The war in Ukraine and its impact on agriculture, what role can Argentina have?

Ukraine is a major food producer, part of which is exported. What if, as a result of the Russian invasion, the next harvest fell to…zero!? Argentina is an important food producer, part of which is exported. As a result of the reduction of the Ukrainian offer, what will happen in our country with the production, the internal demand and the exports? Should the State intervene, given the impact that what is happening in Ukraine will have on the Argentine economy?

I talked about these questions with the Pole Yair Mundlak (1927-2015), who migrated to Israel before that country’s independence. In the 1948 war he was part of a platoon liberated by Yitzhak Rabin. He taught at the Hebrew University of Jerusalem, at Harvard, and at the University of Chicago. What interested him most was understanding and quantifying the functioning of the agricultural sector. He poured his knowledge into Agriculture and economic growth. Theory and Measurement, published in 2000.

–At the end of the 1980s, in collaboration with Domingo Felipe Cavallo and Roberto Domenech, you quantified an important hypothesis of counterfactual history.

–Formulated by Carlos Federico Díaz Alejandro, in Essays on the economic history of the Argentine Republic, which he published in 1970. In his words: “If more attention had been paid to the production of exportable goods between 1943 and 1955, this would have generated more and not less industrialization, as the examples of Canada and Australia suggest.

-It’s true?

–As is known, any counterfactual history exercise should be taken with a grain of salt, but in this case the results are robust. We extended the period of analysis to 1913-1984, concluding that, if Argentina had not established anti-export biases during that period, the agricultural GDP would have risen 9% more than it did; non-agricultural, 174%, and the total, 46%. Not inconsiderable figures, by the way.

-I am surprised by the enormous difference between sectors.

–We estimate a scenario, but a more complete analysis would generate a set of different sectoral results, although hardly contradicting the basic message: Argentina, in the past, paid high prices in terms of lower growth, due to the way in which governments “ they put their hand” in the allocation of resources.

-What implications does the disaster that Ukraine is suffering have on the agricultural sector in Argentina?

–Before getting into this question, and given that we are talking about “famine”, it is appropriate to cite the tragedy that Amartya Sen experienced as a child and studied as an adult.

–I hear it.

-When Sen was 8 years old, a famine broke out in Bengal, in which between 2 and 3 million human beings died, most of them poor. When he was older he analyzed the case, he found that in 1941 the harvest had not failed. Why the famine, if supply hadn’t diminished? Because the demand increased. In the midst of World War II, the government bought a large part of the harvest to feed the soldiers.

– Where are you going with this?

–A that distributive issues cannot be ignored. Which does not mean that they are the only ones that matter, but it does mean that – as almost always – an economic policy conflict arises.

– Let’s exaggerate. The Ukrainian supply of exportable goods is reduced to zero, because it cannot be cultivated, the roads and ports are unusable, and so on. Those who bought food in the Ukraine are not going to starve, but will seek to acquire it in other countries, for example in Argentina. What should the government do about it?

–Let me, Juan Carlos, raise a couple of extreme positions. The first says that Argentina should only export what is left over, meaning that Argentines can continue to buy the amount of bread, pasta and chorizo ​​steaks that they bought before the conflict. It is what you call “defending the table of the Argentines.”

–And the other extreme position?

-He maintains that the producers of grains and meat are the owners of the goods they produce and, therefore, they have to be able to sell them to whomever they please. Which, in the absence of “nationalist” considerations, means being able to sell them to the highest bidder. This, in light of Ukraine’s withdrawal from the world food supply, implies an increase in the price of these products in Argentina, the sum of production (if export taxes do not increase), an increase in exports and the reduction of domestic consumption.

– Problem flower.

-Calm down, because fortunately reality is not only made up of extreme positions. To those in favor of exporting only what we have left over (at what price do we have left over?) we must say that Argentina imports fuels, the international price of which has also increased. Therefore, in addition to worrying about “the table of the Argentines”, they should worry about “the heating and cooking of the meals of the Argentines”, in addition to securing foreign currency so that the factories that use imported inputs can continue operating. While those in favor of selling to the highest bidder, to whatever comes, it must be said that, keeping their distance, Argentina 2022 can resemble Bengal 1941.

-And so?

–That you have to move away from extreme positions, very attractive to impress friends and relatives, but not very useful to diagnose correctly and act accordingly. The latter implies, in the happy expression of Jorge Roberto Hernán Lacunza, that the surgeon has to operate with a scalpel, not with an axe.

-What does it mean?

– That experts in the production and marketing of agricultural products have to determine what products will be missing as a result of what is happening in Ukraine, how much will be missing, what importance does Ukraine have in the world market for these products, what will be the markets alternatives that the plaintiffs will seek to supply themselves, what relationship exists between the aforementioned shortage, and the Argentine production and export of each of these products, etc.

–Yair, you cannot ignore that, beyond the opinion of the experts, as of 2008 there is a “personal” issue between the field and the authorities, except during the presidency of Mauricio Macri.

-Impossible to ignore it, and I have nothing to add about it. But let me stress that if pure politics completely dominates public decision-making, huge mistakes can be made in this case. That in the case of food scarcity and price, they not only generate economic problems, but also social explosions. And you already have enough problems to, on top of that, risk the appearance of new ones.

–Dear and unforgettable Yair, thank you very much.

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