To the memory of Ignacio Alejandro Ordoñez, friend, partner, companion of happy and trying hours in the Argentinean pampas.

INTRODUCTION

1Cereals are pre-eminent amongst the various large- seeded plants grown for their seed reserves. Cereal seeds are, essentially, carbohydrated concentrates, with varying proportions of proteins, oils, and crude fibre content, the latter being greater in the cereals as harvested when a husk is present, as in oats and rice. Easy to handle, cereal seeds can be readily stored for long periods of time due to their low water content and indefinite dormancy – provided that they are kept under dry conditions. These properties have been instrumental in making cereals the most important food staple group for the world’s population, and, predictably, the largest segment of the international food trade.

2During the 1960’s and the early 1970’s the success of U.S. food exports arose deep suspicions amongst the Latin American exporters of competing products. Since the U.S. was at one and the same time the world’s leading industrial nation and cereal exporter, those feelings were often compounded in Argentina, a country which had lost ground amongst the world’s foremost grain exporters without being able to acquire an eagerly sought industrial status. Although, at the time, the international grain market was expanding and prices generally rising, a common perception of the problem in Argentina was that the country’s cereal producers were competing with the U.S. Treasury rather than with their American counterparts.

3In this paper, I shall attempt to evaluate the validity of that claim. To that effect the paper is divided into four sections : the first one surveys the international food trade in order to establish a long term perspective view of it, and thus an adequate analytical background for the problem on hand ; the second section analyses the U.S. cereal production and trade ; the third one examines the production possibilities and constraints of the Argentinean cereal sector ; and the fourth and last section compares and discusses the interaction between the supply, marketing, and financial sectors and the cereal producers in the U.S. and Argentina.

4The standard theoretical instrument for this type of study is the Hecksher-Ohlin theory of international trade. I preferred to use Bertil Ohlin’s version of it because it aims at explaining international trade rather than at predicting it or at proving a narrow theoretical point. Within the grand framework of the mutual interdependence theory of the price system, the key element of Ohlin’s version is flexibility, in order to describe and analyse the circumstances lying behind the connection between factor supply, price conditions, and trade. Since Ohlin’s theory has often been misinterpreted, a comprehensive summary of it is provided in Appendix A.

5A particular advantage of Ohlin’s theory is its inherent demand for complementary analytical devices. In part, this arises from his successful merger of the general price theory and the international trade theory and from the compatibility of Ohlin’s theory with the theory of comparative advantage (interpreted in terms of opportunity cost and in a wider sense than Ricardo’s), which in turn has mutually enriched those theories. Fundamentally, though, the demand for complementary analytical devices stems from Ohlin’s conception. Stated in terms of many factors of production of varying qualities and quantifies (different climates, and skills of labour and management, and many grades of inputs and outputs), Ohlin’s theory draws attention not only to all the relevant conditions affecting the quality and quantity of the available factors of production (and thereby the production costs), but also to non-factor costs (such as taxes and social payments), in what in essence he perceives as a many-sided, dynamic process. It follows from that, as well as from his own assertion, that conditions of production (and with it costs and comparative advantages) will change. Thus, in all instances in which the problem examined concerns changes in the market share of an exporting country, what is really important is the change relative to its competitors, which inevitably leads to a comparative study of their productive processes and creates the need for specific analytical techniques.

6To that effect, the paucity of sound economic studies of Argentinean agriculture was a considerable drawback, obviated to some extent by some of the problems occupying the attention of American agricultural economists during the period under consideration. The effects of technological change, monetary and balance of payment problems, agricultural and trade policies, and, to some degree, the debate on the terms of trade generated by Paul Prebisch and Hans Singer, gave rise to a fruitful period of research on domestic and international agriculture. Some of it concerned Argentina as well. Agricultural economics is nowhere as well established as a special branch of economics as in the U.S., where it has been able to develop a healthy balance between theoretical and empirical work. Much of this research, in my view, is indispensable to deal with the subject matter of this paper and can be adaptated to other concrete research problems. Hence, the extensive bibliography accompanying the text, which includes equally indispensable sources in economie theory, agricultural and soil science, statistical information, and market intelligence.

7It is hoped that much use and many questions will derive from those sources and their interpretation in this paper ; which since it was conceived primarily as a point of departure, it should ideally generate more questions than answers. One important objective of this study was to pave the way for much needed theoretical and empirical work on the agricultural history of Argentina and Latin America and its relationship with the local and the world’s economy. Methodologically, I have no doubts that economic history must be studied with the support of economic theory. The latter has been notably absent in much of the literature on Latin American economic history, which must be explored in a wider theoretical and factual context than has generally been the case, especially if the results of such exploration are to make a meaningful contribution to the economic development of the region.

***

8I should like to express my gratitude to the personnel of the Agricultural Section, the United States of America Embassy in Brussels, for the efficiency and cordiality displayed in providing material and information indispensable for the preparation of this paper.

I. INTERNATIONAL FOOD TRADE : A PERSPECTIVE VIEW

“The world, we are thankful to say, has ample stores of produce to supply us with food, and, thanks to free trade, our people can get it whenever wanted. A large portion, indeed, of our population now depends on foreign corn, and we could not do well without the oxen and bulls, sheep and lambs, bacon and beef, butter and cheese, sugar and coffee, fish and eggs which come in so large quantity. From 1840 to 1878 the increase in the consumption of foreign articles has been very large. The consumption of butter has increased from 1,05 to 5,82 Lbs. per head ; of chesse from 0,92 to 6,37 Lbs. per head ; of corn from 42,47 to 188,29 Lbs. per head...”

9Thus could rejoice Leone Levi in his History of the Economic Progress of the British Nation (1880), adding that in 1878 the articles of food imported amounted to 150 million Pounds Sterling out of a total import bill of 360 million Pounds Sterling1. Michael G. Mulhall, a very competent statistician and perceptive traveller, concurred with his contemporary Levi, and showed that even allowing for a wide margin of error the average British subject was by far the wealthiest and best fed European of the time2. Modem historians, such as Werner Schlote, S. B. Paul, and D.C.M. Platt, are in agreement with them.

10Food exports were of course not unknown prior to that time, after all the Dutch Golden Age and the development of East Prussia during the 17th century were based on the complementarity of their food exports, not to mention many other examples. What was new was the sheer volume of food exports. Great Britain was the largest importer of food as well as the leading manufacturing and trading nation in the world. The liberal reforms of prime ministre Sir Robert Peel – to which a fellow M.P., financier, and economist, David Ricardo, contributed greatly-added impulse to an already discernible trend by unilaterally lowering all import and export duties, abolishing the prohibition to export machinery, and repealing the Corn and Navigation Laws between 1841 and 18493.

11Between 1854 and 1858 Great Britain imported roughly one fifth of the world meat exports, a third of the total wheat and cheese, over one-half of the maize, barley and oats, and about three- fifths of the world butter exports4. During the same period, the United States was the leading exporter of wheat and meat, and it had a relatively large share of the maize exports. Europe, however, was at the time, relatively self-contained with respect to its food imports, since European exporters accounted for approximately 53 % of the total wheat exports, 60 % of the maize, almost all the rye, 85 % of the barley, and 95 % of the oats, butter, and cheese exported in the world. The German port of Danzig was the leading cereal market of the world and the leading export centre for cereals and other agricultural products.

12World food output and trade continued to increase during the second half of the nineteenth century. This was partly due to British foreign investment and European migration, which were instrumental in incorporating into the world economy the new areas of the United States, Canada, Argentina, Australia and New Zealand, a source of food and raw materials previously unexploited. French and German capital played a similar role in Russia and Eastern Europe, whilst cheaper, faster and more reliable land and sea transportation allowed the efficient movement of those products to the Western European markets.

13The average world exports of meat, cheese, butter, wheat, maize, rye, barley and oats increased between 2 and 5 times during the period 1854-58 to 1884-885. This enabled some Western European countries – above all Great Britain – to concentrate further on their industrial development, forced others to change their agricultural production – Denmark from a grain exporter became a grain importer and an exporter of bacon and dairy products6 – and left others – like Sweden – remarkably unchanged7.

14The protectionist and nationalistic ripples of the Great Dépression of 1873-18968 and the occasional tariff warfare were no obstacles for a continuous expansion of the world food exports. Favoured further by refrigeration and closer contact among buyers and sellers via telegraph and regular shipping lines the world exports of the above mentioned products increased by another two to four times – lamb and mutton 10 times - during the period 1884-88 to 1909-19139. Although some of the increase could be the resuit of a more comprehensive recording and reporting, the figures remain impressive, specially when one considers that agricultural production and prices rose in Western Europe between 1900-191410.

15Whilst Russia and the Danube countries managed to keep their overall position as grain exporters, the United States food exports with the exception of barley and oats suffered a considerable decline in the early 1900’s which Robert M. Stern attributes to a 62 % increase in population and a 52 % rise in the per capital income between 1884-88 and 1909-1913 as well as to the closing of the frontier which brought to an end the supply of new fertile land11. Michael G. Mulhall’s statisti-cal calculations in 1896 still credited the U.S. with supplying Europe, and England in particular, with grain and meat, aside from raising about a third of the food produced in the world, with much improved methods and machinery than its northerly neighbour, Canada. The frequency with which tariffs and cereal prices appeared in the economic journals between 1890-1910 – in articles written by Thorstein Veblen, C. V. Thompson, F. W. Taussig and others – and the substance of those contributions suggest that prices and tariff warfare played some role in the erosion of the U.S. comparative advantage.

16A further indication that the United States was losing its comparative advantage as a food producer and exporter could be found in the significant role played by U.S. owned meat packing plants – Swift, Morell, Armour – in the development of the chilled and frozen meat exports from Argentina and Uruguay12. That was a move ostensibly aimed at keeping their share of the London meat market, which was by far the main destination of the international meat trade. Argentinean frozen meat exports were reaching Italy, Switzerland and the Austro-Hungarian Empire, but despite their popularity – a sign of which were the riots of eager buyers in Vienna trying to purchase the product – they were meeting strong opposition from agricultural interests. Even-tually they were banned from Austria-Hungary and prevented from reaching Switzerland on the Austrian railways13.

17The chief beneficiaries from the U.S. eclipse in the international food trade were the areas of new settlement : Argentina, Australia, Canada and New Zealand. India also managed to increase her exports of wheat to about a million tons – and so made up for the loss of her ephemeral replacement of the U.S. cotton exports during and shortly after the civil war.

