Innovation in natural resource based industries in Latin America: the case of the agricultural sector in Argentina Anabel Marin SPRU

The context A large number of emerging economies are re-specialising in NRs: Products based on natural resources (NR) explain at least half of the exports of: Three quarters of the states in Sub-Saharan Africa Two thirds of those in LA, the Caribbean, North Africa and the Middle East (OECD, 2005). Agro-industries in LAC: Argentina (agro industry): 30% of GDP 50% of exports Brazil: 30% of GDP 35% employment 40% exports

A large number of emerging economies are re-specialising in NRs:

Products based on natural resources (NR) explain at least half of the exports of:

Three quarters of the states in Sub-Saharan Africa

Two thirds of those in LA, the Caribbean, North Africa and the Middle East (OECD, 2005).

Agro-industries in LAC:

Argentina (agro industry):

30% of GDP

50% of exports

Brazil:

30% of GDP

35% employment

40% exports

The agricultural sector in Argentina: During the 1970s and 1980s, the agricultural sector in Argentina performed poorly. However, in the 1990’s the sector recovered its dynamism of previous periods. Between the end of the 1980’s and 2007 the total production of grains (mainly soy, maize and wheat) went from around 30 million tons to around 90 million. TRIPLED!! But the amount of land used for farming expanded far less, from 20 million hectares to 30 millions. So, what explains this increase in production and productivity?

During the 1970s and 1980s, the agricultural sector in Argentina performed poorly.

However, in the 1990’s the sector recovered its dynamism of previous periods.

Between the end of the 1980’s and 2007 the total production of grains (mainly soy, maize and wheat) went from around 30 million tons to around 90 million. TRIPLED!!

But the amount of land used for farming expanded far less, from 20 million hectares to 30 millions.

So, what explains this increase in production and productivity?

The agricultural sector in Argentina: innovations The most dramatic technological change in the 1990s was the massive adoption of Zero Tillage (ZT) technology. In 1990 the proportion of the area cultivated under ZT was almost negligible; in 2000 it reached 50 per cent of the total cultivated area; and in 2005/6 it had reached 70 per cent. The massive adoption and diffusion of ZT technologies was only possible because of two other changes: the diffusion of agro-chemicals and transgenic seeds; the emergence of a new actor, the professional contractor

The most dramatic technological change in the 1990s was the massive adoption of Zero Tillage (ZT) technology.

In 1990 the proportion of the area cultivated under ZT was almost negligible; in 2000 it reached 50 per cent of the total cultivated area; and in 2005/6 it had reached 70 per cent.

The massive adoption and diffusion of ZT technologies was only possible because of two other changes:

the diffusion of agro-chemicals and transgenic seeds;

the emergence of a new actor, the professional contractor

Positive implications SHORT TERM : Hugh increase in exports: just between 1997-2007 doubled (crisis 2001!!), now explain 25% of all exports Argentina is now the second world exporter of crops (only 20% of production is exported in crops), the first world exporter of soy and sunflower oil, flowers and pellets Contribution to tax revenues: only direct contribution is 8% (Argentina tax exports of all its agricultural products heavily) Exports of soy crops were taxed 12% in 2002, but now they are taxed 27.5% Others go from 27% to 12% including processing industries Employment: controversial, has both created and destroyed employment

SHORT TERM :

Hugh increase in exports: just between 1997-2007 doubled (crisis 2001!!), now explain 25% of all exports

Argentina is now the second world exporter of crops (only 20% of production is exported in crops),

the first world exporter of soy and sunflower oil, flowers and pellets

Contribution to tax revenues: only direct contribution is 8% (Argentina tax exports of all its agricultural products heavily)

