconomic situation of the country;
          The low level and rate of collection of water charges;
          The insufficient decentralization of the system and the incomplete internalization of new
           responsibilities within the WUAs.

61
     For details see Fiorentino, 2004 and provincial case studies.


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8.38 During the past years the macroeconomic situation prevented the normal functioning of
the financial system, including commercial or institutional credit for irrigated agriculture. Even
in the late 1980‘s and early 1990‘s term financing was scarce and expensive. The availability of
lines of credit in the provinces for irrigation investments varies much across provinces and has
typically been very erratic.62 Scarce and unpredictable financing, particularly of term financing,
has been inimical to investment in large- and medium-scale irrigation works. The lack of
creditworthiness of the WUAs is as important as finance availability. The problem of credit
availability combines with weak financial discipline of the WUAs to greatly weaken their
capacity to upgrade their infrastructure.

Difficulties Related to the Technical Capacity of Water Users

8.39 A large number of water users in virtually all the provinces do not employ known
techniques to improve productivity. In addition to the problems of credit availability mentioned
above, this difficulty is linked to:

        A shortage of training opportunities (short courses and workshops) for strengthening
         water users‘ capacities; and
        A shortage of basic diagnostics concerning the levels of efficiency of irrigation and its
         causes. This in turn is related to the lack of resources applied to diagnostic research in the
         various irrigation areas and systems.

Insufficient technical capacity of water users is an important determinant of the low level of
technical efficiency of irrigation in Argentina. It affects the capacity of irrigation to create
wealth, reduce rural poverty, and become environmentally sustainable.

Difficulties Related to Research

8.40 Research related to the improvement of irrigated agriculture has widely divergent
outcomes. On the one hand, research and extension activities related to crop technology have
yielded excellent results. Yields of irrigated crops have grown considerably, most noteworthy in
sugar cane, tomato, potatoes, vegetables, and irrigated fodder crops. Similarly, quality has
improved for wine grapes and tobacco.

8.41 On the other hand, the adoption of new methods and systems of irrigation has been slow.
Still more serious, the incorporation of good practices in traditional technologies, such as furrow
irrigation, has been particularly weak. Good practices which have been known for decades are
not being used. Excessive gravity irrigation, poor drainage, and low efficiency in the conveyance
and application of water are all persistent problems. This is not surprising in view o f the lack of

62
    For example, since 2003 Neuquén and Santa Cruz are enjoying new rural credit lines which rely on provincial
funds, whereas Formosa and Jujuy have no credit resources. In some provinces, during 2002 and 2003 there was
little credit to medium and large farms but yet some funds for small farmers, coming from Programa Social
Agropecuario (PSA). Credit availability changed through time. In 1989 bank deposits were around US$4 billion,
and there was hardly any credit for farmers. In 1994 deposits rose to US$48 billion and there was commercial farm
credit at reasonable rates. Following the crisis of 1998 interest rates nearly doubled in six months, and again nocredit
was available to the rural sector.


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incentives; water is cheap or free, the regulatory framework is poor, and self-reliance and
collective action are weak.

8.42 Research applied to irrigation issues is not receiving sufficient official attention. Both
INTA and the provincial research and development institutions have few professional experts in
irrigation. INTA currently has national projects for specific irrigated crops but not for irrigation
research, extension, and development per se.

Difficulties Related to the Efficiency of Irrigation

8.43 Practically all the systems have low levels of technical efficiency of intake, storage,
conveyance, and application of water. According to provincial specialists, water use efficiency
(including in-take, conveyance and application) is of the order of 15-30 percent in many
provinces. It is noteworthy that provinces do not generally have studies to measure and evaluate
with precision their irrigation efficiency. The estimate above is hence only an educated guess of
provincial experts. The main exceptions are the irrigation systems with a high proportion of lined
canals, or those which have developed pressurized irrigation. The irrigation system of San Juan‘s
Central Valley, where most of the primary and secondary canals are lined, has a combined
efficiency of conveyance and gravity application of the order of 25-40 percent. Efficiency for
pressurized irrigation exceeds 85 percent in all the cases analyzed.63 The area, however, under
pressurized irrigation, estimated in less than 100,000 hectares, does not exceed 5 percent of total
irrigated area in Argentina.

8.44     Low efficiency of irrigation is related to the following difficulties:

        Lack of economic incentive to maximize the return to water;
        Poor state of irrigation infrastructure;
        Deficiencies in the technical capacity of water users, who tend to use excessive quantities
         of water, and fail to use techniques of gravity irrigation proven superior to more
         traditional methods;
        Inadequate planning of the irrigation cycle, which often takes place at excessively long
         intervals for proper fruit development and maturation.

8.45     The main effects of low technical efficiency are:

        Reduction of the irrigated surface below its potential: 30-40 percent lower in many cases;
        Inadequate application of water to the plant, both in volume and in frequency;
        Environmental deterioration, linked to soil salinization and uncontrollable increases in
         groundwater levels (Upper Río Negro Valley, irrigated areas of Pirané in Formosa, and
         many rice production areas in Corrientes).

8.46 Reduction of the irrigated area and low quality of irrigation decreases productivity. To
the extent that these problems are generalized in systems with predominantly small producers
(Catamarca, La Rioja, Santiago del Estero, Formosa), they tend to increase rural poverty.

63
  They were irrigation systems of large and medium farms that profited from programs of fiscal incentives for
producers in San Juan, Catamarca, and La Rioja.


                                                    115
                  SUMMARY OF IRRIGATION POTENTIALS AND CONSTRAINTS

Potentials

8.47 Additional value and employment from irrigation could be obtained three ways: (i)
upgrading PSP practices, product quality, yields and crop mix; (ii) bringing new land under
production; and (iii) improving irrigation technology and efficiency.

8.48 An indication of the potential benefits of upgrading product quality is the difference in
value of fruits and vegetables exports per hectare of irrigated land in Argentina and Chile
discussed in Chapter 3.

8.49 In terms of bringing into irrigation additional areas, current estimates indicate that an
additional 30-40 percent of irrigated area could be brought into production with public
investments in the range of US$100-200 per hectare. Additional area on the order of 20 percent
could be irrigated through improved on-farm efficiency from the use of pressurize irrigation. The
main benefit from pressurized irrigation, however, is not an increase in area as much as (i)
improved product quality due to better water control, and (ii) elimination of water-logging and
salinization.

Constraints

8.50 The constraints to the full benefits of irrigation potential are more social than physical.
They relate fundamentally to insufficient decentralization of authority and responsibility to the
irrigators, and to the persistence of a culture of dependency. This is aggravated in a relatively
few places by low profitability of agriculture related to small size of holding and low human
capital. Institutional support to irrigation is weak at all levels.


                                        POLICY OPTIONS

Overall principles and objectives

8.51 We do not recommend intervening in the sector except within the context of a clear, well-
articulated strategy. Such a strategy could be designed to devolve authority and responsibility to
the WUAs and to create the national incentive framework to support it.

8.52 The long run objective of such a strategy could be to wean WUAs from dependence on
government. This would require that they develop a business plan and establish a clear ―track
record‖ in meeting the plan‘s goals. Over the medium term WUAs could aspire to qualify for
commercial credit. Any government investment and assistance should take place within the
context of this business plan, with a clear strategy for the water association to develop
independence and autonomy.

8.53 Supporting policies could be put in place at the national level. In addition to conditioning
transfers and investment on a business plan it would be important to ensure that other



                                               116
institutional impediments to efficient water use are eliminated. In particular, investment in
infrastructure development or rehabilitation could be forthcoming for provinces which dismantle
impediments to efficient water use, like legislation preventing transferring water. The advantages
of trading water are discussed in Box 8.1.

Elements for a strategy

8.54   The central elements of an irrigation strategy would fall along the following lines:

      Institutional upgrading of national, provincial and local institutions;
      Decentralization of financial and operational planning;
      Improved management quality;
      Improved determination water pricing;
      An emergency program to recuperate critical infrastructure;
      Increased applied research in irrigation; and
      Review of the legal framework of irrigation and environmental control.

These elements are discussed in turn, below.

8.55 Upgrading of institutions. This could include: (i) more human resources, better trained,
favoring recruitment of young people and the hiring of new, qualified personnel; (ii) more
coordination among agencies at the national level, and among national, provincial and local
agencies; and (iii) involving municipal governments and including them in training programs.

8.56 Decentralizing irrigation planning and management. This could have the following
objectives: (i) increasing the number of WUAs in all the provinces; (ii) increasing the
involvement of WUAs in the areas of planning and management of investments; (iii)
strengthening the institutional and financial autonomy of provincial water agencies, and (iv)
increasing the involvement of municipal governments.

8.57 To strengthen the financial capacity of WUAs and their capacity to borrow over the short
and long term, they would need to gain experience in financial activities; for example, through
the formation of trusts, local investment funds, and the creation of reserves for the expansion of
irrigated areas.

8.58 Improving irrigation management. This would include the following activities: (i)
establishing information management systems at the national, provincial and local levels, (ii)
strengthening the management capacity of WUAs; and (iii) establishing quality control programs
at the irrigation system level in each province.




                                               117
                                       Box 8.1: The Right to Trade Water
       Water markets are a contentious issue in Argentina. It is clear that this is a topic which needs more
       time to mature. We do not recommend a national policy of moving to water markets at this time. We do
       recommend a national policy to remove impediments to any WUA which might, through a democratic
       decision process, decide to permit water transfers, sales, or purchases among its associates. We see the
       following advantages of this freedom to choose.

        1. Leaving current water rights constant (which we would recommend) no irrigator can be made
           worse off through a water transfer system. He/she could either (1) do not trade water and continue
           as he/she is or (2) trade water (if the value of water to his/her neighbor is greater than to him/her) if
           he/she feels he/she will be better off by so doing.
        2. Without change in the current legislation, many irrigators cannot achieve the full benefits from
           upgrading to pressurize irrigation technology. Lowering the benefits of upgrading prevents
           technological upgrading and the string of associated improvements—higher value production,
           greater employment, etc.
        3. Decisions regarding the rules for water allocation should be made by the water users, and reflect
           local conditions.
        4. Water associations are in the best position to establish the rules of the game for water sharing.


8.59 Determining the cost of water and the water charge. The cost of water could be
calculated, even in those areas which are today completely subsidized and might continue to be
subsidized. The calculation should cover all the costs of supplying water, including those
related to the improvement and expansion of the irrigation infrastructure. The required
calculation of full water costs would provide the transparency necessary to establish appropriate
values for the potential subsidies and to carry out an informed dialogue between the provinces
and the WUAs.

8.60 It would be desirable that the above calculation of irrigation costs be carried out
following a standard methodology in all provinces, with due adaptations for specific
circumstances. The information obtained could be freely circulated. It is also important that the
establishment of subsidies (that would accrue to certain social groups in the form of a water price
below the full water cost) be supported by a detailed analytical process. 64 The subsidy scheme
could be adequately selective, avoiding subsidies to farmers capable of paying, and could decline
through time, without failing to accommodate the poorest farmers.

8.61 Emergency program for irrigation infrastructure rehabilitation. The Under
Secretariat of Water Resources and PROSAP are preparing lists of priority works for each
Province. This information could be used to prepare a program of investments. We note the
danger, however of continuing the pattern of periodically financing deferred maintenance
through emergency rehabilitation projects. As mentioned above, ideally, investment should be
made after the institutional framework is in place to ensure its future maintenance.



64
  It would be desirable that in the long run all water subsidies be removed. The required assistance to poor farmers
should take a form that increases their economic productivity, not one that simply lowers their costs below the true
value of the resources employed.


                                                         118
8.62 Research and development. INTA and the provincial universities could help provincial
governments and water users to prepare a program of research that attends to the crucial aspects
of irrigation development. In particular, it could include (i) brief but comprehensive provincial
diagnoses; (ii) improvements in technical efficiency; (iii) management; (iv) irrigation system
development strategies; and (v) the social impact of irrigation.

8.63 Improvement of the legal framework. This could entail (i) the formulation of a national
legal framework for water resources management, which could establish allocation criteria,
operational norms for water management, water quality standards, and protection norms for
water sources; and (ii) streamlining and harmonizing provincial norms of water resources
management jointly with land use environmental norms.