18Argentina was now the leading beef and maize exporter (53,3 % and 40,9 % of the world exports), the second largest world exporter of oats, lamb and mutton (20,3 % and 26 % of total trade) and the fourth largets wheat exporter, with 13,2 % of world exports. The completion of the basic internai transportation network, the appearance of the tramp freighter, an enormous investment in the improvement of cattle and sheep stocks, large numbers of eager European immigrants, and a uniquely favourable natural environment were some of the main factors that combined gave a comparative advantage to those Argentinean exports14.

19The First World War was to alter once more the picture of the world food exports. Russia, the Danube countries and India suffered a drastic decline of their position ; the United States was able to maintain the war period gains as exporter of wheat, barley, rye and oats ; Argentina, Australia, Canada and New Zealand emerged with greater relative and absolute importance as world suppliers of grains and meat, whilst Denmark and Holland did similarly for pork, bacon, ham, butter and cheese15.

20During the period 1934-38 the exports of the U.S. and Canada were lower than in the 1920’s and only Argentina – in particular – Australia and New Zealand were able to increase their share of world exports.

21Argentina’s accomplishment came about in a contracting world market with declining prices and in spite of the newly established Commonwealth’s Preferential Tariff System (agreed upon by the British Commonwealth members at the Ottawa Conference of 1931, with considerable pressure from the host country, Canada who had campaigned for such tariffs since the late 19th century), which discriminated further against Argentinean exports to the United Kingdom. Once again, Argentina’s performance resulted from a sustained ability to shift production to accomodate to market conditions and to reduce costs.

22An analysis of the production costs for cereals and linseed reveals that the increase in productivity had offset a 10-12 % price increase for bags and seeds, and resulted from increased mechanization, a decrease in the use of labour and the cost of labour itself, and a greater use of sharecropping agreements (thereby eliminating rent as a fixed cost through the assumption of further entrepeneurial risk)16.

23During World War II, the United States and Canada exported more food than the rest of the world combined, but in spite of the greater dislocation caused by this war, the recovery of the European production was faster than after the First World War ; and by 1948 the U.S. export prospects were diminishing. Since the high support prices of the war period were maintained, the U.S. agricultural production was encouraged, with the result that the Commodity Credit Corporation was forced to buy the unsalable commodities and store them on behalf of the government. The Korean War and the frantic stockpiling of food between 1950-52 eased the situation somehow, but by 1955 the surplus stocks of wheat, maize and other commodities in the U.S. had attained record levels17.

24Under the circumstances the U.S. chose to improvise methods for the disposal of the stocks and since the underprivileged groups in the U.S. society were not large enough to absorb the surpluses, the government turned primarily to export markets. Agricultural exports had been subsidized since the 1930’s but the main instrument of this export drive since 1954 was the Agricultural Trade Development and Assistance Act (P.L. 480) that allowed operations going from donations to sales on special terms and barter for strategic materials.

25From an 8 % share of the world wheat exports in 1934-38 the U.S. went to a 33,5 % in 1952-56, from an 8 % of maize to 50,3 % ; from a 4,1 % of rye to 8,1 % ; from a 7,9 % of barley to 16,9 % ; from a 5,7 % of oats to 11,3 % ; from a 0,8 % of beef and veal to 2,1 % ; from a 0,2 % of butter to 7,9 % and from a 0,4 % of cheese to 8,4 %. This increase in relative and absolute terms of the U.S. share of the world food exports, the eclipse of Argentina and the Danube countries, and the tendency of Russia and India to be on the import rather than on the export side, confirmed the U.S. during the 1950’s as the largest food exporter in the world18.

26As far as cereals are concerned, the export gains of the U.S. were not entirely as a replacement of former world suppliers. The volume of the world trade in cereals increased constantly after W.W.II, and at an overall rate of 6 % per annum. Feed cereals trade increased an average of 8 % per annum, whilst the average increase for food cereals exceeded the 5 % mark. Maize alone averaged yearly increases of close to 14 %. Parallel to that, prices rose rapidly until the mid 1950’s, eased down till 1962 and rose again afterwards19.

27Argentina had not only failed to exploit the opportunities offered by a growing world market and rising prices during the post war years, but contracted drastically her relative and absolute position as a food exporter, and above all as a cereal exporter. The figures for wheat and maize illustrate this process well, particularly if one considers the 1965-67 period, in which the Argentinean agriculture had recovered from the depression of the Peronist era, enjoyed a bumper crop (1966), and the world market was exceptionally propitious.

28From almost 20 % of an average world wheat exports of 17 300 000 tons during the period 1934-1938, Argentina only managed a 5 % share of a world market that had grown to an average of 51 000 000 tons in 1965-1967. As far as maize is concerned, Argentina enjoyed a 64 % of the total world exports in 1934-1938, with average sales of 6 500 000 tons per annum during that period. In 1965-67, the maize exports averaged 2 800 000, and Argentina’s share of the world market had fallen to a paltry 13,4 %20. This was at a time in which in spite of previously unattained world production records of wheat – 2 800 000 tons - and maize - 245 000 000 tons - the decline in the stocks of both cereals moved the U.S. Government to allow an increase of 15 % in the cultivated area of wheat and to forbid the exports of maize21.

29It should be noted that not merely exports, but total cereal production declined in Argentina. From an yearly harvest of roughly 21 000 000 tons during the period 1934-1938 cereal production went down to about 14 000 000 tons in 1965-1967, which included an exceptionally good year (1966). This was in itself a vast improvent, since cereal production almost doubled the figures of the early 1950’s22.

30Another consideration to the borne in mind is that the increase in the Argentinean population over those years was normal for the country’s standards – and low for world standards. At the same time, Argentina’s consumption patterns did not change significantly after W.W.II. On average, Argentineans have been well fed since the Spanish period. The accounts of Azara, Daireaux, Mulhall, Tschieffely and many other chroniclers, the free rations given to newly arrived immigrants – as reported in many issues of The Stateman’s Yearbook – or any comparison with a world nutrional table would bear witness to that. Internal consumption increased merely as a reflection of a normal population increase, but it was certainly not the cause of the drastic fall of the Argentinean cereal exports.

31The Argentinean cereal position did not change significantly between 1965-1967 and 1972. The increase in the exports of sorghum helped somehow, but wheat sales were stationary and slipped down very badly in 1971, when with only 800 000 tons it barely amounted to 1,45 % of the world exports23.

32The U.S., on the other hand, did not cease to consolidate its position throughout that period. From 1968 to 1972 the U.S. total grain exports grew steadily, amounting respectively to 34,1, 38,2, 41,4, 43,8, and 72,6 million metric tons. That export growth was also steady for the main cereals, wheat (544, 603, 741, 610 and 1 135 million bushels), maize (536, 612, 517, 796 and 1 251 million bushels), and sorghum (106, 126, 144, 123 and 212 million bushels), whilst rice remained roughly stationary (56,1, 56,9, 46,5, 56,9, and 54,0 million cwt – hundredweights)24.

33This export performance contributed mightily to a fundamental change in the pattern of the U.S. trade in agricultural products. From a consistent deficit between 1920 and 1962, the U.S. trade in agricultural products began to show positive balances in the mid 1960’s. The surplu-ses also displayed a tendency to grow. Between 1968 and 1972 they amounted respectively to 3 466, 2 669, 3 270, 4 074 and 4 090 million Dollars. In 1973 the surplus doubled to 8 090 million Dollars and in 1974 it almost doubled again to 15 021 million Dollars25.

34The U.S. export coefficient for agriculture had doubled between 1950-1953 and 1970-197426. This increased integration between the U.S. and the world economy would thus tend to link those results to world market conditions. As far as cereals are concerned, it is significant to notice that already between 1949-1952, before the sanction of pl 480, over one third of the wheat and rice and about a quarter of the rye and grain sorghums produced in the U.S. were exported27. These percentages would in themselves suggest an important connection between world market conditions and the U.S. cereal production.

35And this suggestion is further stressed by the behaviour of the main competitors of the U.S. in the world wheat market : between 1954-1955 and 1968-1969 the U.S. increased the average wheat output by about one third, from 29 to 38,3 million tons, but so did Canada, from 12 to 18,1 million tons, whilst Australia more than doubled wheat output, from 4,5 to 10,7 million tons28. Since neither Canada nor Australia had export programmes comparable to the U.S.’ pl 480, about which both complained loudly, there can be little doubt that the world market offered excellent opportunities for wheat exporters during that period and that they were not monopolized by the U.S.

36Recapitulating at this point the highlights of the one-hundred-and-twenty years of international food trade thus briefly surveyed, it appears clear that :

1. No single country had been able to maintain, in a consistent fashion, its relative and absolute position as a food exporter during the entire period. Some countries, notably Germany, Russia, the Danube countries, and India, which were once significant exporters, declined substantially or became net importers. Others, such as Australia, Canada, and the U.S. registered impressive export gains between W.W.II and the early 1970’s, whilst Argentina’s role as a world exporter dimi-nished drastically over the same period. All exporters have experienced shifts over time, and for many of them, notably Argentina, Australia, and the United States, the shifts were not limited to their relative position, but also included the export mix. In extreme cases, only a drastic alteration of that mix allowed countries like Denmark and Holland to remain as significant food exporters.

2. Even making allowances for the coldness of statistics and the distance from the events, the single most salient characteristic of those changes in the international food trade was the relative smoothness with which they took place.

3. That characteristic is particularly noticeable in the cereal market, by far the largest and most significant segment of the international food trade. This would stress : A) the flexibility of that market ; and B) the inability of any market player or temporary constellation of market players to influence the market conditions beyond the shortest run.

37Considered against that background, neither the upsurge of the U.S. cereal exports nor the eclipse of the Argentinean ones would appear to be any more than ordinary episodes in that fluid market. The peculia-rities of the U.S. and Argentinean economies and the terms of the debate on economic development prevailing at the time may have contributed to influence the Argentinean view on the situation. Al-though there is nothing in economic theory that would preclude a country or region from enjoying a concurrent comparative advantage in some industrial and agricultural products, and much in economic history that would confirm that possibility (be it the case of the U.S., Germany, and to a lesser extent Russia in the 19th Century, or that of Canada, Australia, Denmark or Holland during the period under consideration), the Argentinean perception seems to have been as oblivious to that as of what was taking place at the international cereal market.

38The key element of such perception, the claim that the Argentinean producer was competing with the U.S. Treasury rather than with their American counterparts, shall now be carefully examined.

