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close this bookExporting High-Value Food Commodities: Success Stories from Developing Countries (WB, 1993, 119 p.)
close this folderIII. Synthesis high-value food commodity system ''Success stories''
View the document(introduction...)
Open this folder and view contentsSelected dimensions of commodity systems performance
View the documentInternational market environment
View the documentMacroeconomic conditions. human capital. and infrastructure
View the documentGovernment support and interventions
Open this folder and view contentsCommodity system organization coordination

Macroeconomic conditions. human capital. and infrastructure

3.26 Table 12 summarizes selected macroeconomic patterns, human capital characteristics, and infrastructure features of the case study countries and for comparison, all low income, middle income, and OECD countries. Internationally competitive food commodity systems would be expected to emerge and be sustained in environments of high overall economic growth, low or moderate inflation, and high rates of growth in investment. Successful development of high-value food exports might also be expected to be associated with a healthy and literate/numerate work force (as represented here by the proxy indicators of life expectancy and adult literacy) and with a well-developed transport and communications network (as represented here by data for road densities and population per telephone). The indicators for Kenya and China should be compared with those of low-income countries, while those for the other case study countries should be compared with indicators for middle-income countries.

3.27 With regard to macroeconomic indicators, only three of the case study countries--China, Taiwan (China), and Thailand-- stand out as particularly impressive over the entire 1965-89 period, although several other countries exhibited favorable growth and low-to-moderate inflation during the 1965-80 period when some of the focal commodity systems experienced sustained growth. With slow economic growth, limited aggregate investment, and high rates of inflation during the 1980s, it would not have been expected that Argentina, Brazil, Israel, and Mexico would be able to sustain formerly competitive food commodity systems.

3.28 In terms of GDP growth, China, Thailand, and Taiwan (China) each experienced considerably faster economic growth than their peer countries over the past quarter century. Brazil, Kenya and to a lesser extent Israel and Mexico had economic growth rates higher than the comparative norms during the 1965-80 period, but at or below these norms during the 1980s. Economic growth rates for Argentina and Chile have lagged behind those for other middle-income countries. Regarding inflation, the patterns are even more varied, with Argentina, Brazil, and Israel having relatively high inflation rates over the entire period, with Chile facing very high inflation during the 1960s and into the mid-1970s, with Mexico facing high inflation during the 1980s, and with the other case study countries experiencing low rates of inflation compared with all low- or middle-income countries. The patterns for gross domestic investment are also not especially impressive, with only Taiwan (China) and China (during both sub-periods), Thailand (in the 1980s), and Brazil (from 1965-80) having growth rates above their peer groups of countries. For five of the countries, gross domestic investment either declined or grew by less than 1 % per year during the 1980s.

Table 12: Macroeconomic Conditions, Human Capital, and Infrastructure in Case Study and Comparative Countries

3.29 While this superficial review suggests that macroeconomic conditions are not determinant in the maintenance of an internationally competitive food commodity systems, this does not suggest that macroeconomic conditions are unimportant in inducing/deterring investments in food production and marketing and in the profitability of such investments. As is discussed in several of the case studies (including Mexican tomato, Chile fish and temperate fruits, Brazilian soybean and FCOJ, and China shrimp), the initial boom in production and trade accompanied or followed upon macroeconomic and trade policy changes which improved incentives. Such changes included exchange rate devaluations, reductions or reconfigurations of export taxes, the liberalization of imports for intermediate inputs, and other favorable policies. The case of Argentine soybeans is an exception in that its initial export boom (in the early-to-mid-1970s) occurred just as a new government was raising taxes on exported cereals and oilseeds, imposing a new value-added tax on domestic use of soybeans, and displacing the private grain trade with a monopoly government exporter.

3.30 While overvalued exchange rates, high rates of inflation, and generally high rates of effective taxation during the 1970s and 1980s did reduce the profitability of production, processing, and trade in several of the focal Latin American commodity system cases and contribute to the withdrawal or bankruptcy of individual firms therein, these subsectors were generally able to maintain their competitive position as a result of their low underlying cost structure, their large installed processing and marketing capacity, strong vertical and/or horizontal coordination by (or among) the remaining firms, and their well-developed overseas marketing linkages (Box 5). The same cannot be said for the Israeli fresh citrus trade, although the problems of competitiveness and profitability in this subsector extended beyond macroeconomic instability.

3.31 Examining indicators of human capital, each of the case study countries has higher life expectancies and adult literacy rates than comparable categories of low- and middle-income countries. Argentina, Chile, Israel, and Taiwan (China) have levels of these indicators which approach those for OECD countries. With the single exception of Kenya, all of the other countries included in this study have a relatively large skilled and semi-skilled workforce with considerable managerial experience. Such human capital assets have undoubtedly been an important factor in the steady up-grading of product quality and marketing services which have occurred in a number of these sub-sectors and in the capacity to flexibly respond to changes in international demand and standards.

3.32 With regard to indicators of physical infrastructure, the case countries have road densities which are actually lower than the comparative norms, with the exceptions of Thailand, whose road endowment is similar to middle income countries as a whole, and of Israel and Taiwan (China), both very small countries. While a less extensive road network is not a major problem for Chile, whose main agro-industries are located along the coastal plain, transport bottlenecks have been experienced in geographically large Argentina, Brazil and China. Indeed, high transport costs have reduced the returns to Argentine and Brazilian soybean producers. In sharp contrast, the telephone systems are generally far better developed in the case study countries than in comparable categories, the only exception being Thailand. Better communication links facilitate improved access to up-to-date market information, lower transaction costs, and generally improved trading relationships.

Box 5: Discrimination of Agriculture in the Focal Latin American Countries

In each of the focal Latin American countries, agriculture has been taxed and otherwise discriminated against in national development programs emphasizing industrial development. Agriculture has been taxed both directly and indirectly, The latter through duties applied to imported agricultural inputs and through measures which have protected domestic producers of industrial goods (including intermediate inputs for agriculture such as machinery, packaging materials, etc.). Agriculture has been penalized by over-valued currencies which have depressed the price of tradables relative to non-tradables. As the data below on effective rates of protection indicate, the negative effects of these policies have not been counterbalanced by the selective subsidy programs provided for credit, water, tractors, etc.

Effective Rates of Protection

Chile Grapes

Argentine Beef

Argentine Soybean

Brazilian Soybean


























· Hurtado, Valdes, and Muchnik (1990);
· Sturzenegger (1990);
· Brandao and Carvalho (1990)

The table indicates that while Chilean grape production was effectively taxed during the 1960s, it was provided positive protection during the 1970s, the years of its initial export boom. Argentine beef has faced substantial negative protection over the period examined. While both Argentine and Brazilian soybean have faced negative protection, similar (or higher) levels of direct and direct taxation has been applied in these countries to other oilseeds and cereals, rendering world price levels and trends an important determinant of the relative profitability of different crops.