Instruments

8.64   Possible instruments to bring about this strategy are the following:

   1. A program of activities from the national level intended to orient and support provincial
      and local governments in the definition of strategies, targets, and objectives.
   2. Detailed master plans for irrigation development in each province, specifying areas to
      develop, populations to attend, and commercial and institutional strategies to increase
      productivity.
   3. A national program to establish information systems oriented at improving irrigation
      management. This could include activities related to information management for both
      the provincial and WUAs levels. It could be viewed as a subprogram of (1) above.
   4. Calculation of water costs for all irrigation schemes. The water price could be fixed
      below cost only as an exception related to important reasons (rural poverty, emergencies,
      etc.). Exceptions could be more general in the beginning to ensure political sustainability.
   5. A clear definition and implementation of a system of ―premios‖ and ―sanciones” directed
      at promoting full and timely payment of water charges.




                                               119
                       9.      SUMMARY AND CONCLUSIONS

9.1    This chapter summarizes the observations of the previous chapters and highlights the
major implications. It is organized in two sections. The first summarizes the findings of the
individual chapters, and the second synthesizes general policy considerations and makes
suggestions for additional work.


                                       SUMMARY OF FINDINGS

9.2     Chapters 2 and 3 reviewed the agricultural performance of Argentina and compared it
with other countries--in most cases with Brazil and Chile. They examined the evolution of
agricultural policy and the potential for productivity gains, and compared productivity measures,
export market penetration, and ability to move into higher quality markets. The major conclusion
from this section was that while Argentina has done well in increasing crop output, its overall
agricultural growth has lagged despite evidence of high total factor productivity growth in crops.
The point was made that poor factor productivity growth in cattle and slow growth of
agricultural inputs more than offset Argentina‘s high productivity growth in crops. It was also
argued that the loss of competitiveness due to growing overvaluation in the 1990s was more
damaging to the emerging regional economies than to the established commodity economies of
the Pampas, but that both regions were hurt by phytosanitary problems. It was shown that
Argentina‘s irrigated agricultural sector was on track to catch up with Chile in terms of
penetration of high value markets, but fell far behind during the 1998-2003 crisis.

9.3     Chapter 4 examined the participation of government in the agricultural economy in
Argentina. The revision included the analysis of fiscal flows, of the roles, strengths and
weaknesses of the two major government agencies for the sector, INTA and SENASA, and of
the situation and possible government action to improve the supply of infrastructure and rural
finance, and to promote collective action in the supply chains. A major conclusion from this
chapter is that government expenditure in agriculture in Argentina is extremely low,
proportionally much smaller than that of other South American countries, including Brazil and
Chile, insufficient to meet the sector‘s requirement of public goods. Government expenditure
bears no relation to the fiscal pressure on the sector, which is high, slightly above the average for
other sectors. From each AR$10 that leave the sector as taxes, between 1 and 2 AR$ come back
as government expenditure. Agricultural taxation has some distortionary elements, in particular
the retenciones and the minimum tax on presumed income. Another major conclusion refers to
the inadequacy of the infrastructure, processing and finance services available to the farm sector,
and the importance of government action to improve the situation.

9.4     The chapter on rural incomes, poverty and the labor force addressed the characteristics
of the rural labor force and rural employment, including correlates of participation in rural non-
farm employment, and the dynamics of earnings in rural areas. It also presented a poverty profile
of the rural poor, and looked at the statistical evidence concerning possible routes of escape from
poverty. It showed that women participation in the rural labor force is strong. It also showed that
the extremely poor depend more on agricultural incomes than the non-poor, and that the vast


                                                120
majority of rural labor is informal. Labor income analysis revealed a large gender gap that
increases at the lower quintiles of the earnings distribution. Employment analysis showed that
non-farm employment is highly correlated with gender, age, access to land, location, and
education. Rural women tend to participate in high-return and low-return non-farm employment
more than men, but men participate proportionally more in high-return occupations. Farm
income analysis revealed that farmers‘ incomes increase monotonically with land size, and are
positively correlated with education, road access, and the use of electricity, fertilizer and
irrigation. The chapter also showed that poor rural families tend to be young and large, and are
more likely to be small landholders than landless workers. Remittances and other transfers are an
important part of their incomes. Statistical evidence is based on a limited household survey of
dispersed rural households which makes conclusions tentative.

9.5     The chapter on frontier expansion and land use intensification sought to better
understand the expansion of soybeans into the Northwest and Northeast, driven by both new
technology and high profitability, as well as cropping intensification in the Pampas. The chapter
tried to assess the environmental and social consequences of these recent phenomena. Main
points were the following: Soybean intensification in the Pampas generates concern about
nutrient depletion and pest buildup. Prior to 1988, the location of cropland expansion was largely
determined by soil class, but between 1988 and 2002 zero tillage made expansion much less
sensitive to soil and slope conditions. Transaction costs of obtaining economic-sized units seem
to dominate the current location of cropland expansion. Therefore, the expansion has occurred
primarily in the north, where new cropland has largely replaced natural vegetation, with
relatively slight displacement of pasture and cattle. Although existing data do not provide a clear
picture of the social impact, statistical analysis revealed no impact on unmet basic needs.
However, the environmental consequences of this expansion are worrying.

9.6     The chapter on sanitary and phytosanitary issues and food quality reviewed the
progress made in Argentina to meet new challenges of phytosanitary and quality standards. It
briefly described the institutional and regulatory set up, and then presented and discussed several
areas where phytosanitary control issues and experiences have been important and left significant
lessons. These areas are the fruit fly eradication program, the Carpocapsa control program, the
problems experienced with the foot and mouth disease, the phytosanitary restrictions to the
export of lemons to the US and EU markets, and the threat posed by the soybeans rust. Issues
related to the importance of quality and appropriate institutions for the development of food
industries were then examined and illustrated with the cases of the differentiation of wheat
qualities, the exploitation of the export potential of the honey industry, and the unequal standards
in the beef industry. The issues posed by biotechnology and the use of genetically modified crop
varieties were also examined, and the positive experience with the establishment of risk
assessment procedures reviewed. The chapter concluded with some reflections and policy
options based on the examination of the above issues and experiences. Some of the aspects
important for policy action highlighted were: the convenience of an integrated approach to food
quality and safety; the high potential returns of investments on food quality and safety; the
importance of establishing effective partnerships and a clear definition of responsibilities
between national and provincial governments and between them and the private sector; and the
usefulness of promoting effective collective action.




                                                121
9.7     The chapter on irrigation discussed the performance of the irrigation subsector. It
presented evidence of week performance--underutilization of irrigation systems, low technical
efficiency, poor irrigation techniques, and inadequate water charges. Along with a diagnosis of
sector problems and potentials, the main points were: (i) institution weakness at the national,
provincial and local level is a major reason for poor performance; (ii) provincial water laws are
often an impediment to the adoption of improved technology and efficient water use; (iii) greater
decentralization of water management and decision making to water users associations is a top
priority; and (iv) soft budget constraints prevent water associations from assuming (management
and financial) responsibility.


        GENERAL POLICY CONSIDERATIONS AND SUGGESTIONS FOR ADDITIONAL WORK

9.8    Public action is essential to encourage further development of the rural economy in
Argentina. Some general policy considerations are as follows:

      There is evidence of underinvestment in agricultural public goods in Argentina including
       agricultural research and extension, sanitary and phytosanitary systems, investments to
       improve export market participation, infrastructure, and promotion of financial services.
       Progressively raising public expenditure in agriculture and rural development to levels
       similar to those of its closest LAC competitors would do much to increase the competitive
       edge of the sector. This has already started over the last two years, and we expect it to
       continue.
      Mitigating rural poverty would require a combination of direct and indirect employment
       generation, particularly in the regional economies, with improved access to and quality of
       education and other services. Investing in irrigation, sanitary and phytosanitary systems,
       and research and extension for small farmers would be an effective way to help
       improving poverty conditions.
      Collective action is increasingly critical in modern globalized agriculture, and is
       particularly significant for the development of the regional economies. It requires (i)
       resolving conflicts in the value chains to allow producers, suppliers, and buyers to work
       together to achieve and retain high value markets; (ii) creating and maintaining systems
       of vigilance and enforcement of phytosanitary protection norms; and (iii) decentralized
       local management of irrigation systems.

9.9     In the course of preparing this review, we have come across several important topics on
which there is lack of information and analysis. This gives them priority for study. Four priorities
areas are:

      Additional work on agricultural taxation and non-fiscal transfers. Although this
       study contains a review of fiscal transfers to and from agricultural (Background Paper 2),
       we recommend a more fully-elaborated treatment of both fiscal and implicit transfers to
       and from agriculture, including a more complete analysis of the issues of export taxes, tax
       evasion in the sector, and local and provincial tax effort. This analysis needs to be carried
       out within the context of Argentina‘s overall tax system and fiscal equilibrium, and



                                                122
       address the issue of regional inequalities and the large regional variation in economic rent
       to land.
      Risk and credit markets. Lack of credit is a major barrier for adoption of improved
       technology in the small and medium farm sector. Markets for hedging price and exchange
       rate risk and crop insurance, appear to be readily available to large farmers but not to the
       small ones. These markets need to be better understood, especially in the context of
       improving the competitiveness of small and medium size farms.
      The livestock sector. The potential to increase beef production in the Pampas and
       outside the Pampas is high. This is because much of the sector operates at medium and
       low technology levels, and the output gap between productivity levels in cattle
       production is high--much higher than in crops. Raising productivity is important because
       the sector is large, and a moderate raise in productivity would result therefore in a large
       increase in aggregate output. Also, it is in the smaller farms where the productivity gaps
       are largest. Further study of the reasons for this sector's relative stagnation, compared to
       the grain sectors, is warranted.
      Rural growth and employment creation. Recent Argentine agricultural growth,
       especially in the Pampas, has not led to significant employment generation due to its
       relatively high capital intensive and land extensive nature. The potential for higher rates
       of employment creation in the regional economies is higher. Additional analysis of the
       possible impact on employment of the agricultural growth under various scenarios would
       help inform the debate on rural poverty reduction, the role of agriculture, and the
       importance of developing either non-farm employment or near-by growth centers in
       towns and cities.

9.10 In conclusion, this study will help guide future World Bank dialogue and financing of
agriculture and rural development in Argentina, particularly with regard to areas where the role
of government may be strengthened or the provision of public goods increased. The potential for
agricultural development in Argentina is impressive. A strategic support from government to
complement the capacity and dynamism of Argentina‘s farmers could help much to realize that
potential and make agricultural growth more equitable. With the present study, conceived as an
instrument for dialogue, the World Bank hopes to contribute to that objective.




                                               123
                                       BACKGROUND PAPERS
This report is largely a synthesis of background papers prepared by country consultants and
World Bank staff. Complete background papers are available on the website
(www.bancomundial.org.ar). Interested readers are referred to these much longer papers.

As shown below, background papers were commissioned in 7 areas: (i) sanitary and
phytosanitary control (including worker and environmental safety in pesticide use); (ii) irrigation
and its contribution to the regional economies; (iii) the new mechanisms for combining land,
labor, capital, and management in the Pampas (planting ―pools‖); (iv) the environmental and
social effects of the expansion of the crops frontier; (v) issues related to market access for
Argentina‘s agricultural exports; (vi) the role of taxation and government expenditure in the
agricultural sector; and (vii) rural poverty.

                             World Bank-Commissioned Background Papers
     Topic                                         Author           Cases studies

     Changing patterns of agricultural        Roxana Bertolassi     (1) Junín, Buenos Aires
     organization                                                   (2) Las Lajitas, Salta
     Taxes and government expenditure in      Ernesto O‘Connor      (1) Buenos Aires
     agriculture                              Jorge Cabellero       (2) Mendoza
                                                                    (3) San Juan
                                                                    (4) Catamarca
     Rural Labor Force, Incomes and           Dorte Verner          --
     Poverty
     Spatial patterns of frontier expansion   LART/FAUBA            (1) Northeast Salta (Tartagal),
                                              (Federico del Pino,   (2) Southeast of Salta (Las Lajitas),
                                              coordinator)          (3) East Santiago del Estero/West
                                                                    Chaco (Charata)
                                                                    (4) Southeast of Santiago del Estero
                                                                    and Northeast of Santa Fe (Bandera)
     Irrigated agriculture and its            Raul Fiorentino       (1) Mendoza
     contribution to the regional                                   (2) Catamarca
     economies                                                      (3) Río Negro
                                                                    (4) Jujuy
                                                                    (5) San Juan
     Market access                            Yurie Tanimichi

     Phytosanitary institutions, Pesticide    Miguel Huerga         (1) Carpocapsa in Río Negro
     safety                                   Sebastián San         (2) Asiatic Soybean rust,
                                              Juan                  (3) Horti-fruiticulture in Mendoza
                                                                    (4) Horti-fruiticulture in Lules and Tafi
                                                                    del Valle
                                                                    (5) Tobacco in Misiones
     Food quality and sanitary and            Carmen Vincien        (1) Honey
     phytosanitary institutions.                                    (2) Wheat market differentiation
                                                                    (3) Beef in Buenos Aires
                                                                    (4) Biosafety
     Impact of international phytosanitary    Morven McLean         (1) Beef
     requirements                                                   (2) Lemon (Tucumán)




                                                      124
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                                              131
                              ANNEX I: REGIONAL OVERVIEW
Rural Argentina is extremely heterogeneous, in terms of both resource endowments and the
quality of life of its rural residents. It is divided in five economic and geographical regions: the
Pampas, North East (NEA), North West (NOA), Cuyo and Patagonia.65 All of these regions but
the Pampas are usually called ―regional economies‖. While the Pampas produces mainly
commodities, largely for the foreign market, the regional economies have grown in response to
internal demand and state efforts to promote agricultural development. Only in the 1990s did the
regional economies begin to significantly develop agricultural exports. Agriculture in the Pampas
is generally modern and dynamic, while the regional economies (with some important
exceptions) tend to be more traditional and to function farther from the technology frontier.