II. THE U.S. CEREAL PRODUCTION AND TRADE

39Cereals are upright annual grasses grown primarily for their large “grains”. In general they provide the main concentrated carbohydrate food for man and for livestock and are to a considerable extent interchangeable for this purpose, the particular cereal grown in a given area depending largely on the climatic conditions. Thus wheat is the cereal mainly grown for human food in temperate climates ; it is replaced for this purpose by rye under conditions of low temperature and low fertility. Barley, grown for stock-feed and for malting in areas where wheat can be grown, becomes the main food-grain in parts of Asia ; oats are the main cereals of cool temperate regions with high rainfall. In warmer regions these are replaced by maize, and in still hotter climates by rice – usually where irrigation by controlled flooding can be practi-sed or, where conditions are unsuitable for rice, by millet or sorghum.

40The enormous financial and industrial power of the United States tends to obscure the fact that it is a country of continental size, mostly within the temperate zone but with a great geoclimatic diversity, and with a large population but a relatively favourable ratio of population to arable land. Taking that into consideration, and thinking along the broad Ohlinean version of the Heckscher-Ohlin theory, it can hardly be surprising to find the United States with a tendency to have a comparative advantage in the production of some cereals and some industrial products at the same time. Ohlin’s theory does not preclude that29.

41An international equilibrium in the production of cereals will be characterized by a set of cereal prices in each country, which need not be world prices due to trade restrictions. Each country will then have a set of factor prices determined by factor supply and demand conditions and factor market distortions. Producers will thus plan to produce, and to either import or export an equilibrium quantity of each cereal per year, with weather conditions dictating the level of production and the direction of trade in any given year.

42This equilibrium, as Robert Evenson points out30 will be characterized not by a single technique of production but by a number of them, even if all producers are as efficient as possible. This is the consequence of technology specificity to economic, geographic, biological and clima-tological conditions. Producers in all countries have a set of alternative techniques of production from which to choose, a set that includes cereal grain varieties differing in disease resistance and lodging proper-ties, photosynthetic response to plant nutrients and photoperiod sensitivity. The set of techniques also encompasses alternative implements for tillage, seeding, and harvesting and alternative procedures for the performance of tasks associated with production.

43The producer will thus select a profit maximizing combination in accordance with relative factor prices, the different geoclimatic conditions, and his own managerial skills and scale of operations. The production function will therefore exhibit two distinctive characteristics : (a) it will vary among agricultural producing firms, given a certain degree of uniqueness characterizing each of them ; and (b) it could be viewed, as proposed by Ezra Sadan31 as a mixture of two processes, a biological and a mechanical one. The inputs into the biological process (seeds, fertilizers, water, correct choice of methods, and timing) determine the potential yield. Labour and machinery are the inputs into the mechanical process, within which factor substitution is possible. Between the two processes, however, very little substitution can take place.

44The trade potential or equilibrium level of trade in a particular cereal, K, in country I, is :

X_I = F_I (Y_I, N_I, T_I, U_I, R_I)

45Given equilibrium world prices, differences in export performance are therefore related to gross national product (Y_I), geoclimatic or natural factors (N_I), the technology set in use by producers (T_I), the utility structure of consumer demand (U_I) and trade restrictions (R_I).

46The enormous difficulties involved in isolating, calculating and assigning proper weights to many of those factors may explain the conspicuous absence of hypotheses regarding the international trade in agricultural commodities. Although primarily concerned with industrial products, a number of the refinements to the basic Heckscher-Ohlin theory can, and have been applied to explain shifts in comparative advantage and the pattern of cereals and other food exports.

Human capital endowment

47The notion of human capital endowment, particularly as put for-ward by Peter Kenen32 could be a rewarding approach to attempt an explanation of the United States cereal exports. From a statistical point of view, a highly diversified economy with a relative abundance of professional personnel and highly trained labour would tend to have those skills “normally” distributed throughout the economy. Even if an unusually high proportion of skill requirements of production and distribution were concentrated upon the leading industries, some highly skilled people would have to be found in the agricultural sector as well.

48The difference in earnings between high-level and low-level management measured by Tolley and Hjort33, by Tolley and Matthews34, by Johnston and Tolley35, and by Tolley36, has been found to be the cause of high level managers trying to enter the agricultural sector in “too” large numbers. Those writers see agriculture passing from a situation where concentration of farm people are in the lower tail of the nation’s income distribution to a situation where they will be above the average national income, and this is substantiated by the rising number of farms with a high value of farm sales and the above national average net incomes of the managers of those farms. To attribute the net increase in U.S. cereal productivity between 1950-71 at least partly to a greater human skill endowment traduced in better management and organization – as Evenson and Kislev do37 – appears to be a reasonable proposition.

49The notion of human capital endowment, although specifically regarded by the authors as a version of the product cycle theory, is linked to the basic proposition that research activity influences export performance through technology and discovery in indirect transfer. Evenson and Kislev38, and Evenson39 have conducted an extensive statistical analysis and found a positive correlation between research activity and productivity and export performance in cereals. The United States leads the world in research activity and number of scientific publications in the field. Since an overwhelming share of the total world research and publications originates in the developed world that corrélation would tend to reinforce the position of the United States. Most of the developed world lies within the temperate zone, shares similar geoclimatic regions, produces cereals, and enjoys a relatively comparable capital endowment – including human capital. With the greatest share of research activity, the United States is able to screen varieties, adapt the most suitable ones, and adopt all those technological innovations from the developed world which are appropriate to its productive structure.

50The work of Evenson and Kislev is exciting, but cannot be taken unreservedly. I agree with Jere R. Behrman’s40 criticism that their assumption that the ratio of mechanical inputs to land has remained constant or changed little since 1950 is very strong, and I also think that their statistical methods are in need of much improvement.

51Furthermore, it is well known that the process of production, absorption, adaptation, and diffusion of innovations is not confined to the research institutions considered by Kislev and Evenson – government research stations. The private sector and the sophistication with which it perforais the marketing function throughout the developed world – and often beyond – cannot be ignored. Seed breeders and suppliers of every conceivable agricultural input are forced to carry out research and tests as a matter of survival. It is part of their business to keep the farmer informed of the results. Demonstrations and trials are routinely expec-ted by the farmer, along with technical support. At the time, this was also the common behaviour of seed breeders and wholesalers in Argentina, according to the experience of the present writer, and Ander-son Clayton & Co. was actively doing that even in Peru.

52It is obvious that the distribution as well as the average level of skills becomes crucial at this point. Since an innovation is first adopted by skilled and experimenting entrepreneurs and then diffuses down the skill scale, the higher the average level of skills of farm managers and the more evenly they are distributed, the faster would be the spread of innovations and the faster the extraordinary benefits would be cancel-led out. At this point the early adopters would be tempted to switch to another innovation if it promises extra profits, and so would be high cost producers if output has increasedd to the point of causing a decline in price. This is described as an innovation cycle by Kislev and Shchori-Bachrach41. Considerable evidence about its operation can be found in the study of Zvi Griliches on the adoption of hybrid maize in the U.S., showing faster rates of adoption in the more advanced areas, which happened to coincide with those areas where the agricultural research stations and the seed breeder market were best and most developed42.

53The studies reviewed are strongly suggestive of a positive influence of skill endowment upon the productivity and the export performance of the U.S. cereal sector. By the most cautious reckoning, it seems likely that a causal relationship between the various ways in which those human skills are manifested and the U.S. export performance could be significant. Unfortunately, no proper weight could be assigned to it in this instance.

Protection and U.S. agricultural programs

54Factor market disturbances, which Ohlin’s stress on concreteness in empirical research would tend to highlight, is also rich in suggestions when it cornes to the cereal export performance of the United States. Protection and the output effect of the U.S. agricultural programmes have been the object of a great deal of research, some of it of high quality and intellectual refinement.

55Larry J. Wipf43, in ajustly celebrated article, pioneered the extension of the concept of effective rate of protection to the agricultural sector of the economy. This concept – until then (1971) mainly concerned with the industrial sector – had brought into light that the existence of intermediate goods could significantly alter the effectfs of the nominal rate of protection for final goods. Harry G. Johnson44, one of the early developpers of the notions of effective protection, regarded a tariff on an input used in a productive process as equivalent to a tax on the output of that process. Therefore, he saw the need to distinguish “between the structure of tariff rates on commodities entering international trade – nominal rates – and the structure of rates of protection accorded by the tariff structure to the specific processes or stages of production that make up the productive system – effective rates”.

56Nominal protection is thus a measure of the protection afforded to a commodity, whilst effective protection is a measure of the protection afforded to the industry that combines various resources and inputs to produce the commodity. Effective protection needs not be positive. Negative rates of protection may arise as a resuit of purchasing inputs from the rest of the economy which have a higher rate of protection than the output produced.

57Larry Wipf not only extended the analysis of effective rate of protection from the manufacturing to the agricultural sector, but he stretched the concept itself from its original confinement to the tariff structure to include the U.S. agricultural programmes and other non-tariff distortions. Quantitative restrictions, variable levies, and export subsidies were thus included in the analysis ; as well as non-rebatable indirect taxes on inputs, domestic price support provisions, and subsidies – such as direct income payments and cost-lowering production aids – which although directly affecting only domestic producers clearly influence the competitive position of U.S. agricultural exports in the world market.

58The use of an input – output model imposed some stringent as-sumptions upon Wipf’s study – particularly with regard to substitution of inputs in agricultural production – which, by the author’s own reckoning, demands some caution when evaluating his results. The nominal and effective protection rates for the U.S. cereal production were, in 1958, 1963 and 196845 :

59From the table it is clear that whilst the range in nominal protection was relatively small – from O for all coarse grains and rye to 7,3 % for rice and 8,6 % for wheat – the range in effective protection is enormous – from a negative rate of protection of - 16,5 % for rye to a positive effective protection of 153,0 % for wheat. The calculated rates of protection were much lower in 1968 than in 1958 or 1963 due to the unusually high world market prices and a tendency, from 1963 on-wards, to set domestic support prices for feed grains at world market price levels.

60However, the rate of protection, per se, tells nothing of its effects upon trade. It is only when that protection is manifested in market prices and when it is known how production and consumption react to them that we can estimate the effects of protection upon trade and evaluate the output effect of the U.S. farm programmes. The reaction of production and consumption to market prices will be conditioned by the elasticities of supply and demand : the higher the price elasticity of either one or of both, the greater would be the disruptive effect of a given rate of protection.

61The price elasticity of demand for rice and wheat is generally considered to be low in all industrialized countries, except Japan, where the high domestic price of rice encourages its substitution by wheat. Rice is of secondary importance in the diet of the industrialized West ; the demand for feed grains, among which a great deal of substitution is possible, is highly price elastic and closely tied to the import tariff structure. The switch from maize to sorghum in the Common Market is a good example of that46.

