The consequences for Argentina of alternative US and Argentine trade and agricultural policies

Patrick Charles Westhoff

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: Argentine farmers operate in a complex, unstable and generally adverse policy environment. The study develops a model that reflects the policy and world market environment faced by Argentine agricultural producers. The model is used to investigate the effects of the U.S. Food Security Act of 1985 on Argentine agriculture, as well as the consequences of possible policy responses by the Artentine government;Argentine commodity prices are linked to U.S. prices via a multi-tiered price transmission process. Export tax rates are endogenized, and are shown to be positively related to world market prices and Argentine inflation rates. Domestic marketing margins are also positively related to world commodity prices, so that the price transmission elasticity between U.S. prices and Argentine producer prices is less than one;For four major crops, total area harvested is related to real returns to crop production and the size of the cattle herd. Crop area shares are determined by relative real rates of return. Short-run own-price supply elasticities range from 0.39 to 0.71, while long-run elasticities are much larger. For the major crop commodities, the model also determines domestic use, ending stocks, and net trade. The model incorporates a simplified livestock sector, and computes a variety of sectoral aggregates;Model results indicate that the lower world prices resulting from the U.S. Food Security Act of 1985 resulted in significant reductions in crop production and reduced export revenue by more than 1.0 billion per year. Devaluing the Argentine currency and eliminating export taxes are two possible policy responses that would offset some of the effects of the U.S. legislation on the agricultural sector. However, a devaluation would likely spur domestic inflation, and eliminating export taxes would reduce government revenues.

Date: 1989-01-01
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