As discussed in Chapter 2, a combination of rapid expansion of credit and an abrupt collapse of
internal demand left many farmers with serious economic problems. In addition, adoption of
labor-saving technology (for example mechanical cotton-pickers) accelerated rural dwellers‘
migration to the urban areas (Rofman, 1999). Between 1991 and 2001, the rural population
decreased by 8.4 percent. The decrease was higher (14.5 percent) in the dispersed rural areas,
where 68 percent of the total rural people live than in the grouped rural areas66. From 1988 to
2001, the number of farms decreased by 18 percent in Cuyo, 13 percent in the NEA, 16 percent
in Patagonia and 7 percent in the NOA. (Table A1.1)

The following paragraphs describe in greater detail the main agricultural activities and feature in
each of the regions, and discuss specific regional issues. Tables A1.2 and A1.3 summarize this
discussion.


       MAIN AGRICULTURAL ACTIVITIES IN THE REGIONAL ECONOMIES AND THE PAMPAS

The Northeast

The major traditional agricultural activity of the Northeast region is the production of yerba
mate, cotton and tea, especially in the provinces of Corrientes and Misiones. Soybeans have
made important advances, especially into the province of Chaco, and have become the major
crop, currently representing some 35 percent of total cropland.




65
   There are several criterion to divide Argentina and this political division is one of the most common one
(Rocctagliata, 1992; Rofman, 1999). The Pampeana region comprises Buenos Aires, La Pampa, Córdoba, Santa Fe
and Entre Ríos. NEA is composed by Corrientes, Chaco, Formosa and Misiones. NOA by Catamarca, Jujuy,
Santiago del Estero, Salta, La Rioja and Tucumán. The provinces of San Juan, San Luis and Mendoza make up the
Cuyo region. And the Patagonia region comprises Chubut, Neuquén, Río Negro, Santa Cruz and Tierra del Fuego.
66
   In Argentina, according to the National Institute of Statistics (INDEC), a person is considered to live in a rural
area if he/she lives in dispersed areas in the open countryside, where households are not linked through urban streets
(dispersed rural areas), or in urban settlements with less than 2000 habitants (grouped rural areas). About 68
percent of rural dwellers live in dispersed rural areas in the four provinces included in the sample of the WB Rural
Household Survey.


                                                        132
                       Table A1.1: Indicators of Quality of Life by Province and Region
                                                                                                  AARG of
                        % change in                                                                         Unsatisfied
                                            % Population change          % School attendance      Ag GDP
                        farms 1988-                                                                         basic needs
                                                1991-2001                15–17 yrs. old 2001       1991-
                           2002                                                                                2001
                                                                                                   2001
                                           Grouped        Dispersed      Grouped      Dispersed               Rural

Buenos Aires                 -32               12             -30            80           72        1.6         14
La Pampa                     -10               -7             -29            78           56        5.8         15
Córdoba                      -36                8             -22            69           51        2.3         21
Santa Fe                     -24                2             -21            76           61        2.3         21
Entre Ríos                   -20               18             -19            67           57        3.5         26
Total Pampeana               -32                7             -25            75           61         --         19

Mendoza                      -15               32              0             70           57        2.3         27
San Juan                     -23              -16             -17            67           57        2.3         31
San Luis                     -29                8             -27            69           49        2.5         31
Total Cuyo                   -18                9              -5            69           56         --         30

Catamarca                    -4                14              -1            78           63        2.2         33
Jujuy                        -5                20             -14            68           48        2.2         48
Salta                        16                32             -13            72           56        3.3         53
Santiago del
Estero                        -6                9             2              57           28        2.1         49
Tucumán                      -40               17             1              58           42        0.7         40
La Rioja                       9              -12             -4             76           68        3.6         32
Total Northwest              -13               14             -3             68           42         --         43

Corrientes                   -34               -1              -8            67           43        1.5         46
Chaco                        -11               13             -29            62           35        1.2         52
Formosa                       -6              -10             -17            74           46        2.8         51
Misiones                      -2               -4              -3            62           38        2.4         36
Total Northeast              -13                0             -14            65           39         --         46

Santa Cruz                   -14              -57             -33            87           67        4.1         12
Chubut                         3               12             -12            75           61        3.5         27
Neuquén                      -13               13              -3            73           51        2.8         33
Río Negro                     -9                1             -24            69           61        4.7         27
Tierra del Fuego              14              159              8             92           87        3.2         21
Total Patagonia               -7                2             -16            73           58         --         24

Total Argentina              -22               8              -15            71           49        2.3
Source: Population Census 1991 and 2001.
Note *: Employment rate = employed population/Total population older than 14 years old.
       AARG = average annual rate of growth




                                                            133
                                               Table A1.2: Main agricultural features in Argentina’s regions

             Region                        Northeast                Northwest                   Cuyo                  Patagonia                  Pampas
% cropland under irrigation                    6.4                      17.8                     25.1                     40.0                      2.6
                                                                                         (Mendoza, 91.7 San
                                                                                         Juan, 91.5, San Luis
                                                                                                 0.2)
% farms <100 has.                              72.5                     76.2                     86.1                     47.5                     37.7
% land in farms <100 has.                       7.6                      3.9                      3.9                      0.2                      3.3
% farms >1000 has.                              5.9                      5.9                      4.6                     39.6                     11.1
% land in farms >1000 has.                     68.4                     76.4                     85.7                     98.4                      62
Major non-irrigated crops (%          Soy 34.5                Soy 53.1                   Perennial forage        Planted forest 46.3     Soy 45.3
non-irrigated cropland)1              Yerba mate 14.6        Corn 5.1                    51.8                    Perennial forage 40.6   Wheat 19.7
                                      Cotton 8.7             Sugar cane 5.1 (48.1 %      Annual forage 23.6      Annual crops 7.3        Corn 7.2
                                      Sunflower 11.7         of sugar cane are           Corn 6.9                                        Sunflower 5.4
                                      Wheat 0.6              irrigated)                  Sorghum 3.8
                                                             Beans 4.4                   Soy 3.7

Major irrigated crops (%              Rice 48.0 (43.7 in      Industrial crops 47.1      Fruits 82.0 (grapes     Fruits 59.9 (apples     Grains 53.0 (rice 9.8,
irrigated cropland)                   Corrientes)            (sugar cane 28.4,           46.6, olives 9.2,       29.6 , pears 19.6)      other grains 43.2)
                                      Horticulture 32.8      tobacco 7.6 )               plums 5.7, apricots     Fodder 29.7             Fodder 24.5
                                      (garlic, onion,        Fruits 26.2 (citrus 10.9)   5.4)                    Horticulture 10.4       Horticulture 12.6
                                      lettuce, tomato,       Fodder (15.9)               Horticulture 13.3                                (garlic, onion, lettuce,
                                      potato, pumpkin)                                   Fodder 4.5                                      tomato, palate, pumpkin
                                      Citrus 16.3 (12.3 in                                                                               Fruits 9.8 (citrus 7.4)
                                      Corrientes)

Major exports                         Rice, Cotton, Soy      Citrus (Lemons),            Grapes and wines         Apples, Pears          Wheat, Soy
                                      Citrus                 Fruits,(Strawberries)       Plums, Apricot          Berries, Livestock      Sunflower, Corn,
                                                             Olives and Olive Oil        Olives and Olive Oil,   (ovine), Grapes         Livestock
                                                             Tobacco, Beans, Soy         Onion, Garlic




Sources: Agricultural Census (2002), IICA (2004), Annex V.




                                                                                134
                                       Table A1.3: Main rural and agricultural social related features in Argentina’s regions
           Region                        Northeast              Northwest                   Cuyo                                Patagonia                             Pampas
Some major social issues               Historic high     Historic high rural     Small farmers facing            High unemployment and poverty due to        During the nineties many
                                       rural poverty     poverty rates           difficulties in upgrading      the introduction of labor saving             small farmers abandoned
                                       rates increased   increased by the        quality to meet current        technology in fruit processing.              dairying due to the costs of
                                       by the            termination of price    market demand. Strong                                                       adapting to modern
                                       mechanization     supports on sugar.      economic and social            Small farmers face problems in land          phytosanitary standards.
                                       of agriculture                            division between farmers       security, particularly sheep herding         Land has concentrated
                                       (particularly     Poor working            liked to foreign markets and   indigenous communities.                      sharply, leading to a
                                       cotton) and the   condition in citrus     those producing only for                                                    significant population
                                       replacement of    industries for low      domestic consumption.          Poor working conditions for temporary        reduction and loss of
                                       labor intensive   skill workers.                                         workers.                                     community services some
                                       crops,                                    Poor working conditions for    Difficulties for small farmers to enter to   areas.
                                       principally                               temporary workers.             the export oriented chains (especially
                                       cotton, by                                                               small apple growers).
                                       soybeans.
Out migration DRA                      -14.1             -3.4                    -5.1                           -16.2                                        -24.6
Rural Poverty UBN rate 1991            53.6              50.8                    33.3                           29.8                                         22.2
Rural Poverty UBN rate 2001            44.7              44.9                    28.1                           28.3                                         19.3
                                1
Consumption poverty rate 2003          54.9              80.6                    70.1                           n.a.                                         25.1
Inequality (GINI coefficient           0.48              0.37                    0.37                           n.a.                                         0.35
measured by consumption)1
Percent reduction in the number of     13                13 (40 in Tucumán       18                             7                                            32 (Between 1985 –
farms with defined limits (1988-                         and 31.5 among                                                                                      1995, the number of
2001)                                                    sugar minifundistas)                                                                                dairy farms dropped by
                                                                                                                                                             30 %)
Per capita GDP in                      2.9               3.2                     5.1                            9.8                                          6.2 (excluding Bs. As.
2001 in current AR$                                                                                                                                          province and Ciudad de
                                                                                                                                                             Bs. As.)
Rate of growth of regional GDP         2.3               2.8                     2.9                            3.9                                          3.4
1991-2001
Share of agricultural GDP in           16.2              11.8                    6.3                            7.2                                          7.3 (10.8 excluding Ciudad
regional GDP                                                                                                                                                 de B.s. As.)

Share of dispersed rural population    25.3              25.2                    13.5                           4.3                                          31.7
in national dispersed population
Share of grouped rural population in   10.3              24.3                    8.9                            6.7                                          49.7
national grouped rural population
Sources: Population Census (1991 and 2001); Agricultural Census (1988 and 2002); Rofman A. (1999); Fiorentino (2004); Giarraca and Grass (1999 and 2000); Lattuada (2000). Ministry of
Interior (2001).
Notes: 1These figures were calculated using the World Bank RHS (2003). Information corresponds to the provinces of Santiago del Estero in the Northwest, Chaco in the Northeast,
Mendoza in Cuyo and Santa Fe in the Pampeana.




                                                                                   135
Soybeans expansion into Chaco has been mostly at the expense of natural vegetation. Analysis
of the expansion of soybeans into the 50 departments in Chaco and Santiago del Estero with the
most active expansion of the soybeans frontier, found that 80 percent of the expansion took place
in areas previously covered by natural vegetation, and only 13 percent in areas previously
covered by crops. This suggests that the expansion of soybeans is not likely to have been
associated with a significant net loss of agricultural jobs in the region, but is, on the other hand,
having a major impact on biodiversity.

About 6.4 percent of total cropland in the region is irrigated. This reaches a maximum of 20.5
percent in Corrientes and a minimum of 1.2 percent in Chaco. Rice is the major irrigated crop in
the Northeast, accounting for some 50 percent of irrigated cropland, followed by horticulture
(approximately a third) and citrus (17 percent). Horticulture is largely practiced by small
farmers, growing mainly tomatoes, pepper, onions and lettuce for the domestic markets.