62The price elasticity of supply of most agricultural commodities was for long considered to be very low, partly because most studies concentrated on acreage response to price – which in the short run has a very low price elasticity since most agricultural land has no alternative uses. D. Gale Johnson, in 1950, made the first attempt to establish a more comprehensive supply function and to distinguish between the conditions influencing the decision marking within the firm and the supply conditions of factors47.

63Marc Nerlove, in 1956, elaborated further those ideas and was able to establish the fallacy of identifying the elasticity of supply with the elasticity of acreage with respect to price, and that of identifying the price lagged one year as the price to which farmers react. Nerlove found that when land and management allowed change of crops the acreage elasticity was considerably higher, and he also confirmed the very sensible proposition that farmers react to the price they expert to pre-vail, whether in relation to last year’s price or not48.

64D. Gale Johnson finally refined the supply function, combining the acreage response and the yield response – influenced by conscious decisions such as the amount of fertilizer used – and posited an elasticity of output with respect to price approximately equal to the sum of the acreage and the yield response49.

65In so doing, he also found that the elasticity of supply of agricultural products increases as the relative importance of purchased inputs in-creases. An agriculture with few purchased inputs can only increase outputs by working more land and longer hours. However, when a large proportion of purchased inputs – fertilizers, herbicides, etc. – is responsible for a large share of the yield, the potential for increasing output in response to price incentives is much greater and much more immediate.

66A further implication of Johnson’s findings is that with a higher proportion of purchased inputs responsible for agricultural outputs, higher prices will be an ineffective way of increasing the returns to the farming sector, but an effective one for increasing the total farm outputs. This has been largely overlooked in the agricultural programmes of the industrial countries as well as developing ones.

67The agricultural programmes of the U.S. differ little from those of most industrial countries, except Britain before 1971. With some broadly defined objectives of ensuring stable “Fair priées”, higher incomes, and employment opportunities to the farm population, they are a variegated patchwork of subsidies, support programmes, acreage allotments and restrictions, and tariff protection.

68There seems to be considerable evidence that a high level of protection exagerates the output effect of the U.S. agricultural programmes. In 1963, Earl Heady and Luther Tweeten50 estimated that the elimination of the U.S. farm programmes in the early 1960’s and a return to market prices would cause an increase of total farm output of the order of 2 to 4 % by the end of a four year period. Mayer, Heady, and Madsen’s (1968) projection of the output response – if all programmes were discontinued, and assuming that all long-term adjustments would have been completed by 1970 – concluded that the combined output of wheat and feed grains would increase by 9 % compared to the output for 1966-6751.

69Those results were confirmed in 1971 – for feed grains – by Leroy J. Hushack, for the conditions of the early 1970’s52. Warran R. Grant and D. S. Moore had arrived at the same conclusion with regard to rice in 197053. Martin E. Abel found it hard to accept the latter results, in view of the heavy subsidies and protection enjoyed by rice – on a milled basis, long grain rice had averaged $ 220 per ton, requiring export subsidies of $ 44 per metric ton, or about 20 % of the domestic price – the loss of which would imply a drop in net returns for rice production54. However Abel did not take into consideration that although the rice programme, in the U.S. – a combination of price-support programme, acreage allotments, export subsidies and pl 480 shipments – remained unchanged, the yield per hectare had increased from 2,5 tons per hectare in 1947-49 to over 5 tons per hectare during the 1960’s. This yield increase could have, potentially, offset a drop of price per unit of ouput for as long as it paid to purchase the required inputs to produce it55.

70Those increases in yields attributable to inputs other than land, and the 60 million acres diverted from cultivation under the “set aside” programme during the 1960’s, strongly support D. Gale Johnson’s assertion that the results of the above mentioned studies were congruent with the experience of the U.S. during the 1960’s56.

The U.S. cereals and the world market

71The direction of change in output leval shown by the above mentioned studies suggests a strong competitive position of the United States cereal producers. Yet, this is not sufficient to say that the U.S. cereals would enjoy a position of comparative advantage. This would not be the case if in “the rest of the world” the decline in the costs of cereals relative to all tradable goods were substantially greater, or, if cereals in “the rest of the world” were subsidized. Comparative advantage is thus affected by the whole set of relative prices as well as by those in “the rest of the world”.

72Furthermore, trade cannot be assumed to be free and costless. Aside from transportation costs and import and export duties, Ohlin includes in “costs of transfer” such obstacles as the reduction in quantity and quality of easily spoilable goods through transportation, lack of contact with distant customers and cost of information57. “Besides the costs for the use of certain quantities of the factors of production – quantities needed for production and transportation – the costs of production also include taxes and social welfare fees, many of which bear an important relationship to international trade and are yet not included in general Systems.”58

73Having collapsed a number of assumptions, the conclusion of Ohlin is that all that can be said is that the effect of international trade will be a tendency towards the equalization of commodity and production factor prices, both expressed in terms of money. Taking into account conditions wich are more consonat with the characteristics of the world today, Ohlin feels that one can neither assume full mobility nor full divisibility, which are the essence of an atomistic theory in which full capacity will always be used. If the output of an economic sector oscillates between 60 and 100 % of capacity, the tendency, in the long run, would be to price the products it produces when they equal the cost of the average 80 % output. Another important departure from the ideal world is that the prices of the factors of production cannot be considered uniform throughout a region, let alone a country as a whole. (A complication to be borne in mind in making inter-farm comparisons is that items of variable cost – and thus total cost figures – may vary from farm to farm. Some farmers may use casual labour, others only regular labour (a fixed cost), some farmers may rent whilst others own equipment (a fixed cost), different soils have different requirements, the number and type of sprays may differ considerably, etc). All these factors are grouped together by Ohlin under the name “economic friction”, and “the equilibrium toward which prices tend in a friction-dynamic society thus differs in important respects from that which is advanced under the atomistic theory”59.

“A tendency toward equality exists. When inequalities occur, the price mechanism tends to restore them. Such reactions require more or less time. For this reason, every explanation of pricing that attemps more than a statement of certain equilibria must consider time, and this is the chief cause of the difficulties encountered by a concrete theory of pricing. Even if no disturbances occur, prices will not return to the equilibrium that existed before this special disturbances happened, for during the ’disturbed’ situation the basic elements determining the equilibrium are changed.”60

74Looking at the cereal world market between 1965-1970 the scenario for wheat reveals Australia and Canada, the two main competitors of the U.S. subsidizing their exports at about 10 % of the export prices, as the United States did, except for 1968, when no subsidy was paid and 1967, when it was just under 5 %. Argentina, on the other hand, once the second largest world exporter, then the fourth, was taxing her exports at about 20 % of the export value, plus another 17 % that was taken via exchange rate differentials. D. Gale Johnson calculates that the Argentinean producer was receiving around 60 % gross of the export price61, whilst fao estimated returns of $ 4 or under per hundred kilograms for Argentinean producers versus $ 6 to $ 8 for their American counterparts62. It should be added that at the time a tractor in Argentina cost almost twice as much as in the U.S. The same could be said for other implements – many of inferior quality – and fertilizers could not be applied since the increase in output would not have covered their high cost63.

75As far as feed grains are concerned, the U.S. was exporting about 50 % of the world total, Argentina 13 % France almost 10 %, South Africa 4 %, Russia 3 % and Canada 2 %. The U.S. subsidies were minimal, but more important. 55 % of the area sown was out of go-vernment programmes and in response to market prices, which in the U.S. were world prices.

76France and Russia were giving heavy subsidies – about 20 % – whilst South Africa and Canada where paying subsidies via shipping concessions. Argentina was taxing her exports of feed grains as heavily as her wheat exports64.

77The world market for rice is very small, prices tend to be volatile, and heavily manipulated with internai price variation ranging at the time from $ 50 per ton in Burma to $ 501 in Japan. The United Stated was the largest world supplier, with about 1 million tons in sales, half of it under pl 480. An important beneficiary of those soft sales was India, which was able to keep her internal prices of rice at 25 % of the world price. The must have increased internal consumption and discouraged internal production, but given the U.S. terms, with little exchange or balance of payment problems65. As mentioned earlier, rice was subsidized in the U.S., but the study of Warren Grant and D. S. Moore shows that productions would have increased even if the price was allowed to drop by as much as 25 %.

78The findings of Grant and Moore are neither surprising nor impossible to explain, and for reasons other than the reputation of the authors or the considerable resources put at their disposal by the U.S. Department of Agriculture.

79A basic theoretical explanation can be found in the always fresh, tightly argued Chapter V of Adam Smith’s The Wealth of Nations –“Of Bounties”. It is more than possible that the U.S. rice subsidies whilst allowing the marginal producers to make a socially acceptable living were also allowing the more efficient producers to make extraordinary profits. The latter were unlikely to protest about it, but they could have easily offset a drop in price if they would have been free from the acreage and allotment restrictions of the programme. As just mentioned in the discussion of Grant and Moore’s study, the U.S. rice programme ignored the 100 % increase in yield that had taken place since the programme started, as well as an enormous increase in productivity. During the 1960’s and 1970’s the U.S. rice production required less than 2 man-days of labour per acre for all the growing and harvesting operations compared with more than 400 man-days per acre in many other nations.

80Sound economics, however, is seldom the plinth of government policy. Even though many agricultural programmes can be proven unnecessary or even deleterious on economic grounds, they may be politically difficult to remove. Rice may be a typical example of it. Ninety-nine per cent of the U.S. crop is grown in Arkansas, California, Louisiana, Mississipi, and Texas, and it is more than likely that if the programme was removed some increases in acreage would have gone to Missouri, South Carolina, and Tennessee. Overvalued marginal land (because future programme benefits were capitalized into its value) would then have had to be withdrawn from cultivation, which probably represented an unacceptable political cost. Another plausible explana-tion for the persistence of many U.S. agricultural programmes put forward by D. Gale Johnson, is that they ignored that (in the 1970’s) about one and a half million farmers in the U.S. were only part-time farmers and depended on outside work for their livelihood. This, of course, would have tended to dilute the average earnings of the sector and justify the perpetuation of many programmes.

81But focusing solely upon the labyrinth of the U.S. agricultural programmes would be a cyclopean and meaningless task. However pervasive in many af their effects they might have been, the programmes were enacted by successive Administrations and Congresses and were not consistent in their goals. During the 1950’s they reflected the power of the agricultural lobby, but the contrary was true during the 1960’s, especially from the time in which the powerful urban interests supporting President Kenney began to press for lower agricultural prices. As a resuit of that there was a shift in agricultural support prices, which became flexible downwards66.

