Government support and interventions

3.33 Government interventions in the case study commodity systems have generally been quite extensive, although their forms and longevity have differed considerably. This can be seen in Table 13 below. Direct government participation in production and marketing has been substantial or dominant only in two cases. In China, it was state enterprises which initiated shrimp aquaculture through investments in production infrastructure and research. State trading enterprises in China have also undertaken the export marketing of frozen shrimp. In Israel, a government-created marketing board exercised monopoly buying and export rights for fresh citrus fruit over the period from 1948 to 1990 when this monopoly was lifted. In several of the other focal commodity systems, direct trading activities by state enterprises have also occurred, although this has generally been on a modest scale, involving product stockholding and regional trade in domestic markets and/or ad hoc deals with state importing agencies in the Middle East and the former Soviet Union. Such state enterprise trading has taken place in the Kenyan horticulture, Argentine beef and soybean, Thailand shrimp, and Brazil soybean commodity systems.

3.34 Direct government investments in production and/or marketing infrastructure have occurred in nearly all of the focal cases. In most instances, this investment consisted of ports, market places, auctions, and storage and transport facilities which either exhibit 'public good' characteristics or have entailed large up-front investments and significant economies of scale. Only in the cases of Chilean fruit and PRC shrimp have governments invested directly in food processing plants. In the Chilean case, this investment has been of a short-term or transitional nature as factory ownership has typically transferred from the government-supported Fundacion Chile to private investors after only a few years of operation. Hence, with the exceptions of Chinese shrimp and Israeli fresh citrus, commercial production and trade in the focal commodity systems has been dominated by the private sector (including cooperatives).

3.35 Governments have provided a variety of different support services in each of the focal cases, although the available information enables us to make only tentative comments about the actual significance of such support services for export development. In virtually all cases, governmental institutes and/or public universities undertook production, post-harvest, and/or food technology research which contributed to production and trade expansion and quality gains. Government research and extension were especially critical in the development of shrimp aquaculture in China and Thailand, in the expansion of pig production in Taiwan (China), in the upgrading of quality in Thai poultry, and in the recent adoption of new citrus and temperate fruit varieties in Israel and Chile respectively. A pattern common to many of the focal cases is that once commercialization reached relatively advanced stages, much of the applied research work has been undertaken by the leading private or cooperative firms or other non-governmental bodies (e.g. foundations, associations).

3.36 Government involvement in the collection and dissemination of market information has been less common and less important among the focal commodity systems than might be expected given the public goods nature of market information. Most such efforts have involved the provision of statistics and the distribution of newsletters. Important exceptions are the more extensive fresh product market information system developed in Taiwan by the government (in collaboration with cooperatives) and the livestock/meat market price system developed in Argentina by the National Meat Board. In a majority of cases, governments have promoted exports, primarily through trade fairs and bilateral or multilateral market access negotiations. The government-supported Fundacion Chile and the Israel Citrus Marketing Board have conducted direct advertising campaigns both in domestic and external markets.

3.37 In virtually all of the focal commodity systems, governments have played some role in product quality control, whether simply through communicating international quality standards to producers/processors, through undertaking sample quality inspections on exported or domestically-sold products, or through the inspection (and licensing) of factories, cold storage units, and other processing and marketing infrastructure.

3.38 In a majority of cases, governments have taken an activist microeconomic position, providing subsidies in one or more forms to producers, processors, and/or traders, although as noted in Box 5, these subsidies have not fully countered the negative incentive effects of overvalued exchange rates, industrial protection, and direct commodity taxation in several Latin American countries. In such cases as Chilean fruit, Israeli citrus, Brazilian FCOJ and soybean, and Chinese Shrimp, subsidies have been provided both for raw material production and for the subsequent processing and marketing operations. The most common forms of subsidy have been low interest production credits, subsidies on production infrastructure and material inputs, and grants and low interest loans for investments in processing and storage facilities. In a number of cases, subsidies were removed or substantially reduced once the sub-sector reached a mature status; in others, subsidies remained for many years, partly to compensate for the adverse effects of macroeconomic or other sectoral policies.

3.39 It is important to note that in the large majority of cases, production and investment subsidies were not targeted on the specific commodities covered in this study. For the most part, subsidies for water, energy, fertilizer, tractors, irrigation facilities, crop storage facilities, and processing facilities were available to producers, processors, and traders of other commodities as well. Commodity-specific production and investment subsidy programs were implemented only in the cases of Israeli citrus, Chinese shrimp, Brazil and Argentina soybean processing, and various Taiwanese sub-sectors. In the cases of Chilean fruit, Brazilian FCOJ, and Chinese shrimp, producers, processors, and traders also benefitted (over several years) from income, value-added, and/or export tax exemptions. Differential tax rates on exports of fresh and processed goods was an important factor inducing investment in soybean processing in both Brazil and Argentina.

3.40 In approximately half of the cases, governments have (either on a continuous or intermittent basis) intervened to control or adjust commodity prices and/or traded volumes. This has been done through such measures as official producer support prices, minimum export prices, direct controls on domestic prices, and production, processing, and export quotas. In such cases as Mexican tomatoes, Israeli citrus, and Brazilian FCOJ, these interventions have been at least partly driven by the objective of maximizing export revenues through the control of international supplies. In most other cases, these interventions were designed either to protect domestic consumers or to counter capital flight.

Table 13: Government Involvement in Case Study Commodity Systems