In Misiones and Corrientes, the major irrigated crops are rice and citrus, both produced for
internal and external markets. Yerba mate is irrigated in Corrientes, where a single firm
dominates nearly the entire Mate production (in Misiones, small farmers involved in yerba mate
do not irrigate). Citrus and bananas are irrigated by small farmers (less than 10 ha) and medium
sized farmers (10-100 ha).

In Formosa, bananas are a main crop; even though the area cultivated has been decreasing
throughout the nineties, Formosa accounts for 52 percent of the total area planted with bananas
in Argentina. Almost all are irrigated.

In Chaco, the main crops are soy, wheat, sunflower and cotton, none of which are irrigated.
With the exception of cotton, these crops are produced mainly for export. Wheat and cotton are
also important in Formosa.

Small farmers constitute the majority of producers in the Northeast. While 72.5 percent of all
farms are smaller than 100 hectares, they account for only 7.2 percent of all farm land. Farms
between 100 and 1,000 hectares account for 21.6 of all farms but for only 24 percent of all farm
land. Finally, farms larger than 1,000 hectares represent only 5.8 of total farms, but they account
for 68.4 percent of all farm land.

The reduced area in cotton, combined with mechanization of cotton harvesting, has caused a
severe fall of rural employment opportunities in Chaco and to a lesser extent in Formosa and
Corrientes. In these provinces small farmers in the cotton sector have historically combined own
production and wage employment. With the introduction of the mechanical cotton picker, labor
demand decreased by 50 percent. As a result, unemployed workers migrated to the urban areas
and/or neighbor cities, where poverty rates have increased dramatically (Rofman, 1999). In
2003, Chaco had the highest rural indigence and poverty rates 46.7 and 65.3, respectively
(measured through income). The number of dispersed rural dwellers in the Chaco decreased by
29.3 percent between 1991 and 2001, while the number of farms decreased by 34 percent
(between 1988 and 2001). Population outflow from dispersed rural areas in Chaco is exceeded
only by Buenos Aires and Santa Cruz. However, unlike Buenos Aires and Santa Cruz, where 72
and 67 percent respectively of 15-17 year olds are in school in dispersed rural areas, in Chaco



                                                136
only 35 percent continue. Clearly the readiness for out-migrants to embark on an urban
livelihood is very different in the two cases. We suspect that outmigration from rural areas in the
Chaco is caused by loss of off-farm employment for small farmers who have historically
combined own production with wage employment, and represents serious deprivation. Under
this hypothesis the growth in grouped rural population is likely to be pushed by loss of rural
opportunity in dispersed areas, not a pull from growing non-farm employment in urban and
grouped areas.67

We note that the rate of rural out migration is relatively low in Corrientes and Misiones (7.8 and
3.3 percent respectively), despite high rates of poverty and unsatisfied basic needs. Corrientes is
among the provinces with the highest rate of farm consolidation, with the number of EAPs with
defined limits falling 34 percent. Both provinces are among the small group of 7 that exhibited
growth in agricultural-based manufactures relative to their pre-crisis peak, suggesting potential
growth in non-farm employment. Growth in a very competitive wood products industry may play
a role. However, given the low rate of growth of agricultural GDP (especially in Misiones), the
low education levels, and the lack of significant activity in the land markets, one cannot discard
the hypothesis that small farmers are trapped in poverty by the lack of assets required to seek off-
farm alternatives.

The Northwest

In the Northwest region the main crops are sugar cane, soy and citrus. Sugar cane is cultivated
in Jujuy, Salta and, most importantly, in Tucumán; total surface with sugar cane accounts for
268,450 hectares with most production consumed internally. Soy is grown in all the provinces
except La Rioja. Tobacco is important in Salta, Jujuy and Tucumán (as well as in Corrientes and
Misiones in NOA).

Irrigated area in the northwest accounts for 17.8 percent of total farm land. In Jujuy 61 percent of
cropland is irrigated, followed by La Rioja, Tucumán and Catamarca with 56, 25 and 23 percent
irrigated, respectively. The provinces with the least irrigation in the Northwest are Santiago del
Estero and Salta, with 8 and 5 percent of their cropland irrigated, respectively. Sugar cane
accounts for over a quarter of the irrigated land in the region. In Jujuy, sugar cane accounts for
about 63.4 percent of total irrigated area and in Tucumán for about 55 percent. Tobacco is
important in Jujuy and Salta, and for the region as a whole represents nearly 8 percent of
irrigated area.

In Tucumán, there are about 34,600 hectares of citrus production, a high proportion of which are
lemons for the export market (see Chapter VII), also produced in Salta and Jujuy. In Catamarca
and La Rioja, olive production is increasing rapidly and grapes are also important. Olives are
exported both as olive oil and as table olives. Olive production is mostly in the hands of large
producers (with a significant boost from fiscal incentive). Small producers are involved in
horticulture (i.e. tomatoes, peppers, pumpkins and onions) for the domestic markets. In
Catamarca, main irrigated crops are olives, nuts and grapes with 16, 11 and 9 percent of total
irrigated farm land. In addition small farmers growing horticulture crops use about 13 percent of

67
  We note that Chaco is among the provinces where agricultural-based manufactures responded well following the
1991 reforms, but which has stagnated since 1994.


                                                    137
total irrigated farm land. Similarly, in La Rioja, olives and grapes account for 56 and 22 percent
of total irrigated farm land. In Salta, tobacco and fodder account for the highest share of irrigated
farm land, with 11 and 9 percent of irrigated farm land, respectively. The rest of the irrigated
land is divided between fruits and horticulture; among irrigated farm land with fruits, citrus
accounts for 50 percent. In Santiago del Estero, the main irrigated crops are fodder and cotton
with 44 and 41 percent of total irrigated land, respectively.

Major non-irrigated crops are soybeans (50 percent of non irrigated cropland), wheat, beans
(Jujuy and Salta), and sorghum (Santiago del Estero). Soy production, a part of wheat production
and a high share of tobacco production are exported. Wheat, sorghum and beans receive
supplementary ground water irrigation by large farmers.

As in the NEA, in the NOA the majority of farms are small. Farms smaller than 100 hectares
account for 76.1 percent of all farms, and own 3.8 percent of total farm land. Farms lager than
1,000 hectares account for 6 percent of total farms, but for 76.3 percent of total farm land. Small
farmers in NEA have had difficulty adjusting to the post-reform environment. Weak demand in
domestic markets, lack of credit, and low management capacity combine to accelerate the loss of
small farms. In the sugar industry, only large farmers have been able to compete with imports
from Brazil, and the rest have abandoned the activity. In Tucumán, between 1988 and 2001 the
number of farms has decreased by 40 percent (INDEC, 2001). Giarraca et al (1999) estimated
that in the period 1988-1996 the number of sugar-cane minifundistas (cañeros) decreased by 31.5
percent and that the proportion of temporary off-farm labor greatly increased relative to
permanent employment.

Giarraca and Grass (2000) report that sugar workers in Tucumán involved in technical,
organizational, or managerial roles generally have social benefits and fixed term appointments.
Those involved in harvesting or in general collection activities and young people (under 25 years
old) have precarious occupations. However, older workers tend to have formal labor status and
better social benefits. The authors point out the general poor living conditions of all these
workers, but highlight a difference between those living in their houses in marginal
neighborhoods and those who live in encampments, because they have migrated from other parts
of the province or from other provinces.

In Jujuy, where sugar production is based in large farms, the re-orientation of the production
process resulted in high unemployment and accelerated migration to urban areas. Between 1991
and 2001 rural dispersed population decreased by 13.5 percent.

By indicators of poverty, basic needs, and educational levels the northwest contains some of
Argentina‘s poorest provinces. Although only 6 percent of the region‘s cropland is irrigated,
irrigated agricultural is very important in several provinces, with Tucumán being a world leader
in lemon exports. The soy frontier has expanded rapidly in Salta and Santiago del Estero. As
discussed above, in the Chaco-Santiago expansion, only some 13 percent of soybeans replaces
previously cropped land, indicating a high likelihood of a net increase in agricultural
employment. In Salta, the soybean area replacing other crops increases to 24 percent.
Nevertheless, analysis of population change in the 6 departments in the Chaco ecosystem
experiencing the most rapid soybean expansion, revealed a 14 percent rate of population increase



                                                138
in these departments over the 1991-2001 period--suggesting a modest but positive net
employment effect of the soybeans expansion in this area.

Consolidation of small farms in sugar cane production has been rapid, due in part to increased
price pressure from Brazilian imports, especially in Tucumán, where the number of farms
decreased by 40 percent.

Currently available data raise important questions concerning the poverty dynamics of the
Northwest. For example, rural areas in Santiago del Estero have, by a significant margin, the
lowest rate of school attendance (measured by percentage of 15-17 year olds in school).
Satisfaction of basic needs is also among the poorest. Yet both dispersed and grouped areas have
grown in population. Perhaps this reflects new entrants related to the soybean boom. It may also
reflect relatively low mobility of existing farmers, which has prevented them from out migrating
despite their poor conditions. It is noteworthy that the area of soybeans expansion exhibits no
significant change in average farm size, and only a small increase in the use of rental contracts,
providing little evidence of small farmers benefiting from land transactions with the new
soybean entrants. To provide the basis for a poverty strategy adapted to the economic dynamics
of the region, we need additional data concerning the economics of poor farm households and
their regional contexts.

Catamarca and La Rioja have, by a considerable margin, the best indicators on education and
basic needs of all the Northwestern provinces, and considerable recent expansion of ―new‖
export products such as olives, olive oil, wine, and industrial crops. La Rioja appears to export a
higher share of its agricultural products in manufactured form than any other province in
Argentina (18 percent), whereas Catamarca‘s exports in value-added form were weak (1
percent). At 3.6 percent per year, La Rioja‘s agriculture GDP growth over the 1991-2001 period
was among the highest in Argentina, while Catamarca‘s was slightly below average. Both
provinces demonstrated good growth in ag-based industrial exports, both pre-crises and post
crises, although Catamarca‘s post-crises ag-based manufacture export growth has been stronger
(from a much lower base). They both exhibit low rates of population loss from dispersed areas.
Nevertheless Catamarca‘s grouped rural population has increased by 14 percent, while that of La
Rioja has fallen by 12 percent. This is especially curious given La Rioja‘s higher rate of
agricultural GDP growth and stronger export orientation of ag-based industrial products, which
one would expect might generate additional non-farm employment in grouped rural areas. Again
the formulation of appropriately differentiated regional poverty and rural development strategies
will require that we better understand the dynamics of population movements in these provinces.

The Cuyo

The Cuyo region is composed of three provinces, Mendoza, San Juan, and San Luis. Mendoza
and San Juan depend almost entirely on irrigation for agriculture, while in San Luis, irrigation is
minimal. Mendoza and San Juan are famous for their vineyards. San Luis, on the other hand,
produces grains and oilseeds; notably wheat, sorghum, sunflower and soy, with 51,300, 36,000,
36,000 and 4,000 hectares, respectively.




                                               139
Mendoza alone concentrates 70 percent of Argentina‘s land planted with grapes. In Mendoza,
fruits account for 82 percent of total irrigated farm land. Among fruits, the higher shares
correspond to grapes, plums, apricot and olives with 54, 7, 7 and 6 percent of total irrigated land
respectively. In addition, in Mendoza horticulture accounts for 14 percent of total irrigated farm
land area. In San Juan, fruits account for 85 percent of total irrigated farm land. Among fruits
grapes are noteworthy with 57 percent of total irrigated area, followed by olives with 20 percent
of total irrigated area. Onions and garlic is also important in the region.

In San Juan and Mendoza, all size producers are involved with grapes, but exports are mainly
limited to medium and large producers. In Mendoza, grapes are exported as wine and also as
fresh fruits. In San Juan, exportable fresh grapes predominate (they are also consumed in the
domestic markets). Apricots and a portion of the onion and garlic crop are also exported from
both San Juan and Mendoza. In both provinces, the farmers involved in the export business
constitute the minority. Few producers have been able to meet the requirements of the external
market, although those who have, have done well.

A significant number of small farmers grow horticulture (i.e. industrial tomatoes, carrots, onions)
in both provinces, and in San Juan there is an increasing production of melons for internal
consumption. The majority of small farmers either continued to produce for the domestic market,
and seek new non-agricultural activities or sell out and abandon agriculture. Data from the
agricultural census shows important decreases in the number of farms in Cuyo. In San Luis, the
number of farms decreased by 38 percent, in San Juan by 23 percent and in Mendoza by 13
percent. Not surprisingly, in San Juan and San Luis, rural population decreased by 17 and 27
percent, respectively. In Mendoza, on the other hand, rural population increased -- by 0.3 percent
in dispersed rural areas, and 32 percent in grouped rural areas.