82Eventually though, the agricultural programmes and the performances of the U.S. cereal sector must be examined in conjunction with the exchange rate and the prevailing financial conditions at the time. The period under consideration corresponds to the late phase of the Bretton-Woods System. Agreed upon in 1944, the Bretton-Woods System, also known as the Adjustable Peg System, was to last until 1973. It established a fixed exchange rate – within boundaries – and reliance upon a number of reserve currencies, the most important of which was the U.S. Dollar, redeemable throughout the period at a fixed gold parity.

83The workings of the Bretton-Woods System cannot be discussed here67. Briefly though, it may be stated that the Agreement spanned a period of formidable expansion of world trade, which grew at a faster rate than world gross national product (gnp). The U.S. was a major impulse behind that growth. however, as supplier of the main reserve currency, the U.S. began to run a persistent balance of payments deficit, which increased from the 1950’s to the huge deficit of 1971, with the exception of a small surplus in 1968. In addition to that, there was a continuous drop in the U.S. gold stock (5 % between 1952-1955, 17 % between 1955-1960, 23 % between 1960-1965, and 20 % between 1965-1970), a creeping inflation in the U.S. during the 1960’s and early 1970’s, and the refusai to revalue or half-hearted revaluations of the Western European nations and Japan after they reaped the benefits of their 1949 devaluation (clearly because that allowed them to offset cheaply the U.S. technological advantage). The combination of those factors determined that the value of the Dollar became progressively out of line relative to the currencies of the major U.S. trading partners. Finally, the Dollar was devalued in relatior to gold by 8 % in August 1971 and by a further 10 % in February 1973, and in March of that year the Dollar convertibility was abandoned altogether and a de facto floa-ting rate of exchange emerged.

84That, in G. Edward Schuh’s estimation, ended a period of discrimination against U.S. agriculture. First, he argues correctly, because an overvalued currency can be considered an implicit export tax, whose rate would depend upon the elasticity of foreign import demand and the elasticity of domestic factor supply. And secondly, because to that must be added the effect of tight monetary and fiscal policies designed to stem the outflow of gold and to reduce the deficit in the balance of payments68.

85The overvaluation of the Dollar caused, in Schuh’s view, a devaluation in agricultural resources, and the stress created by that situation forced a faster rate of technical change than it would have been other-wise. Indeed, this explains why agricultural output continued to grow over this period in spite of a persistent downward pressure in real agricultural prices and falling support prices for agricultural commodites. The extent of the latter, in real terms (deflated by consumer price index 1947 - 49 = 100), can be seen in the price support for wheat, maize, and sorghum :

86However, the decrease in real terms of the price support took place parallel to significant changes in technology, shown by : continous decreases in (a) labour and (b) land employed (the latter from 1955 onwards through growing acreage diversion under the set-aside programme, particularly important for land – intensive crops, such as wheat and maize), and continous increases of (c) operating inputs and (d) capital, which resulted in continuous increases in (e) output. Thus, the productivity gains – through varying combinations of land augmenting capital (biochemicals) and labour augmenting capital (machinery) – allowed a continuous increase in the (f) rent per acre and (g) wages, even with (h) falling or stagnating output prices in real terms, a rising trend in the general price leval (obviously affecting inputs), and a steep one in the cost of land, clearly reflected in the tables :

87Indeed, during the 1950’s total factor productivity rose 27 %, in the 1960’s by a factor of 11 %, and in 1971 by about 10 %, giving ample margin to adapt to falling real prices71.

88The standard business and economic practice demands that a test of competitiveness must be carried out under “depressed” rather than “buoyant” prices. In real terms, there is little doubt that such were the conditions in which the U.S. cereal sector operated during the period under consideration. Its performance under those circumstances, suggest a strong competitive position.

89This is further strengthened by the continuous growth of sales through private channels during the entire period72, by encreases in the volume of sales, and by a tendency to decrease the proportion of the crops put voluntarily under protection – the level of which was calculated at world market price73, and with a government policy determined to reduce the stocks and output of wheat74. Thus, it seems certain that the U.S. cereal exports during the period under consideration enjoyed a comparative advantage in the world market.

III. THE ARGENTINEAN CEREAL SECTOR : PRODUCTION POSSIBILITIES AND CONSTRAINTS

90As far as the chief environmental factors are concerned the cereal growing area of Argentina is ideally suited for that surpose. The main producing area, the Pampean region, is a broad chernozemic soil region formed beneath a natural grassy vegetation. Although, as Papadakis points out, “soils vary considerably within small distances and we en-counter para-chernozems, planosols, and solonetz very close to one another”75, they tend to have a deep “A” humic horizon with the pH range of 6,5 to 7,0. The dark “A” horizon of the Pampean region – often several feet deep – with its high organic matter content and a plentiful supply of nitrogen is a prominent feature of a chernozemic soil. In Argentina, the “B” horizon is usually indistinct, and may have a layer of calcium sulphate and carbonate. The grass vegetation absorbs calcium and magnesium from the “B” horizon, and these are brought to the surface in the dead leaves and other plant materials that fall to the ground, which contributes to the neutral pH reading of the Pampean soils.

“In Argentina, a great part of the parent material from which the soils have been formed is volcanic ash coming from the Cordillera. Consequen-tly, they have a heavy ando component, which ensures an unusually high cation exchange capacity compared to their clay content76.”

91Aside from a large absorption capacity, soils with ando parent material are very permeable, and this increases their capacity to absorb the toxins produced in the rhizosphere, and helps to destroy them. This is an extremely important factor behind the great fertility of the Pampean region.

92Most of the Pampean soils are loamy in texture, with strong, well – formed peds, forming a granular, crumb – like structure in the deep “A” horizon, permitting water to enter easily, roots to penetrate deeply, and air to move in and out freely. The surface is moderately cloddy, not fine and dusty, and the soil is firm enough to hold moisture and make close contact with seeds and roots. The water level is sufficiently low to allow a deep rooting zone, and thus ensure a large area of contact between the roots and the water films around the soils particles. These characteristics tend to increase the temperature of the Pampean soils. Bacteria and the myriad forms of life existing in them are thus able to increase their activities carrying the decay of humus ot its final stage, that is, the basic chemicals required by the plant.

93Soil conditions, including water supply and availability of nutrients, are only one part of the environment in which the plants grow ; and environment acts as a whole. The interaction of soil conditions with climate is vitally important. Wholly within the temperate zone, moderately warm in the north and moderately cold in the south, humid in the east and subhumid in the west, the Pampean region enjoys an adequate climate for cereal growing in temperature and amount of light as well as in the distribution of rainfall. The carbon-dioxide content of the air, the last chief environmental factor, appears to be satisfactory as well.

94The yield of a plant is primarily a matter of the quantity of elabo-rated carbon-compounds produced ; that is, it is dependent on the amount of photosynthesis carried out. The amount of photosynthesis is dependent on the intrinsic characters of the plant and on the environ-mental conditions. The main plant characters concerned are :

1. the net assimilation rate – I.E. the amount of dry matter per unit-leaf area per unit of time ;

2. the area of leaf or green tissue, the length of growing period ;

3. the plant characters are genetically determined, and depend on the type of the plant selected77.

95Cereal selection and adaptation in Argentina has been facilitated by its very favourable environment. The characteristics of the Pampean soils make them equally fit for an easy establishment of cereals with fine fibrous roots, such as wheat, oats, and barley, or those withs thicker ones, like maize. The climate range in the area is suitable for all of them. Although large scale cereal growing only started in the 1880’s, in 1912 Mark Jefferson could report as many as sixty wheat varieties – land, improved and hybrid types – being sown in Buenos Aires Province alone. Adaptation was easy enough, for the conditions in Argentina would fall between the range demanded by most wheat varieties, and they would probably do better if originally bred for more extreme conditions. Those plants that failed and were not ready at harvest time were automatically eliminated.

96A great deal of systematic selection and other scientific work was also carried out since the early 1860’s in the Departamento de Agricultura – Department of Agriculture – organized by Dr. Ernst Oldendorf in the German tradition of Albrecht Thaer. The Sociedad Rural Argentina – Agricultural Producers Association – had also been active in that field since its foundation in 1866 by Martinez De Hoz, Newton, and Olivera. Equally important were the technical innovations and the general know-how brought by many European and American immigrants and the efforts of many individual producers, exhibitions and compétitions carried out regularly since 1871, the Catholic agricultural schools, and later at the univerisities – above all those of Buenos Aires and La Plata.

97However, that early awareness of the importance of agricultural education and research, which resembled the concerns then prevailing in some European countries, the U.S., and Canada, was not matched in Argentina with funds comparable to those invested in those countries, particularly in the U.S. If cereal yields are good indicators of the rate of investment in agricultural education and research, that difference be-gan to show in the 1930’s. Until then, the yields of cereals grown under comparable conditions in Argentina and the U.S. were roughly the same. From then on, yields increased rapidly in the U.S., to reach averages approximately 50 % above the Argentinean levels, maintained even nowadays78.

98That was the resuit of a complex process of interaction between agricultural education and research and several industries related to the agricultural sector. During the 1920’s a new technology began to emerge in the U.S. A combination of rapid advances in biology and chemistry resulted in the production of high volumes of relatively inexpensive agricultural chemicals. Along with advances in technology embodied in the farm equipment and machinery, those improvements resulted in increases in the physical productivity of factor inputs and in reductions in the factor-product ratio of U.S. agriculture. Land productivity, which had decreased in the U.S. between 1870-1900 and remained stagnant between 1900-1925, rose by an average of 1,4 % per annum during 1925-1950 and by 2,5 % during 1950-1964. Labour productivity on the other hand, which increased by 1,3 % per annum between 1870-1900 and 0,4 % during 1900-1925, experienced average yearly gains of 3,3 % in the period 1925-1950 and 6,6 % in 1950-196479. These figures suggest that the interaction between education, research, the agricultural sector and related industries was a cumulative process. A comparable one had not taken place in Argentina.

99In the 1960’s, the Faculty of Agriculture of the University of Buenos Aires, the leading in the country, could be compared favourably with the Universidad Agraria de La Molina, in Lima, Peru, but was nowhere near Edinburgh University’s School of Agriculture, in Scotland, or the Universities of Guelph or Alberta in Canada, not to mention scores of American universities and colleges. Aside from the differences at the scientific and technical level, the study of economies in the required depth was conspicuously absent at any Argentinean agricultural faculty80. Research in soils, genetics, phytopathology, cultivation and rotation techniques was also carried out at the inta (Instituto Nacional de Tecnologia Agropecuaria) or National Institute of Agricultural Technology. Created in 1956, the inta was understaffed and undere-quipped to catch up with or to borrow effectively from more advanced research centres.