Exports of soy crops were taxed 12% in 2002, but now they are taxed 27.5%

Others go from 27% to 12% including processing industries

Employment: controversial, has both created and destroyed employment

Positive Implications LONGER TERM, and more importantly are the linkages/externalities : In the economic life of a country and in its economic history, a most important element is the mechanism by which ‘one thing leads to another’ ……. Singer (1950) p.47 . Two examples: Downstream : Argentina has one of the world most modern industries processing crops (oleaginoso): 80% of the crops are processed Moving into biofuels, exporting plants Upstream : The agricultural machinery sector, in certain segments satisfies 90% of local demand 90% of SMEs, mostly domestic, employ 25000 people in the Provinces Increasing exports and internationalisation

LONGER TERM, and more importantly are the linkages/externalities :

In the economic life of a country and in its economic history, a most important element is the mechanism by which ‘one thing leads to another’ ……. Singer (1950) p.47 .

Two examples:

Downstream : Argentina has one of the world most modern industries processing crops (oleaginoso): 80% of the crops are processed

Moving into biofuels, exporting plants

Upstream : The agricultural machinery sector, in certain segments satisfies 90% of local demand

90% of SMEs, mostly domestic, employ 25000 people in the Provinces

Increasing exports and internationalisation

Actual and potential problems of the trajectory HUGH RISKS ! 1. Environmental risks, associated with intensive agriculture and the use of GM: degradation of soils, lack of demand, etc. CHALLENGE DEVELOPMENT/USE/SUPPORT ALTERNATIVE TECHNOLOGIES, ALTERNATIVE ACTIVITIES Risks associated with the privatization of knowledge and the concentration of key aspect of the dominant technology in a few MNCs. CHALLENGE DEVELOP OWN KNOWLEDGE 3. Little impact on poverty reduction if the innovations : 1) do not benefit small farmers (but in Argentina 90% population lives in city), and 2) are not used to increase: Added value or Diversification to related activities (as in the example of agricultural machinery) INNOVATION CREATION OF HIGH ADDED VALUE INDUSTRIES (for X or DM) EMPLOYMENT TAXES POVERTY REDUCTION CHALLENGE: ENCOURAGE CAPABILITIES FOR DIVERSIFICATION

HUGH RISKS !

1. Environmental risks, associated with intensive agriculture and the use of GM: degradation of soils, lack of demand, etc. CHALLENGE DEVELOPMENT/USE/SUPPORT ALTERNATIVE TECHNOLOGIES, ALTERNATIVE ACTIVITIES

Risks associated with the privatization of knowledge and the concentration of key aspect of the dominant technology in a few MNCs. CHALLENGE DEVELOP OWN KNOWLEDGE

3. Little impact on poverty reduction if the innovations : 1) do not benefit small farmers (but in Argentina 90% population lives in city), and 2) are not used to increase:

Added value or

Diversification to related activities (as in the example of agricultural machinery)

INNOVATION CREATION OF HIGH ADDED VALUE INDUSTRIES (for X or DM)

EMPLOYMENT TAXES

POVERTY REDUCTION

CHALLENGE: ENCOURAGE CAPABILITIES FOR DIVERSIFICATION

A question Given all these risks/challenges? Should the government reinforce the current trajectory, supporting for instance the creation of biotech knowledge necessary for its continuity, and encourage higher added value and related diversification as a way to abandon this trajectory or become less dependent on it?. Or Should it strongly discourage it and encourage a different route in the agricultural sector, less dependent on GM? BOTH? Are both possible? Hugh investments and institutions are required, Argentina invested in agricultural biotech 3.5 million dollars, USA 100 millions Very often there are conflicting interests.

Given all these risks/challenges?

Should the government reinforce the current trajectory, supporting for instance the creation of biotech knowledge necessary for its continuity, and encourage higher added value and related diversification as a way to abandon this trajectory or become less dependent on it?.

Or

Should it strongly discourage it and encourage a different route in the agricultural sector, less dependent on GM?

BOTH? Are both possible?

Hugh investments and institutions are required,

Argentina invested in agricultural biotech 3.5 million dollars, USA 100 millions

Very often there are conflicting interests.