All three of Cuyo‘s provinces are among the provinces that exhibited rapid growth of
agricultural-based manufactured exports in the immediate post reform era. Of the three, only
Mendoza had, in 2003, regained the level achieved before the crisis. Overall, Mendoza has been
much more successful than San Juan in achieving high value export markets. Mendoza‘s
agricultural-based manufactures are equal to 6 percent of agricultural GDP (fourth highest in
Argentina), compared to 1 percent for San Juan.

The Patagonia

The Patagonia region concentrates the largest valleys with pears and apples. About 40 percent
of total cropland is irrigated in Patagonia. Río Negro province has the largest irrigated area (55
percent), followed by Neuquén and Santa Cruz, with 26 and 27 percent of total farm land
irrigated, respectively. Fruits are the main irrigated crop in Neuquén and Río Negro, with 67
percent of total irrigated farm land in each province. Fodder is the main irrigated crop in Chubut
and in Santa Cruz with 76 and 95 percent of total irrigated farm land in each of these provinces,
respectively. In Neuquén and Río Negro, fodder is the second main irrigated crop with 21 and 25
percent of total irrigated farm land, respectively.

As in Cuyo, small farmers in the Patagonia have been unable to modernize their farms and meet
the requirements of international demand. Many sold their farms to the new investors and



                                               140
became temporary wage workers or migrated to other areas (Rofman, 1999). In Río Negro, rural
dispersed population decreased by 24 percent between 1991 and 2001 and the number of farms
shrank by 19 percent between 1988 and 2001. The introduction of technology in these agro-
industries is also reported to have diminished labor demand in urban areas.

Livestock activities are very important in Patagonia, mostly sheep and lambs. This region
concentrated about 66 percent of total sheep and lambs in Argentina. Nevertheless, farmers
growing lamb have been seriously affected by low prices of wool during the nineties. In the
province of Santa Cruz it was estimated that from the 1,102 farms with sheep in 1988, only 51
percent (567) remained active in 1997 (Lattuada, 2000).

Considerable international capital was invested in Patagonia provinces following the reforms of
the 90‘s, particularly in modern agro-exporter plants and large farms. Neuquén and Río Negro
became important producers of pears, and in Chubut and Santa Cruz investment went into fine
fruits, flowers and garlic. All five provinces exhibited rapid growth of agricultural-based
manufactured exports, over the period, and all five achieved substantially above average growth
of agricultural GDP (over the 1991-2001 period). Chubut, which has the fourth highest ratio of
agricultural-based manufactured exports to ag GDP in Argentina (7 percent), is the only province
in Patagonia to have reestablished its pre-crisis ag-based manufactured export level by 2003.

Although pear production has expanded reasonably among the more commercially-oriented
farms of the Upper Río Valley, apple production has stagnated, due to a mixture of outdated
rootstock of low commercial value, and poor phytosanitary control. This is both a problem of
lack of credit availability to upgrade rootstock, and lack of an effective program of Carpocapsa,
control - especially failure to eradicate ―abandoned‖ orchard.

Outmigration from the agricultural sector has been rapid in Santa Cruz, from both the grouped
and dispersed areas, due mostly to sustained low wool prices during the 1992-2001 period.
Remarkably, Santa Cruz has among the best high school youth participation rates, in both
grouped and rural dispersed areas, as well as the best record of meeting basic needs of the rural
population (only 12 percent without basic needs met). These facts suggest that farmers leaving
the country side in Santa Cruz are likely to be relatively well-prepared for life elsewhere.

The Pampas

Finally, the Pampeana region is the richest rural area of the country. The main crops are soy,
wheat, and corn. Soy is the major crop and accounts for 12 million hectares, or 89 percent of the
total surface. Sunflower is also important in Santa Fe, Buenos Aires, La Pampa and Córdoba,
while linen and rice, are also predominant in Entre Ríos. Most farms (approximately 75 percent)
combine agricultural with livestock activities.

The large majority of the farms in the Pampas produce for export. They are mainly medium and
large farms: the 37 percent of all farms with fewer than 100 hectares accounts for only 3 percent
of all farm land.




                                              141
Important decreases in the number of farms have been observed in the Pampas. In 2001 there
were 29 percent fewer farms than in 1988. Buenos Aires and Córdoba showed the highest
reductions with 32 and 36 percent losses between 2001 and 1988. However, it is not clear if all
these farmers have abandoned the activity or formed new enterprises (Bertolassi, 2004). In
certain industries, such as the dairy industry, the extinction of farms is evident. For example,
between 1985 and 1995 the number of dairy farms dropped by 40%, while output increased by
90 percent (Gutman, 2002). Those more negatively affected have been small dairy farms
(Lattuada, 2000).

Irrigation in the Pampeana region is supplemental, largely pivot irrigation based on groundwater.
Grains constitute the main irrigated crop in every province, except La Pampa, where fodder
accounts for a large share. In Entre Ríos, the second main irrigated crop is rice with 42 percent of
total irrigated farm land. There, fruits are also important.

The Pampas is undergoing a rapid process of farm consolidation, driven by cost reducing and
labor saving technological change, and by new contractual instruments (generically labeled
―pools‖) for combining land, machinery, and high quality management. These pooling
arrangements have proved effective at improving the overall level of management and risk
diversification.

Productivity indicators suggest that commercial farms in the Pampas are world class in grain and
oilseed production. Soybeans and grain production has boomed in the past 15 years. Ironically,
beef production has stagnated, in production, in exports, and by all available productivity
measures. Since most operations in the Pampas are mixed crop-livestock operations it is
unlikely that this stagnation is a reflection of management deficiency. It is more likely to be a
reflection of (1) the very high and competing profitability of grains and soybeans (especially
since the wide-scale adoption of no-till planting and pooling arrangements), (2) the perception of
greater risk associated with cattle--especially since the hoof-and-mouth outbreak of 2001, and (3)
governance problems in the beef chain. Cap and González (2005) reported that most producers
operate at low technological levels and that the productivity gap between low and high
technology packages is high (65 percent on average).

Relative to the other regions, indicators of rural quality of life are high: unmet basic needs and
rural poverty are the lowest of all the regions, and education levels the highest. Nonetheless,
farm size concentration is taking place more rapidly in the Pampas than elsewhere, and the rate
of out migration from dispersed areas is the most rapid.

In the Pampas, high education levels (facilitating off-farm employment) in dispersed rural areas,
even among small farmers, combine with an active land market (for both sales and rentals) to
lure small and mid-size farmers off the land. In these cases out migration should not be taken as
prima facie evidence of decreased well-being. On the contrary, migration may be evidence of a
farm family having achieved a critical level of assets (human capital plus increasingly high
valued land) to successfully make the transition to non-farm employment. Unfortunately, no data
are available to evaluate whether or not these farm families are, in fact successful in non-farm
life.




                                                142
            ANNEX II: INDICATIVE ANALYSIS OF EXPORT MARKET
               STRATEGIES OF THE REGIONAL ECONOMIES 68
In this section we look at two generally accepted ‗generic‘ approaches to market penetration that
are widely believed to lead to significant success for a firm or an industry:

          Offering the market a distinctive product (or service) for which consumers are willing to
           pay a premium price (be the ―price leader‖);
          Producing a good quality, standard product at the lowest unit cost (be the ―cost leader‖).

As a first approach, we examine the performance of Argentinean industries based on irrigated
land to see whether they might be attempting either to:

          Get the highest price for its fresh produce or processed products; or
          Maximize the sales of ‗commodity‘ products at the lowest cost.

We might, prima facie, expect to find evidence of the latter strategy since Argentinean
agribusiness has historically tended to favor a ―commodity‖ stance for products such as wheat,
beef and tea.

Although a wide range of permanent and annual crops can be grown on irrigated land, we look at
Argentina‘s international performance in just two products: wine and table grapes.

          First, we look at the relative position of Argentina vis-à-vis other countries in recent
           years.
          Secondly, we look at Argentina‘s performance over time to check for consistency in its
           strategy.
          Finally we look for a ‗fit‘ between price and cost.

The data used

Since we only intend to illustrate a general approach, we use readily available data, mostly from
the FAOSTAT (2005). Of necessity this means using average prices, a move that conceals the
complexity of, say, French wines. Since FAO data does not distinguish between table grapes and
grapes grown for wine-making, we use what amounts to a weighted average of the two for
consideration of the cost of agricultural production in the case of both table grapes and wine.
Despite these shortcomings, the analysis seems to provide a good enough approximation of
Argentina‘s situation in both industries examined.

Wine

The World Market. Figure A2.1 displays the main wine exporting countries, ranging them
according to the average free on board price (fob) value of a ton of wine exported (the Y axis)


68
     This note was kindly provided by John Young.



                                                    143
and the rate of sales growth over the preceding five years (the X axis). The size of the ‗bubble‘
indicates the dollar volume of sales.

The market may be divided generally into three groups.

      The first ―group‖ consists solely of France, the historical market leader. France‘s average
       export price and export volume have both risen steadily since the 1960s. The price
       leveled out somewhat in the early eighties, and again in the nineties, but reached record
       levels in 2003. Sales growth has recently been slow - as is often the case with a market
       leader. As is well known, French wine-makers export a range of products with a wide
       variation in price.
      The second group comprises the other large European wine exporters (Italy, Spain,
       Portugal and Germany) plus the US, Chile and Uruguay. Their average prices ranges
       from half of France‘s (Italy) to a quarter (Spain‘s). Their sales volume has also been
       slow. (The position of Chile is shown based on its actual sales volume and sales growth
       rate for 2003 and its average export value for 2002).
      The third group is less compact and comprises countries such as New Zealand, Australia
       and South Africa. All have experienced recent dramatic sales growth but have different
       pricing strategies. New Zealand specializes in premium wines and earns a higher fob
       price than France‘s average (though not its top products). Australia prices its wines above
       the ―European‖ average but below France. South Africa prices its wine above Spain but
       below Italy. All three have doubled or tripled sales over the last five-year period.

                                                                                Figure A2.1: World exports of wine
                                                                                               World exports of wine 2003

                                                   $6,000

                                                                                                                                                                    New Zealand

                                                   $5,000

                                                                  France
               average unit value $ per t fob




                                                   $4,000

                                                                                                                                                    Australia

                                                   $3,000

                                                                              Italy
                                                        Portugal                         Uruguay

                                                   $2,000                       Germany

                                                                                               Chile (est)
                                                  Algeria         USA            Spain                                               South Africa

                                                   $1,000
                                                                  Argentina


                                                        $0
                                                -20% -10%    0%    10%   20%    30%   40%   50%    60%   70%    80%   90% 100% 110% 120% 130% 140% 150% 160% 170% 180% 190% 200% 210%

                                                                                                               sales growth 5-year rate




              Source: FAOSTATS data (2005).

Argentina falls below the ―European‖ group, earning an average fob price below $1,000 per
tonne with a more or less stagnant sales volume.



                                                                                                                      144
In summary, we can identify France as the ―price leader‖, and also tentatively identify Spain as
the ―cost leader‖. (The former ‗cost leader‘, Algeria, declined dramatically in the 1980s and is
now scarcely visible.)

Argentina’s Performance over Time. Whereas most newcomers to the wine trade - like Chile -
or revamped old-timers - like Australia and South Africa - initially positioned themselves to
compete with the ‗cost leader‘, then gradually moved up-market, Argentina appears at times to
have followed this approach, and, at others, to have reverted to its traditional ‗commodity‘ stance
- where it appears to be in 2003. Figures A2.2 and A2.3 contrast the trajectory of New Zealand -
that adopted the ‗newcomer‘ strategy - with that of Argentina.

New Zealand shows a steady increase in average unit price and sales volume with only one
deviation in 2000. This is a typical New Zealand approach to agribusiness exports, well suited to
a small economy, geographically distant from markets.

Argentina seems to have moved up-market in the early 1970s, again briefly in the late 1970s -
but then steadily dropped its prices until the mid-1980s. The average export price see-sawed
throughout the 1990s, then climbed to a point above Chile in 2001 - after which exporters again
reverted to lower prices (that is to say, attempted to penetrate markets, like Russia) where price is
the basis of competition. Unit value changes depend munch on the variation in the composition
of the export mix of common and quality wines.

                                                                       Figure A2.2: New Zealand exports of wine

                                                                                 New Zealand: export wine performance

                                                $7,000



                                                $6,000                                                                                                              2003
                                                                                                                                                                   $158m


                                                $5,000
               average unit value $ per t fob




                                                $4,000

                                                                                                                                                     1998
                                                                                                                                                     $53m
                                                $3,000

                                                                                                                                                            2000
                                                                                                                                                            $90m
                                                $2,000



                                                $1,000



                                                   $0
                                                         1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007




              Source: FAOSTATS data (2005).