100Before World War II, the Argentinean cereal sector was able to borrow techniques or to purchase technology embodied in seed, machi-nery and other inputs, whenever the differences in relative prices allowed it to do so. This was no longer as easy a proposition during the 1960’s. Quite simply, the U.S. agriculture, which shared features with the Argentinean one up to the 1930’s, was no longer the same after the hiatus imposed by the War and the economic and financial policies of the Peronist period. The protectionist industrial policies did not change much after 1955, so that as far as equipment and machinery were concerned, the imported ones where prohibitively expensive and would have lacked spares and service, whilst the locally made products did not meet the standards, particular the American ones, in terms of quality, reliability, service, costs, or the financial facilities with which they could be acquired in the U.S. It was not only the U.S. agriculture that had changed, but the entire U.S. agricultural environment. Therefore, during the 1960’s, the technology available to the American farmer, embodied in a scientific and industrial package and supported by an infrastructure and a competitive banking, insurance, and commercial network which differed considerably from the Argentinean one, could no longer be as easily borrowed by the Argentinean producer as it had been in the past.

101Some of those problems were discussed at the roving meetings of crea (Consorcios Regionales de Experimentacion Agricola), modelled after the French ceta or Centre d’Etudes Techniques Agricoles, crea was the product of private initiative and voluntary organization. The members of each crea regional chapter shared the cost of hiring a professional agronomist and met periodically at the member’s establishments to discuss their managements and experiments, after an inspection tour. Nobody who followed crea’s rotating sessions during the 1960’s could have failed to be impressed by the members’ enthu-siasm and the honesty with which they discussed their managerial decisions, by their eagerness to improve existing techniques and to learn about new ones, and to enhance the quantity and quality of their production and their profitability of their businesses.

102It may be argued that crea’s members were the ablest, best educated, and wealthiest producers. That was true in some instances, but not at all in others. More relevant than that, however, is that their basic attitudes, though manifested in different ways, were not uncommon throughout the entire spectrum of Argentina’s cereal sector.

103They were highly noticeable at the upper level of that spectrum, at establishments such as Estancia “La Alpina” in Classen or “El Orion” in Las Rosas, Provincia de Santa Fé, superbly run by Bernhard Clare and Timoteo Henkel. These cultivated gentlemen, highly trained in agriculture in Germany, had a profound knowledge of every aspect of the cereal and cattle business, including related industrial aspects of them, and managed complex enterprises in an innovative fashion.

104Those basic attitudes were also evident at the middle of the Argentinean cereal sector, be it amongst the long established descendants of the XIX Century Swiss colonists, in Helvetia or around Canada de Gómez, in a man like Ignacio Ordonez of Las Rosas, who belonged to an old traditional family from Santa Fé, in Kurt von Arnim, a German immigrant farmer, in several Belgian farmers newly arrived from the Congo, and in countless middle size producers in the cereal areas of Santa Fé, Córdoba, and Buenos Aires.

105And those basic attitudes were also evident amongst the producers at the lower end of Argentina’s cereal sector. The speed and the ability with which many producers in this category shifted between cereal growing and different stages of cattle production in accordance with the utterly variable market conditions of the 1960’s is a clear indication of that. Cattle was an entirely new business for many small producers in places like San Genaro, San Jorge, and especially amongst the Piamon-tese descendants of Santa Clara de Saguier. In getting in and out of the cattle business, these men proved that far from being tradition bound, they were capable of interpreting the market signs and of taking risks when the odds looked reasonable to them.

106Historically, there has been no shortage of that hard headed business attitude in Argentina’s agricultural sector. An example of that was the switch from the large scale production of wool to that of beef of specific grades. A market induced changeover, it was accomplised in an amazingly short time span and demanded considerable genetic expertise and a huge capital investment. This unknown chapter of Argentina’s agricultural history was due to the efforts of large landowners. But another unknown chapter of that history involved thousands of producers of all types and sizes, proprietors as well as tenants and sharecroppers : it was the early mechanization of the cereal production.

107Like the changeover from wool to beef it was an entirely market generated process, which owed nothing to government stimulous or public research and information. Frank von Motz’s report about Argentina’s market for agricultural implements and machinery, prepared in 1916, when large scale cereal growing was barely thirty years old in Argentina, is a vivid illustration of that process. The report reveals the way in which the various actors in the market kept adding momentum to that process by simply pursuing their individual interests. Von Motz focused repeatedly upon the attitudes of the Argentinean producers, many of whom, like their U.S. counterparts, were ascending the “agricultural ladder”, as reflected in the statistics for land ownership inclu-ded in the report. The willingness of American manufacturers to modify equipment in order to satisfy the requirements of the Argentinean users underscores the importance of the country’s market for implements and machinery, then representing around 20-25 % of U.S. exports to Argentina and about 5 % of Argentina’s total imports. Most interesting yet, is that the Argentinean cereal producers were described as discriminating buyers, who required substantial demonstrative proof of the equipment’s performance and the prospective returns from the investment81.

108That discriminating attitude has not diminished ; anybody with business experience in the Argentinean agricultural sector would readily agree to that. One input that the agricultural producer’s discrimination was able to influence considerably during the 1960’s was the supply of seeds. At the time there was a sizable array of seeds suitable for Argentinean conditions. A number of research stations and private seed breeders – some American and internationally established, such as Dekalb, particularly good for sorghum and maize seeds – were enga-ged in adapting and improving seeds by mass selection, roguing or hybridization, and were able to provide good quality certified seeds and information on their requirements and performance.

109During the 1960’s and early 1970’s there was considerable competition in the supply of seeds, and that made them the input upon which the producer’s discrimination could exert the greatest leverage. After ail, it was he who made the managerial decision of selecting a cereal variety, based on his assessment of the local characteristics, those of the plant itself (chiefly its requirements, resistance, standing ability, weight of inflorescence and strength of the culm) and the weather conditions to be expected at harvest time and during the preceding period. As such, the producer was able to cast a rapid judgement on the seeds that did not meet the expected requirements.

110The historical record suggests that judgement has been passed in a discerning manner. In general, that record would support the notion that the process of managerial decision making enhanced the good environmental capabilities of Argentina to produce cereals of high quality. Which in cereals denote a well-harvested, well-formed and healthy looking caryopsis, as well as suitability for a given purpose. Argentine maize, with a tendency to have a higher starch value than the American ones, enjoyed a premium in Europe as early as the 1890’s. Most wheats have the translucent, flinty endosperm typical of strong varieties. Indeed, their proportion of gluten is high – crude protein could be as high as 22 % – and they have good milling and baking quality. Calculations of the metabolisable energy of sorghum, oats, barley, and rye, tend to be at the higher end of the scale as well.

111Ease of culvativation is of paramount importance to grow cereals cheaply. As far as ploughing is concerned, the general tendency in Argentina, as in the Canadian prairies and similar regions of the United States, has been towards wider implements and shallower work. The disc tiller was, consequently, the most common implement used for that purpose.

112Chain harrows, mostly of the spiked link type, in which the teeth are formed by an extension of the link, equally useful in pastures as well as on arable land, are sufficient for breaking up the furrow slices and working the soil to a tilth in the preparation of seed beds. Drilling was the standard method of seeding.

113Threshing machines were common at an early date in the Argentine country-side, and so were binders and cutters. By all accounts, their use in Argentina dit not lag much behind their appearance in North America and Europe, and local ingenuity made some contributions to their development as well82. Maize shellers spread also rapidly, along with the production of maize primarily for export in shelled form, which went from a paltry 3 714 Gold Pesos in 1875 to 111 292 394 Gold Pesos in 1913 (1 Gold Peso = 0,965 U.S. Dollar at the time)83. During the 1960’s combine harvesters were used to cut and thresh in one operation, which in Argentina can be carried out at a good speed due to the flatness of the ground and to the climate, which normally allows the harvesting of a dry, standing crop.

114Shortage of manpower has been a problem of Argentinean agriculture since day one. High wages, in relative terms, were the corollary of that (along with a high cost of living, documented by many chroniclers, and which in 1915-1916 meant salaries 10 % above the U.S. ones in some job categories)84. The “swallow” inmigrants highlight the relative high wages that characterized Argentinean agriculture, since from the early 1880’s until the beginning of W.W. II they found it profitable to go from Europe to Argentina and return home after the harvest85. High relative wages also attracted large numbers of migrant harvest labour from Bolivia, Paraguay, and Chile.

115High wages and shortage of labour contributed not only to an early mechanization but also to a rapid specialization of agricultural factors. Harvesting and sowing contractors were an early feature of the Argentinean rural life, and one that contributed decisively to minimize costs, since they could maximize the use of labour and equipment. The producer could thus not only consider cultivation and harvesting expen-ses as variable rather than fixed costs – and so reduce his gross margin requirements – but also respond swiftly to cereal price changes, within the possibilities of his land, the demands of crop rotation, and prior investments in artificial pastures.

116Up to and throughout the 1960’s that pattern of specialization was probably accentuated. Agricultural equipment became very expensive, and so were the buildings required to protect it from sun and water. The labour situation worsened. Operators and maintenance personnel had to be obtained in competition with urban employers, and that in a country which was already practically 80 % urban. Though there was unemployment in the industrial cities, it did little to alleviate the labour scarcity. The city dwellers simply dit not appear to have been overly anxious to move to rural areas.

117A high degree of specialization of agricultural functions dit not imply, of course, a clear cut occupational differentiation. It was com-mon for agricultural producers to be at the same time contractors of one sort or another. Land ownership was widespread, and the tendency of the production units in the cereal sector was to be medium size family run operations. There were, however, a sizable number of large units as well as many large producers who owned equipment but not land at all. Often, producters and contractors of all sizes were interlinked in a myriad of contractual relationships the object of which was, clearly, to maximize the use of assets and minimize perceived risks.

118The organization of the Argentinean cereal sector was neither unique nor original. A very similar one was – and is – used in many areas of the United Stated, where, demonstrably, it was chosen for its effi-ciency, not in spite of its efficiency86. Unfortunately, similar studies have not been carried out for Argentina. However, to the extent that historically the cereal sector has been consistently able to deliver its products bellow the world market price – a crude but severe test – it may be said to have been economically efficient, in spite of all the imperfections that such a complex organization is bound to have.

119Thus, during the 1960’s the assets of Argentina’s cereal sector could be summarized as follows :

1. A Gift of God, which endowed the Pampean region with a uniquely favourable environment for cereals that :

1. 1. minimized the technical and managerial demands for its utili-zation ;

   2. simplified the cultivation process, thus reducing labour, equipment, and additional input demands ;

   3. permitted an easy adaptation of new cereal varieties ;

   4. and that on account of all the above had minimized invest-ments in scientific and technical research.

1. A very low population land ratio that had prevented social tensions and engineered social harmony.

2. A high degree of specialization in agricultural functions, and yet great flexibility in their relationships.

3. A flow of technical information that was far from optimal but that, nevertheless, encouraged many producers to test new me-thods or to improve the existing ones.

4. A flow of market information sufficient to allow producers to shift production in order to maximize the return on capital.

5. An alert management that, for all its shortcomings had been historically receptive to innovations and highly responsive to prices in Narlove’s sense, as it becomes obvious from a perusal of the changes in cereal output, in the cereals produced, and their market prices.

120Such endowment would appear to have placed the Argentinean cereal sector in a good position to capitalize from an expanding world market and to expand its production possibility curve through the acquisition of new technology. Bertil Ohlin has cautioned incessantly against that superficial interpretation of his theory, repeating that initial endowment can be altered by other factors in the local or the world market. In effect, any sector in the economy can exist only in interaction with many others, and it is only as a consequence of that complex set of relationships, which change dynamically, that its products may or may not enjoy a comparative advantage. Those of the Argentinean cereal sector did ; but a number of powerful constraints prevented the producers from realizing the full benefit on their products, and thus, from using the means to expand the production possibilities of the sector.

121Only a few of those constraints can be examined here. Two critical ones were the System of commercialization and the position of the cereal sector relative to other sectors of the Argentine economy.

The System of commercialization contained many negative features. Three key areas that should be singled out were : A) Prices, B) Payment Method and C) Transport and Storage

A) Prices

122Export Duties were probably the single most important factor affec-ting the final price received by the cereal sector. Unlike the United States, where export taxes are explicitly forbidden by the Constitution (Article I, section VII)87, Argentina’s Federal Government knows not such injunction and has progressively increased its reliance on those duties. Once around 2 % of the fob value, they went up steadily since 1946 to levels of 20, 30, and even 50 %. Throughout the 1960’s wheat had to pay a total of seven different export duties that amounted to 30,3 % of the fob value. During the decade 1960-1970, whilst the U.S. producer received an average of 63,38 Dollars per ton of exported wheat, his Argentinean counterpart was theoretically paid an average of 42 Dollars per ton after the export taxes were discounted88.

123It was a theoretical price because in addition to the set of specific export duties the system of exchange rate differentials, established in the late 1940’s and maintained since then in various ways, amounted to a further tax on exports. The figures of D. Gale Johnson estimating that the Argentinean producer was receiving about 60 % gross of the world market price for cereals were clearly on the generous side. “Export Dollars” during the period 1960-1970 were often not even 60 % of the real rate of exchange.

124Furthermore, whatever turner up to be the equivalent in Pesos of the 42 Dollars average export price theoretically received by the Argentinean producer, that was still an fob price. Out of it one must discount a Sales Tax – 5 to 10 % during most of that decade – plus an array of direct and indirect Federal, Provincial, and Municipal taxes, weighing and certification fees, transport and storage charges. The Sales Tax was calculated over the fob or the index price, whichever was higher, and so were a number of duties : inta, 1,5 %, Ministry of Roads, 1 %, Secretary of Public Works 1,5 % (to finance elevators), the National Grain Board, 1 % and a 3 % for statistical records !89

B) Payment method

125The National Grain Board (Junta Nacional de Granos) was trans-formed from an overseeing agency into a government Monopoly rontrolling the grain trade in the early days of the Peronist regime, and it continued in that role during the period under consideration. It fixed a “basic price” for grains which were normally announced at sowing lime. Characteristically, the “basic prices” had been a potpourri – as Fienup aptly calls them90 – that often changed in a matter of days.

126Wheat, for instance, was assurcd a price of 16,50 Pesos per “Quintal” (100 Kilograms) for the 1970-71 season by a Decree of 12 th. June 1970 – sowing lime in Argentina. That was already a disincentive to plant since it was the same price as in the two prior seasons in the midst of a rapidly climbing inflation. Six days later, or. 18th. June, the Peso was further devalued by 14,29 %, which implied a further reduction in Dollars of 5,87 per metric ton to an alread) low “tasic price”. The latter was maintained until the following year91.

127With the elimination of competition, the National Grain Board acquired a complete control over the payments for the output of the cereal sector. As noted by Fienup, Zoni, and many other reports92, the National Grain Board simply conformed to the pattern of a government not known by its prompt payment of debts. Often it was a full year in arrears, sometimes longer than that, in an economy characterized by a high rate of inflation.

C) Transport and storage

128Although there was a high degree of mechanization in the cultiva-tion and harvesting of cereals, during the 1960’s more than 50 % of the Argentinean harvest was still moved about in bags rather than in bulk. This was due to a shortage of elevators, port terminais, and means of transportation93.

129Elevators and port terminais were nationalized in the late 1940’s and became part of the National Grain Board assets. Little construction had taken place since then, and since the Board was empowered to rent privately owned elevators at the prices it chose to pay, no private construction had taken place94. This placed the Argentinean producer at a particular disadvantage vis-à-vis the Canadian or the American one. Country elevators, which Argentina lacked, were a feature of the cereal growing areas of Canada and the United States. And in the United States elevators competed so intensely that were reckoned to approach the theoretical ideal of perfect competition95.

130Given that the State owned railways had ceased to be a reliable means of inland transportation (during the 1960’s 25 % of the freight cars, 47 % of steam engines, and 38 % of the then new diesel engines were out of service for repairs, the average freight car made 21 trips and transported 18 tons per annum96, and in addition to that, reservation of space required substantial bribes and there were no assurances as to where and when the cargo would arrive)97 about 70 % of the grain was hauled by lorry. Since a large percentage of the feeding roads were unpaved and impassable in bad weather, and the congestions in the terminais caused often queuing times of ten or even more days to unload, that was inevitably reflected in the transport costs and high cereal losses were registered in the fields.

131Althought the facilities for storage were better at the port of Rosario and the distance from the fields shorter than to any other port serving the cereal growing area of northern Buenos Aires, Cordoba and Santa Fé, Rosario, which was once the largest grain loading port in the world, has been slowly falling into oblivion due to silting in the river channels. Part of its equipment was also taken away-after the French company which owned it was when it nationalized in the late 1940’s, in order to “modernize” the port of Buenos Aires. Congestion in Buenos Aires, La Plata, Necochea and Bahia Blanca (the two last ones serve the southern and southwestern cereal areas, and lie some 800 km from those mentio-ned above), and generally poor management by the Port Authority, a State Board that owns all ports, had also resulted in overcharges due to excessive waiting times. Consequently, overseas rates, which were basi-cally very competitive during the period under consideration98, were considerably and justifiably increased, as demonstrated by Fassbender, Wagner, Bethke and Dornbusch, from the reliable Hamburg Institut fur Wirtschaftsforschung99.

The position of agriculture within the Argentinean economy was adversely affected primarily by :

1. The tariff structure.

2. The Balance of Payments Problem.

3. At the conceptual level of economic policy making, the Argentinean agriculture also suffered from a singular perception of the role that it was to play within the country’s economy, which was widely accepted at the time.

A) The tariff structure

132Historically, import duties have been a considerable burden for the Argentinean agricultural producer – and particularly for the cattle, sheep, cereal, and oil-seed producers. The relative weight of that burden has changed considerably over time in nominal as well as in real terms. It became lighter in the second half of the 19th. Century after the maze of provincial législation was eliminated by the implementation of the Constitution of 1853. From 1860 onwards, however, the tendency of that now unified burden was to become heavier over time. Whilst capital goods were admitted duty free, manufactured goods paid an average 45 % import duty during the 1890’s. By 1902 it had gone up to an average of 52,4 %, but items such as sugar paid 125 % and petroleum products 111 % in nominal terms. In real terms that burden was higher on account of Custom House overvaluations and the effects of the exchange rate, given the persistent tendency of paper Pesos to depre-ciate relative to gold. This historical trend continued over time at a varying pace. Therefore, although the cattle, sheep, cereal and oil-seed producers have been able to deliver their output at prices well below the world market ones, they, like the rest of the population, have been forced to pay higher prices for locally manufactured products than they would have under free trade.

133The economic policies followed since 1946 exacerbated this tendency. With the exception of oil products, until then of limited use in Argentinean agriculture, most equipment and other productive inputs required in that sector were imported under “moderate” rates. The rule since then have been progressively prohibitive import duties for most industrial goods and intermediate inputs, including those required by the agricultural sector and even those which the country could not be seen producing economically in the remotest future. This clearly affec-ted the economy as a whole and the population in general, but whilst the latter benefitted from low cereal, meat, and oil-seed prices, those agricultural producers were forced to buy high priced consumer goods and agricultural inputs or were prevented from using them.

134With “import substitution” as basis of its economic policy since 1946, Argentina was no exception to the experience of Brazil100 and other countries which had adopted such policies. The bulk of the “import substitution” process was dominated by consumer goods. The production of capital goods and other industrial inputs indispensable for agriculture was practically non-existent at the time of the Prebisch Report, in November 1955. The production of tractors had begun in 1954, after several years of unsuccessful flirting with the “Pampa”, a locally designed one. But the efficient production of tractors, like that of transport vehicles, was hampered by rules which demanded yearly increases of locally made components, with little regard for the capacity of the local industry to deliver them in the required quantity and quality. The chemical industry was similarly hindered by the shortfalls of the oil industry, which provides the base for many agricultural inputs. Argentina had sizable deposits of oil, but ypf (Yacimientos Petroliferos Fiscales), the State Oil Monopoly created in 1907, was a heavy money loser in spite of the high price of petroleum products, and it was underequipped to extract and refine oil in sufficient quantities to reach a theoretically attainable but elusive “self-sufficiency”.

135Shortages, however, were not limited to relatively complex agricultural inputs. In spite of high prices, shortages were common too amongst ordinary requirements, even for something as simple and yet as critical for Argentinean cereal producers as jute bags. Theoretically, Argentina had been “self-sufficient” in manufactured bags from the time of the first Worthington Report, in 1896. Although historically jute bags have been very expensive in Argentina, production never managed to catch up with demand. During the 1960’s, Argentinean-made jute bags, in price and quality, could not compare favourably even with the ones produced by the small Peruvian industry, which were a far cry from being the world’s cheapest or best. Thus, to secure a sufficient supply of jute bags was a routine problem for the Argentinean cereal producer, to be solved, eventually, at a premium price.

136These problems with agricultural productive inputs could not be alleviated with imports, since the tariffs protecting them – not infre-quently with rates in the 100-300 % range and over – made them prohibitively expensive. The resuit was, as Harry G. Johnson and Larry J. Wipf demonstrated101, a tax on the products requiring those productive inputs. Thus, the drive towards industrialization behind high tariffs, exacted further taxes from an already overly taxed Argentinean agricultural sector.