                                                                                                           145
                                                                                    Figure A2.3: Argentina Exports of wine


                                                                                              Argentina: export w ine performance



                                                          $1,750

                                                                                                                                                                                  2001
                                                                                                                                                                                 $147m
                                                          $1,500
              average unit value $ per t fob




                                                          $1,250


                                                          $1,000                                                                                                     1997
                                                                                                                                                                    $128m               2003
                                                                                                                                                                                       $168m
                                                           $750

                                                                                                                                                                   1996
                                                                                                                                                                   $67m
                                                           $500
                                                                                                            1978
                                                                                                            $16m
                                                                                                                                                               1994
                                                                                                                                                                            total an nu al sales volume
                                                           $250                                                                                                $74m




                                                             $0
                                                                   1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007


            Source: FAOSTATS data (2005).

The Relationship between Price and Cost. In the absence of cost data, we have used the
agricultural yield of grapes as a crude proxy. Figure A2.4 plots the average export price in 2003
against the yield of grapes.

                                                                                  Figure A2.4: Export wine prices and grape yields

                                                                                                  Export wine prices & grape yields

                                                          $6,000
                                                                                          New Zealand


                                                          $5,000
                         average unit value $ per t fob




                                                                                                               France
                                                          $4,000




                                                          $3,000
                                                                                                                                            Australia

                                                                                                                                                  Uruguay
                                                                                                                         Italy
                                                          $2,000                                                                           Chile (est)
                                                                                   Portugal                                 Greece                       Germany
                                                                                                                                                                                        USA

                                                                                        Algeria     Spain
                                                          $1,000
                                                                                        Moldova                                                    Argentina
                                                                                                                                                                                          Brazil

                                                             $0
                                                              20,000           40,000             60,000       80,000            100,000            120,000           140,000          160,000
                                                                                                            agricultural yield of grapes hg/ha


            Source: FAOSTATS data (2005).




                                                                                                                        146
The assumptions about the two generic strategies would lead to the expectation of finding the
‗price leader‘ to have relatively higher raw material costs for two reasons: first, the emphasis
would be on the quality of the raw material, not the quantity; secondly, there would not be any
great imperative to drive down raw material costs, hence ‗traditional‘ methods would be likely to
persist.

On the other hand, one would expect to find the ‗cost leader‘ striving for lower costs in every
component of the value chain, especially the raw material that usually accounts for a high
percentage of the total cost.

On examining the graph, one can imagine a line running from ‗New Zealand‘ (near the top left)
in a south-easterly direction, passing close to France and Australia, then bisecting the ―USA‖ and
―Brazil‖. Countries that lie close to the line may be thought of as successfully trading off cost
and price.

The position of Spain and Portugal requires comment. First, since Spain is, tentatively, the ‗cost
leader‘, then its position in the south-west quadrant might suggest that other factors than
agricultural yield account for low costs. The lower yields may also be the consequence of using
non-irrigated land with few alternative uses. A third hypothesis is that recent economic growth,
accompanied by a rise in factor costs, is inclining Spanish wine-makers to change their strategy
and move up-market, a move that has its parallels in other sectors of the Spanish food and
beverage industry.

The position of Argentina is less ambiguous. Its grape yield is higher than most of its wine-
exporting competitors, but well short of Brazil, an acknowledged exporter of ‗commodity‘
wines. To put things another way, if Argentina wishes to compete at its current price level, then
it would be logical to aim to increase its grape yield by a third. If, on the other hand, it wishes to
price its wine according to its current cost structure, then it would have to position itself close to
Australia and Uruguay - but this would mean endeavoring to triple its price. Meanwhile, it is
stuck in the middle.

Grapes

The World Market. The international grape market includes most of the players in the
international wine market, though the relative role of each is different (with the possible
exception of Italy). The major exporters are shown in Figure A2.5. The ‗price leader‘ is the US -
and it may be the ‗cost leader‘ too for the northern hemisphere exporters. The ‗cost leader‘- at
least for the southern hemisphere - is Chile.

Since grapes, unlike wine, are perishable, small exporters are able to earn a premium price by
supplying the US or EU markets during the ‗windows‘ that occur between the end of the
northern hemisphere crops (California and the regions bordering the Mediterranean Sea) and the
southern hemisphere crop (Chile). Brazilian exporters have been able to exploit one such
window, achieve a high price and a fast rate of sales increase, apparently at the expense of Israel.
Egypt, on the other hand, has yet to devise a strategy to obtain better than derisory prices - which
nonetheless enable it to earn a modest profit by exploiting new, irrigated lands.



                                                 147
Argentina occupies the same position on the graph as Mexico with a smaller sales volume. Its
price is barely above the ‗cost leader‘, Chile, but with a slower rate of sales growth.

                                                                                           Figure A2.5: World Grape Exports

                                                                                                            World grape exports 2003

                                                                $2,000
                                                       Israel


                                                                $1,800
                                                                 France
                                                                                                                                                                                        Brazil
                                                                                              Australia
                                                                                              na
                                           $1,600
                               average unit value $ per t fob

                                                                $1,400            USA
                                                         Greece

                                                                $1,200                     Spain
                                                                                                                         Portugal
                                                                           Italy
                                                                $1,000
                                                       Uruguay                             Mexico
                                                                               Argentina
                                                                 $800
                                                                                            Chile

                                                                 $600
                                                                                                           Turkey


                                                                 $400
                                                                                                                                                                         Egypt
                                                                                                                    Moldova


                                                                 $200
                                               -100%                      0%                  100%                  200%              300%          400%          500%           600%

            Source: FAOSTATS data (2005).

Argentina’s Performance over Time. Figure A2.6 shows a similar series of rises and falls in
price to the graph depicting its performance in exporting wine. Once again, it appears that, from
time to time, Argentine exporters aim for a premium market, then change direction and decide
instead to compete on the basis of price.

                                                                  Figure A2.6: Argentina: exports grape performance
                                                                                               Argentina: export grape performance



                                              $1,600


                                              $1,400
             average unit value $ per t fob




                                              $1,200


                                              $1,000


                                               $800


                                               $600


                                               $400


                                               $200


                                                 $0
                                                   1960          1963      1966        1969         1972     1975    1978      1981   1984   1987   1990   1993   1996   1999    2002     2005


           Source: FAOSTATS data ( 2005).




                                                                                                                              148
The Relationship between Price and Cost. Figure A2.7 is harder to interpret than its ‗wine‘
counterpart. First, the ‗price leader‘, the US, is also a very efficient grower of grapes. Secondly,
certain small exporters- Brazil and Israel - are able to exploit ‗windows‘ in order to earn a high
price. Thirdly, the ‗cost leader‘, Chile does not achieve outstanding grape yields compared to the
US - with whom it avoids direct competition by being in a different hemisphere.

Argentina‘s position, though, is rather clear. As with export wine, it is, once again, stuck in the
middle. As a first cut, one may conservatively imagine a line starting at ‗France‘, bisecting
‗Greece‘ and ‗Australia‘ and proceeding south-east to ‗Egypt‘. In order to ‗sit‘ on this line,
Argentina would either have to increase its yield of grapes by a quarter or its price by a half.

A second, more aggressive cut would draw the north-west to south-east line from Israel to Egypt.
This reading of the data would suggest that Argentina (indeed all) exporters should endeavor to
raise their agricultural yields to match those of Israel, Brazil and the US.

                                                                 Figure A2.7: Export grape prices and yields

                                                                                Export grape prices and yields

                                                 $2,000
                                                                                                                                                          Israel
                                                 $1,800

                                                                                                        Fran ce
                                                 $1,600
                                                                                                                              Au stralia                       Brazil
               average unit value $ per to fob




                                                 $1,400
                                                                                                                                                              USA
                                                                                                                     Greece
                                                 $1,200
                                                                                            Spain
                                                                            Portu gal
                                                 $1,000
                                                                                                                  Italy            Uru gu ay
                                                                                                                                       Mexico
                                                  $800
                                                                                                                     Ch ile        Argentina

                                                  $600

                                                                                                 Tu rkey
                                                  $400
                                                                                                                                                                        Egypt
                                                                                Moldova
                                                  $200


                                                    $0
                                                          0   20,000   40,000           60,000         80,000       100,000        120,000      140,000    160,000       180,000

                                                                                                    agricultural yield hg/ha

            Source: FAOSTATS data (2005).

The foregoing is just a sketch of why Argentina does not achieve as good a return on irrigated
crop-land as some of its competitors. In both the wine market and the table grapes market, the
general strategy of the various national industries and the relative success of the strategy are
readily apparent. There is also a plausible fit between each leading player‘s price and cost
profile. Not so for Argentina.

The behavior of Argentinean exporters of wine and table grapes is suggestive of a trading
mentality: the antithesis of a marketing approach. The latter targets a specific market niche with
a product designed or selected to appeal most to a particular segment of the market, then adopts a
long-term market penetration plan that ‗fits‘ or ‗aligns‘ all aspects of the business to serving the



                                                                                                           149
target customer. The countries perceived as following a successful strategy in the wine and table
grapes industries stayed with their marketing plan over many years. This behavior of Argentina‘s
wine industry may be due to the transformation started in the late 1980s when the preference of
domestic consumers for quality wines and the reduction of per capita consumption together with
the expanding opportunities for quality wines in world markets started being felt. Argentina‘s
transition from a common quality to a high quality wine producer and exporter has been slowed
down by capital constraints to renew grape plantations, ineffective collective action in the wine
chain and insufficient, although increasing, FDI.




                                              150
     ANNEX III: THE NEW AGENDA FOR FOOD QUALITY AND SAFETY
There has been a noticeable upsurge of concern throughout the world over the last decades
regarding food quality and safety issues. This is essentially a demand driven phenomenon as it is
mostly consumers‘ pressure what has given such relevance to quality and safety issues in the
food and agriculture agenda. Also important is the pressure of trade-related legislations and
process/product standards that are in flux because of innovations in quality control. It is also a
relatively recent event; three or four decades ago governments and their phytosanitary and public
health authorities were mostly driving the agenda. Governments today continue to be involved
with regulatory and other functions, but the pressure to ensure quality and safety in food chains
comes from consumer associations and consumers at large, and many of the standards are
currently set by the private sector. The change is due to a combination of factors among which
the increase of health consciousness among consumers, and the growing industrialization and
differentiation of food with the expansion of processing, labeling and niche markets, as well as
higher value added with incremental quality leading to higher prices.

Developed, middle income and developing countries have all been affected by this trend
although in different ways and to different extents. In middle income countries like Argentina
there is concern of domestic consumers about food and feed quality and safety issues, but the
strongest pressure for improvement comes from two sources: international trade and
supermarkets.

Argentinean, like other international producers, are subjected to the same or even more
demanding standards in developed country markets when they try to export to these markets.
Regulators require imported products to be subjected to the same control methods as local ones,
and international agencies and agreements tend to adopt these methods as the international norm.
Thus, for instance, HACCP has been adopted by the Codex Alimentarius as the international
standard for food safety, and the US government has made it compulsory for imported seafood
and juices.69 Meeting international food quality and safety standards becomes hence a requisite
for export development.

Supermarkets have also played their part. Many changes are taking place in food retailing in
Latin America in recent times, with dramatic increases in the proportion of food that is sold in
supermarkets. Argentina is ahead in this trend with a proportion of 57 percent of food
consumption retailed through supermarkets (Reardon et al, 2002). The implications for the
quality and safety of foods are important. There are several reasons for this. One is that many
supermarket chains are multinational firms which bring with them international standards that
they apply more or less commonly in the countries where they operate.



69
   The Hazard Analysis and Critical Control Point system (HACCP) is an integrated food safety control method
based on prevention. It involves seven principles: analyze hazards; identify critical control points; establish
preventive measures with critical limits for each control point; establish procedures to monitor de critical control
points; establish corrective actions to be taken when monitoring shows that a critical limit has not been met;
establish procedures to monitor that the system is working properly; and establish effective record keeping to
document the HACCP system.


                                                       151
The internalization of international standards through supermarkets and foreign trade, and the
new demands for food quality and safety are putting increasing pressure on all the elements of
the production/marketing chain: producers, processors and regulators. To the old phytosanitary
agenda, mostly based on avoiding production losses through pest protection, a new one is thus
added. It includes a broader concept of quality incorporating inter alia concerns of social and
environmental production and processing conditions, the stability and homogeneity in the
characteristics of specific products, and the presence of residuals from veterinary drugs and pest
control chemicals as well as their safe use in the field. The opportunities as well as the safety and
commercial risks brought about by biotechnology and genetically modified events are also part
of the new agenda. This agenda brings new requirements of traceability, certification and the use
of preventive systems like HACCP, as well as for the commercial release of new varieties when
they have been genetically modified.

The areas requiring enhancement to meet the new challenges are field practices in crop and
animal production and processing, the regulatory system, and the accreditation and certification
system. Improving crop and animal production practices and processing is essentially a private
sector matter which, like environmental management, requires an adequate combination of
economic incentives and command and control measures. Market signals are themselves a
powerful incentive system, for instance the possibility of accessing or not export markets
according to product quality and safety. But there is also plenty of room for public action. One
area is facilitating that market signals reach producers clearly, like for instance through
information systems that alert producers to possible market opportunities which require meeting
certain standards. Another is enabling producers to respond to these signals, for instance by
training them in sanitary and phytosanitary regulations or assisting establishing HACCP systems
in production chains. But probably the most important public role is in facilitating the operation
of collective action. This is essential because the benefits from good quality and safety practices
rest on many producers and/or processors simultaneously following them either in a certain
territory or along the production chain. Collective action can be ensured through facilitating the
creation and working of adequate economic coordination institutions and through command and
control measures, such as the imposition of effective sanitary standards.




                                                152
           ANNEX IV: INDICATORS OF IRRIGATION DEVELOPMENT IN ARGENTINA’S PROVINCES
                                                                                                                                       Level of
                                                                                                                                                                                  Institutional
                                                                              Changes in                                           decentralization   Mechanisms
                                                                                                  Development                                                                      capacity of
                Price of            Level of fee                               irrigated                              Expected       in irrigation   for water price
Province                                               Cost recovery                              of new high                                                                      provincial
             irrigation fee          collection                                area and                              profitability management and setting and fee
                                                                                                   value crops                                                                      irrigation
                                                                              production                                           level of farmers’    collection
                                                                                                                                                                                      agency
                                                                                                                                     organization
MENDOZA     $60/ha-year.          Medium to low,       Full cost            Irrigated area       New varieties for   High in grapes     High level of        Correct price       DEPARTAMEN-
            In effect for every   equivalent to        recovery. Budget     decreased            wine production,    for high           decentralization.    setting based on    TO GENERAL
            irrigation system.    60% of total         is planned based     (250,080 ha in       expansion of pear   quality wine       High to moderate     budget. Imperfect   DE
            Allows full           registered           on fee collection.   1988 and 248,217     and cherry area.    production,        level of farmer      collection          IRRIGACION:
            irrigation cost       irrigators and       (Balanced            ha in 2001).         Satisfactory        plums, pears,      organization         mechanism.          High institutional
            recovery.             38% of existing      budget).             Areas with grapes    incorporation of    cherry, garlic.    depending on crops                       capacity for
                                  irrigators.                               decreased            new crops.          Lower in           and areas.                               planning,
                                                                            (142,000 ha in                           apricots,                                                   budgeting, and
                                                                            1988 to 134,000                          tomatoes,                                                   management of
                                                                            in 2001). Areas                          onions, and                                                 irrigation
                                                                            with fruits and                          other                                                       systems.
                                                                            vegetables                               horticultural
                                                                            increased by                             crops.
                                                                            25%.                                     Generally
                                                                                                                     adequate
                                                                                                                     profitability in
                                                                                                                     the last two
                                                                                                                     seasons.
SAN JUAN    $18-25/ha-year        Low, equivalent      Although             Irrigated area       Expansion of        High in grapes     Irrigation system    Incorrect water     DEPARTAMEN-
            depending on the      to less than 30%     operating costs      increased by 18%     areas with grapes   for high           formally             price-setting       TO DE
            system. In effect     of total invoices.   are not recovered,   from 1991-2001       for consumption,    quality wine       decentralized but    mechanism,          HIDRÁULICA:
            for every                                  level of canon       (from 62,776 ha      olives, and seed    production,        practically          Water price not     Moderate
            irrigation system.                         collection is not    to 73,281 ha),       fruits.             plums, pears,      controlled by        considered in       management
                                                       increasing.          mainly in large-     Planting of new     cherry, garlic.    provincial           budgeting.          capacity. Limited
                                                                            and medium-          crops such as       Lower in           government. Weak     Imperfect           allocation of
                                                                            scale farms with     pistachios.         apricots,          level of farmer      collection          human resources,
                                                                            fiscal incentives.                       tomatoes,          organization.        mechanism.          especially of
                                                                            Production                               onions, and                                                 technicians.
                                                                            increased over                           other
                                                                            20%.                                     horticultural
                                                                                                                     crops.
                                                                                                                     Generally
                                                                                                                     adequate
                                                                                                                     profitability in
                                                                                                                     the last two
                                                                                                                     seasons.




                                                                                          153
                                                                                                                                             Level of
                                                                                                                                          decentralizatio                           Institutional
                                                                              Changes in                                                                   Mechanisms
                                                                                                Development                               n in irrigation                            capacity of
                Price of            Level of fee                               irrigated                               Expected                           for water price
Province                                               Cost recovery                            of new high                                management                                provincial
             irrigation fee          collection                                area and                               profitability                       setting and fee
                                                                                                 value crops                               and level of                               irrigation
                                                                              production                                                                     collection
                                                                                                                                             farmers’                                   agency
                                                                                                                                           organization
NEUQUEN     Several systems       High in some         In some systems      Irrigated area     Increases are        High to moderate      High level of        Correct price       DIRECCIÓN
            do not have a fee.    irrigation systems   all costs are        increased by       based on high        for pears, wine       decentralization     setting in some     PROVINCIAL
            In others fees        (over 90%) and       recovered; in        2.8% between       value crops: pears   grapes, apricot,      in some systems      systems and         DE RECUROS
            cover only part of    low in others,       others, operating    1988-2001, from    and grapes.          fodder. Low in        and low in other     inaccurate or       HÍDRICOS: with
            operating costs.      equivalent to less   costs are not        13,800 ha to                            tomatoes, apples,     systems.             ineffective in      moderate
            Only one allows       than 30% of total    recovered.           14,187 ha.                              and other             Strong level of      others. Imperfect   capacity; and
            full cost recovery.   invoices.                                 Production                              horticultural         farmer‘              collection          DIRECCIÓN DE
            Major variation       Increasing in                             increased by 6.2                        crops. Generally      organization.        mechanism.          IRRIGATION:
            in price setting,     certain systems.                          based on yields.                        adequate                                                       with low
            with negative                                                                                           profitability                                                  capacity. Scarcity
            consequences on                                                                                                                                                        of human
            management                                                                                                                                                             resources.
            quality.
RÍO NEGRO   $37 to $10/ha-        High in several      Full cost recovery   Irrigated area     Expansion is         High to moderate      High level of        Correct price       DEPARTAMEN-
            year depending        irrigation systems   in some systems,     expanded by only   based on fodder      in pears, wine        decentralization     setting based on    TO
            on the irrigation     (over 85%) and       and in the rest      0.5% from 1991-    (low value per       grapes, apricots,     in some systems.     budget expenses     PROVINCIAL
            system.               very low in          (with the            2001. Production   ha). Area for        fodder. Lower in      Low but              but in several      DE AGUAS:
            In effect for every   others. Generally    exception of         increased over     fruits decreased     apples, tomatoes,     increasing level     systems capital     High institutional
            irrigation system.    higher than in       Catriel) operating   10% based on       but production       and other             of farmer            costs are not       capacity for
            Few consortiums       Neuquén.             costs are            higher yields.     increased.           horticultural         organization.        considered.         planning,
            have systems that                          recovered.                                                   crops. Generally                           Collection          budgeting and
            allow full cost                            Collection level                                             high to moderate                           mechanisms are      management of
            recovery.                                  is increasing.                                               profitability                              improving.          irrigation
                                                                                                                    depending on                                                   systems.
                                                                                                                    product.
CHUBUT      $40/ha-year.          Medium to high       Operating costs      Irrigated area     Fodder is the        High in cherries      Moderate level of    Correct price       DIRECCIÓN
            In effect for every   in Lower Valley      are partially        decreased by       main irrigated       and fodder. High      decentralization.    setting based on    PROVINCIAL
            irrigation system.    of Río Chubut        recovered.           21% from 1988-     crop. However,       to moderate in        Moderate to low      budget expenses.    DE RECURSOS
            Fees allow partial    (over 60%) and       Collection level     2001, from 9,400   cherries and fine    other fine fruit      level of farmer      Imperfect           HÍDRICOS:
            coverage of           medium to low in     is increasing.       ha to 7,700. All   fruits have          and horticultural     organization.        collection          Moderate
            operating costs.      other systems.                            crops decreased.   increased in         crops (potatoes       Lower level of       mechanisms.         institutional
                                                                            Fodder yields      recent decades.      and leaf crops).      participation than                       capacity.
                                                                            increased.                              Generally             in Río Negro, but
                                                                                                                    adequate              increasing.
                                                                                                                    profitability in
                                                                                                                    the last crop year.




                                                                                         154
                                                                                                                                        Level of
                                                                                                                                     decentralizatio                           Institutional
                                                                           Changes in                                                                 Mechanisms
                                                                                              Development                            n in irrigation                            capacity of
                 Price of            Level of fee                           irrigated                              Expected                          for water price
Province                                              Cost recovery                           of new high                             management                                provincial
              irrigation fee          collection                            area and                              profitability                      setting and fee
                                                                                               value crops                            and level of                               irrigation
                                                                           production                                                                   collection
                                                                                                                                        farmers’                                   agency
                                                                                                                                      organization
SANTA CRUZ   $22/ha-year.          Medium to low in Operating costs      Irrigated area      Fodder is the       High in cherries,   Low level of                     DIRECCIÓN
                                                                                                                                                         Incorrect price
             In effect for every   Los Antiguos      are not recovered.  expanded by         main irrigated      garlic, and         decentralization                 PROVINCIAL
                                                                                                                                                         setting. Imperfect
             irrigation system.    (around 55%) and                      186% from 1988-     crop. However,      fodder. Moderate    in some systems.    collection   DE RECURSOS
             Fees cover a low      low to zero in                        2001, but started   cherries and fine   in other            Strong              mechanisms.  HÍDRICOS:
             share of operating    Alto Río Senguer,                     at a low level      fruits have         horticultural       government                       Moderate
             costs.                Lago Posadas.                         (899 ha to 2,580    increased in the    crops.              intervention.                    institutional
                                                                         ha).                last decades.                                                            capacity.
TIERRA DEL   Water legislation No fee for water       No payment.        Irrigated area      Irrigation began  High to very high Moderate level of Water price is not DEPARTAMEN-
FUEGO        does not include a use.                                     expanded over       with high value   in horticultural  decentralization. set.               TO
             fee.                                                        500% from 1991-     crops:            crops. Low in     Strong                               PROVINCIAL
                                                                         2001, but started   strawberries,     strawberries.     government                           DE RECURSOS
                                                                         from an             horticulture, and                   intervention.                        HÍDRICOS:
                                                                         extremely low       pepper.                             Moderate to high                     Weak
                                                                         level (from 4 ha                                        level of farmer                      institutional
                                                                         to 155 ha).                                             organization.                        capacity.
SAN LUIS     $22/ha-year. For      Medium (around     Operating costs    Irrigated area      No new irrigated Moderate in most Moderate level of Incorrect price      SUBPROGRA-
             some systems          50%).              are not recovered. decreased by        crops. It seems   horticultural     decentralization. setting. Weak      MA
             only. Covers a                                              69%, from 5,517     that statistics   crops. High in a  Strong            collection         PROVINCIAL
             low share of the                                            ha in 1988 to       underestimate the few fruits.       government        mechanisms.        DE OBRAS
             operating costs.                                            1,655 ha in 2001.   irrigated surface Generally         intervention.                        HIDRÁULICAS:
                                                                         The high level of   with grains and   moderate          Moderate to weak                     Moderate to weak
                                                                         irrigation          fodder.           profitability.    level of farmer                      institutional
                                                                         potential is not                                        organization.                        capacity.
                                                                         used.
LA PAMPA     $46/ha-year.          Medium to low      Only some          Irrigated area      Reduction in        Moderate to high    Moderate level of   Incorrect price      DIRECCIÓN
             For some older        (around 40%).      operating costs    expanded by         areas with high     in fodder and       decentralization.   setting Imperfect    PROVINCIAL
             systems only.                            are recovered.     175% from 1991-     value crops.        grain crops,        Moderate level of   collection           DE AGUAS:
             Covers some                                                 2001, essentially   Areas with low      especially for      farmer              mechanisms.          Moderate to weak
             operating costs.                                            with grains and     value increased.    seeds. High         organization.                            institutional
                                                                         fodder. Areas       No new irrigated    profitability in    Strong                                   capacity.
                                                                         with fruits and     crops.              new corn            government
                                                                         vegetables                              varieties.          intervention.
                                                                         decreased.




                                                                                      155
                                                                                                                                        Level of
                                                                                                                                     decentralizatio                           Institutional
                                                                         Changes in                                                                   Mechanisms
                                                                                             Development                             n in irrigation                            capacity of
               Price of           Level of fee                            irrigated                               Expected                           for water price
Province                                          Cost recovery                              of new high                              management                                provincial
            irrigation fee         collection                             area and                               profitability                       setting and fee
                                                                                              value crops                             and level of                               irrigation
                                                                         production                                                                     collection
                                                                                                                                        farmers’                                   agency
                                                                                                                                      organization
CÓRDOBA    In the majority of Medium to low       Operating costs      Irrigated area       Reduction in        Moderate to high     Moderate level of   Incorrect price      DIRECCIÓN
           irrigation systems (around 40%).       are not recovered.   expanded by 36%      areas with high     in grains, fodder,   decentralization    setting. Imperfect   PROVINCIAL
           (Pichanas, Río                         Collection level     from 1991-2001       value crops.        grapes for wine      in irrigation       collection           DE AGUA Y
           Soto, Villa                            is increasing.       (138,500 ha to       Areas with          production.          management.         mechanisms.          SANEAMIEN-
           Dolores, Río                                                188,500 ha),         extensive crops     Moderate to low      Strong level of                          TO: Moderate to
           Primero, Area                                               essentially with     increased through   in olives.           farmer                                   high institutional
           Horticula Gran                                              grains and fodder.   new technologies.                        organization.                            capacity, but low
           Córdoba, Caroya,                                            Areas with           No new irrigated                                                                  manifested
           Rio Caurto,) there                                          vegetables           crops.                                                                            interest in
           is no fee. In Cruz                                          decreased.                                                                                             irrigation.
           del Eje the fee is
           $12 per ha/year.
           Does not allow
           cost recovery.
BUENOS     $59/ha-year.       High (over 75%).    Operating costs      Irrigated area   Reduction in            Moderate to high     Moderate but        Correct price        AUTORIDAD
AIRES      Only in the main                       are recovered.       expanded by 51%  areas with high         in grains, fodder,   increasing level    setting based on     PROVINCIAL
           system (Corfo-R.                                            from 1991-2001,  value crops.            grapes,              of                  budget expenses.     DE AGUA:
           Colorado). A                                                from 133,200 ha  Areas with              vegetables, and      decentralization.   Imperfect            Moderate to high
           large share of the                                          to 201,551 ha,   extensive crops         fruits.              Moderate to         collection           institutional
           operating costs                                             essentially with increased. Many                              strong level of     mechanisms.          capacity.
           can be recovered.                                                            new high value
                                                                       grains and fodder.                                            farmer
                                                                       Areas with fruitscrops: berries and                           organization.
                                                                       and vegetables   cranberries, new
                                                                       decreased.       horticultural
                                                                                        varieties.
LA RIOJA   $22 to $38/ha-       Low in some       Operating costs    Irrigated area     Significant             High in grapes       Low level of        Incorrect price      ADMINISTRA-
           year.                systems (around   are not recovered. expanded by        technological           for wine             decentralization.   setting. Imperfect   CIÓN
           In effect for some   40%) and low to                      200% from 1991- investments in             production and       Moderate to         collection           PROVINCIAL
           irrigation           zero in other                        2001 (from         grapes, olives,         nuts. Moderate in    strong level of     mechanisms.          DEL AGUA:
           systems. Some        systems.                             12,064 ha to       and nuts for high       crops such as        farmer                                   Weak to
           operating costs                                           36,600 ha), for    value products:         olive. Moderate      organization.                            moderate
           are covered.                                              every crop but     fine wines, olive       to low in                                                     institutional
                                                                     mainly for olives, oil for export,         horticultural                                                 capacity.
                                                                     grapes and nuts.   California              crops.
                                                                                        walnuts, etc.




                                                                                  156
                                                                                                                                             Level of
                                                                                                                                          decentralizatio                          Institutional
                                                                              Changes in                                                                   Mechanisms
                                                                                                   Development                            n in irrigation                           capacity of
                 Price of           Level of fee                               irrigated                                Expected                          for water price
Province                                               Cost recovery                               of new high                             management                               provincial
              irrigation fee         collection                                area and                                profitability                      setting and fee
                                                                                                    value crops                            and level of                              irrigation
                                                                              production                                                                     collection
                                                                                                                                             farmers’                                  agency
                                                                                                                                           organization
CATAMARCA    $20-$30/ha-year.     Medium to low in     Operating costs      Irrigated area        Significant         High in grapes      Low, but             Incorrect but      SECRETARIA
             For some             some systems         are not recovered.   expanded by 71%       technological       for wine            increasing, level    improving price    DEL
             irrigation           (around 46%) and     Collection level     in 1991-2001,         investments in      production, nuts,   of                   setting. Correct   AMBIENTE Y
             systems.             low to zero in       is increasing.       from 21,570 ha to     grapes, olives,     and citrus.         decentralization.    collection         DE LA
             Only operating       other systems.                            36,900 ha,            nuts, and citrus    Moderate to high    Strong but           mechanisms.        DIRECCIÓN DE
             costs can be                                                   especially in         for high value      in olives. Low in   decreasing                              RECURSOS
             recovered.                                                     olive and in a less   products: fine      horticultural       government                              HÍDRICOS:
                                                                            degree in grapes      wines, olive oil    crops.              intervention.                           Weak but
                                                                            and nuts.             for export,                             Moderate to weak                        improving
                                                                                                  California                              level of farmer                         institutional
                                                                                                  walnuts, etc.                           organization.                           capacity.
SANTIAGO     $20 to $30/ha-       High in the single   Operating costs      Irrigated area        Significant         Moderate to high    Low level of         Incorrect price    UNIDAD
DEL ESTERO   year depending       system that is       are not recovered    expanded by           technological       in fodder and       decentralization.    setting. Correct   EJECUTORA
             on irrigation        effective (over      in Río Dulce; the    8.2% from 1991-       investments in      horticultural       Strong               collection         DE
             system.              70%).                remaining            2001, from            fodder–livestock    crops (mainly       government           mechanisms.        IRRIGACION
             Only in effect in                         systems have         109,120 ha to         production and      onions and          intervention.                           EN EL RIO
             Río Dulce (main                           collapsed and        117,935 ha, but       cotton production   squash).            Weak level of                           DULCE:
             system). Some                             there is no          essentially with      (low prices for     Moderate to low     farmer                                  Moderate
             operating costs                           collection for       fodder (alfalfa       cotton hamper       in other            organization.                           institutional
             are covered. In                           their recovery.      with high yields      area expansion).    horticultural       However, there is                       capacity.
             the rest of the                                                and quality).         Moderate            crops.              an increase in the                      ADMINISTRA-
             areas, systems are                                             Areas with            expansion of high                       level of                                CIÓN
             ineffective.                                                   industrial crops      quality melons in                       participation by                        PROVINCIAL
                                                                            and vegetables        Salta (new                              certain farmers in                      DE RECURSOS
                                                                            decreased.            product).                               recent years.                           HÍDRICOS:
                                                                            Production and                                                                                        Weak
                                                                            fodder yields                                                                                         institutional
                                                                            increased                                                                                             capacity.
                                                                            significantly.




                                                                                             157
                                                                                                                                       Level of
                                                                                                                                    decentralizatio                            Institutional
                                                                          Changes in                                                                 Mechanisms
                                                                                            Development                             n in irrigation                             capacity of
               Price of           Level of fee                             irrigated                              Expected                          for water price
Province                                            Cost recovery                           of new high                              management                                 provincial
            irrigation fee         collection                              area and                              profitability                      setting and fee
                                                                                             value crops                             and level of                                irrigation
                                                                          production                                                                   collection
                                                                                                                                       farmers’                                    agency
                                                                                                                                     organization

TUCUMÁN    $32/ha-year.         High in the single Operating costs      Irrigated area     Significant         High in new          Low level of         Incorrect price      DIRECCIÓN
           In effect in every   system that        have started to be   expanded by 77%    technological       crops (avocadoes     decentralization.    setting. Imperfect   PROVINCIAL
           irrigation system.   charges (over      recovered.           from 1991-2001,    investments in      and cranberries).    Increasing level     collection           DE RECURSOS
           A large share of     70%).                                   essentially with   sugar cane and      Moderate to high     of organization      mechanisms.          HÍDRICOS:
           the operating                                                sugar cane and     lemon.              in lemons and        and participation    Both are             Moderate but
           costs is covered.                                            lemon. Areas       Significant         strawberries.        among farmers.       improving.           improving
                                                                        with vegetables    expansion in new    Moderate in                                                    institutional
                                                                        decreased.         high value          sugar cane.                                                    capacity.
                                                                                           products:           Moderate to low
                                                                                           avocadoes,          in other
                                                                                           cranberries,        horticultural
                                                                                           strawberries.       crops. Generally
                                                                                                               good profitability
                                                                                                               conditions.
SALTA      $28/ha-year.       Medium to high       Operating costs      Irrigated area     Significant         High in grapes       Moderate to high     Correct price        AGENCIA
           In effect in every in every system      have started to be   decreased by       technological       for wine.            and increasing       setting Imperfect    PROVINCIAL
           irrigation system. (over 50%).          recovered.           43% from 1991-     investments in      Moderate to high     level of             collection           DE RECURSOS
           Some operating                                               2001. Only areas   grapes and wines. in tobacco.            decentralization.    mechanisms.          HÍDRICOS:
           costs are covered.                                           with fodder and    Agricultural        Moderate to low      Weak level of                             Weak to
                                                                        grapes increased   irrigation in Salta in horticultural     farmer                                    moderate
                                                                        slightly.          is among the less crops. Generally       organization.                             institutional
                                                                                           dynamic.            moderate             However, there is                         capacity.
                                                                                                               profitability        an increase in the
                                                                                                               conditions.          level of
                                                                                                                                    participation by
                                                                                                                                    certain farmers in
                                                                                                                                    recent years.




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                                                                                                                                      Level of
                                                                                                                                   decentralizatio                          Institutional
                                                                          Changes in                                                                Mechanisms
                                                                                              Development                          n in irrigation                           capacity of
                      Price of        Level of fee                         irrigated                              Expected                         for water price
Province                                              Cost recovery                           of new high                           management                               provincial
                   irrigation fee      collection                          area and                              profitability                     setting and fee
                                                                                               value crops                          and level of                              irrigation
                                                                          production                                                                  collection
                                                                                                                                      farmers’                                  agency
                                                                                                                                    organization
FORMOSA          Ineffective in     No payment.       No payment.       Irrigated area       Significant        Moderate to high   Low level of         No fee for water   DIRECCIÓN
                 every irrigation                                       decreased by         technological      in primary         decentralization.    use.               PROVINCIAL
                 system.                                                32% from 1991-       investments in     horticultural      Organized                               DE RECURSOS
                                                                        2001. Only areas     horticulture,      crops. Generally   management                              HÍDRICOS:
                                                                        with vegetables      under a stagnant   moderate           system but not                          Extremely weak
                                                                        and primary fruits   situation. New     profitability      agro- ecologically                      institutional.
                                                                        increased.           ornamental         conditions.        sustainable.                            High scarcity of
                                                                                             products for                          Weak level of                           human resources.
                                                                                             export.                               farmer
                                                                                                                                   organization.
CHACO            No information.    No information.   No information.   Irrigated area       Significant        Moderate in        Low level of         No fee for water   ADMINISTRA-
                                                                        expanded by          technological      horticultural      decentralization.    use.               CIÓN
                                                                        5.2% from 1991-      investments in     crops Moderate     Organized                               PROVINCIAL
                                                                        2001, from           horticulture,      to weak            management                              DEL AGUA:
                                                                        11,400 ha to         under a stagnant   profitability      system. Moderate                        Weak to
                                                                        11,986 ha,           situation. There   conditions.        to strong level of                      moderate
                                                                        essentially with     are no new                            farmer                                  institutional
                                                                        primary              irrigated crops.                      organization.                           capacity.
                                                                        vegetables.
                                                                        Horticultural
                                                                        yields increased.

        Source: Fiorentino 2004, Annex V.




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MAP OF ARGENTINA




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