B) Balance of payments problem

137In a country where agricultural exports accounted for over 90 % of the total international trade receipts, the conditions in the balance of payments would be inevitably reflected in the policies adopted towards that economic sector. Since the cessation of payments in 1949, the balance of payments has been the dominant problem of the Argentinean economy and has dominated the economic policies of Argentina.

138Raul Prebisch’s Report to the Provisional President of Argentina, presented on November 15, 1955, depicted in no uncertain terms the critical situation of the Argentinean economy and proposed solutions to it102. It was a stark document, yet a sober one in its diagnosis and prescription. A healthy agriculture was the corner-stone of the latter, as were the trimming down of a bloated civil service, the reorientation of the industrialization effort towards efficient and productive goals, and the upgrading of the run down infrastructure of the country. Pre-bisch – who unfortunately is better known through commentators who have carried to extremes the logic of his arguments rather than from his own contributions to science or his skilful management of Argentina’s Central Bank in the difficult War years – did not promise an immediate cure, nor one exempt from sacrifices for any economic sector. But his sobering tone fell on impatient or deaf ears.

139Prebisch’s plan was never implemented as originally envisaged. Partly because of that, as well as other circumstances, and primarily because of constant changes in the precarious equilibrium of Argentina’s pressure groups, the balance of payments problem was never solved. And Argentina’s agriculture, which remained throughout the only source of revenue to deal with it, continued to drift along with the fortunes of the Peso in an aimless series of short term paliatives.

140It is impossible here to dwell any further on this problem, which has been the subject of considerable study103, but a quick glance at the ups and downs of the Peso during the 1960’s will illustrate how difficult business planning and investment really was in those days.

141The exchange reform of December 1958, which replaced the previous dual exchange System with a single free rate for all transactions, stabilized the Peso at a rate of about 83 per u.s. Dollar, which was supported by the Central Bank. By the end of 1960 gold and foreign exchange reserves had been built up to 658 million u.s. Dollars, but during 1961 and the early part of 1962 a combination of political instability, declining exports, and internai inflation produced mounting pressure on the Peso. The determination of the Central Bank to main-tain the Peso at an artificially high level ended in April 1962, when the reserves to support it were depleted. The Peso eventually levelled at around 137 to the u.s. Dollar, but it fell further down to 143 by mid 1964, 150 in November of that year, and 176,50 in April 1965. The debt repayment burden and a renewed tendency to overvalue the Peso brought the reserves down once again, to 216 million Dollars by the end of 1966, whilst the official foreign debt remained high, at 2,444 million Dollars (compared to 757 million Dollars ten years earlier, at the time of Prebisch’s Report). In November of 1966 the Peso stood at 245-255 to the Dollar, after the Central Bank’s policy of small and frequent devaluation carried on since April of 1965. In March of 1967 the Peso was devalued by 40 % to 350 to the Dollar. The devaluation was followed by a marked recovery of reserves which, despite a decline in the first quarter of 1968, reached 810 million Dollars by the end of 1968, up from 240 million Dollars at the time of the devaluation in March 1967. Furthermore, in August of 1968, the stability of the Peso prompted the imf to class it amongst 32 “first class” currencies. In the first half of 1969 the monetary indicators continued to be reassuring, but political problems arose, the Minister of Finance Adalberto Krieger Vasena resigned in July, and the plans to launch an issue of 150 million Dollars in the world market, which until then looked promissing, had to be shelved. At the end of 1969, the gold and foreign reserves had gone down to 667 million Dollars. Even then, the Peso was considered to be undervalued, at 350 to the Dollar after the 1967 devaluation, but as internai prices continued to spiral the government was more willing to lower export retentions than to alter the exchange rate. On 1st January 1970, one Peso Nuevo became equel to 100 old Pesos, which of course did not change the situation104.

142The volatility of that situation, reflected in constant changes in the rate of export taxes to be paid by agricultural products, meant that the producer could be making or losing money in accordance with over-night decisions. The rapid changes of mood in the economy are well captured in The Economisas Quarterly Economie Review of Argentina. The 1969 issues are an excellent example of that, and its repercussions in economie output. In January of 1969, for instance, the wheat harvest was estimated at 8 million tons, with large quantifies of the 1967-1968 season still unsold. In the prior month, December of 1968 a 3-year wheat agreement to sell 1 million tons of wheat per annum was conclu-ded with Brazil. The April issue reported that the wheat crop was down, but that of maize and linseed was sharply up on prior estimates. In July it was announced that Argentina had bought 75 000 tons of wheat from Russia for internai consumption, and a further 377 000 tons purchase for the same purpose was reported in December (in part from the u.s. and Mexico), in order to keep the commitment with Brazil. Such emer-gencies were not infrequent from the early 1950’s on, and so was the rationing of agricultural exports and internai consumption, an experience shared with Brazil, a country which until 1967 had similar economic problems and attempted to solve them with similar policies105.

C) The perfection of agriculture’s role in the argentinean economy

143Argentina, like Australia or Canada, is a country with a rural image. Yet, and perhaps to a greater extent than Australia or Canada, Argentina is an urban country. And it is a country with an urban outlook, and with 34 % of its population concentrated in the “Gran Buenos Aires” area106.

144It is in that area that most of the bloated civil service and much of the inefficient industries that Prebisch talked about are concentrated. No government, regardless of preferences, could possibly ignore that demographie concentration, whose conflicting interests have come to dominate Argentina’s political and economie life. The agricultural sector, contrary to many assumptions, has had little input and even less influence on the directions taken by Argentina’s politics and economy.

145Clear evidence of the lack of influence of Argentina’s agricultural sector on those processes is that the removal of the threat to the legal title to land introduced in the constitutional reform of 1949 (First Part, Chapter IV, The Social Function of Property, Capital, and Economie Activity)107, abolished in 1956, and the flexibility introduced into the land lease laws, were just about the only dosis of certainty obtained by that sector between 1956 and 1972. Beyond that, however, the inability of the agricultural sector to influence the political and economic thin-king of that period is further confirmed by changes in the perception of the role that agriculture should play in the Argentinean economy.

146As defined in the mid 1960’s, that role was to provide the foreign exchange required to further the process of industrialization as well as cheap and abundant food to lower internai costs108.

147Although by no means original, as anybody familiar with the development literature of the time would notice, the wide acceptance of that view represented a consolidation of an attitude, originated in the late 1940’s, that the agricultural sector was unable to counter.

148Besides the questionable morality and legality of imposing a subsi-diary role to a given segment of society, such perception could only resuit in limiting the actual and potential growth of the Argentinean agriculture. As far as the cereal sector is concerned, and as shall be seen in the next section, those were exactly the results achieved.

IV. SUPPLY, MARKETING, FINANCE AND CEREAL PRODUCER’S CHOICE IN THE U.S. AND ARGENTINA

149The restricted outlook on the role that agriculture should play in Argentina’s economy exacerbated old constraints and created new ones for the cereal producers. The absence of fertilizers in Argentina’s cereal production during the 1960’s and early 1970’s resulted from a combina-tion of those constraints. They affected the operations of the various sectors that together constitute the agricultural industry and that, Connecting the producer with the outside economy, ultimately determine his choice of technology and economic performance.

150Cereals react conspicuously to nitrogen (N) and although the endo-dynamorphic nature of the Pampean soils and the aeration caused by cultivation favours the nitrification process, there is clearly a limit to the amount of microbial activity that can be carried out per cubic inch of soil, and thus to the quantity of N that can be rendered available through that process. Rhizobia left in the soil after the alfalfa (lucerne) cycle of the crop rotation helped to add further N in readily available form, but if the yield potential was to be increased and attained, syn-thetic N should have been added. However, this could have been done only if the price fetched by the extra output compensated for the expense of adding an extra input.

151Fertilizer tests – and the soil tests that should precede them – were carried out before and throughout the sixties and early seventies. Government research institutions and private interests were involved in that. The results varied of course, according to the land anc weather conditions, and to the manner in which the tests were carried out. Some of the results obtained by inta were significant109, and so were those carried out by individual producers at the Estancias “La Alpina”, “El Orion”, “La Legua”, and “San Guillermo”, in Santa Fe, “El Destino”, in Coronel Granada, Buenos Aires, and others. Thus, contrary to some assertions110, the use of fertilizers was seriously and actively considered at the time.

152In all the instances known to this writer locally available seeds were used, which permits to infer that the results would have been better yet with high yield varieties. There were also great discrepancies as to the appropriate methods to deal with the greater incidence of weeds and pests which results from using fertilizers under favourable weather conditions. These unwelcome side effects can be controlled with a combination of mechanical cultivation techniques and pesticides. In Argentina, the high cost of the latter meant a reliance on the former for weeding and very little use of pesticides before planting or during the growth and storage periods.

153Before 1945 and the introduction of ddt, the use of agricultural insectivides in the u.s. and Argentina was confined to fruit, vegetables, and a few other crops. After the War, ddt was used extensively and successfully in Argentina to erradicate locust, by far the worst pest affecting agriculture. Its use, however, declined immediately after the elimination of locusts and palludism, which was endemie in some areas. In the u.s., on the contrary, the production and use of synthetic organic pesticides increased at an accelerated rate and was broadened to control insects, nematode, fungi, and weeds at various stages of the crop’s vegetative process and storage. Sales of synthetic pesticides had grown from 279 million pounds in 1954 to 634 million pounds in 1962. One half of the treated cropland was in grain, but only 15 %of the grain acreage was treated. In 1963 u.s. farmers spent 436 million Dollars in pesticides. At an estimated marginal product of 4,36 per Dollar spent, that would have resulted in benef its of 1,8 billion Dollars, about 4,5 % of realized gross farm income or 10,5 % of cash receipts for crops111. No comparable figures exist for Argentina, but the use of pesticides was negligeable on account of cost and lack of availability in the market.

154This is an important aspect in which the u.s. agriculture had become different from the Argentinean one. And it was a critically important aspect because what is known as the new biogehetical and chemical technological package is a combination of :

1. high yield, genetically improved seed varieties,

2. fertilizers, and

3. pesticides ; all of which must be used in concert.

155The failure of Argentina’s cereal sector to adopt that modem technology has been attributed to various causes. One of them was lack of information and technical know-how. As already mentioned, Argentina’s investment in agricultural education and research lagged far be-hind the u.s., Canada, or the uk, and, at that levai, that meant difficulties in the adoption of research methods and techniques. This made it especially difficult to develop an indigenous technology, which though not specifically stated, seemed at times to have been inta’s goal. But at the producers’s level, the role of education and research in the adoption of new technology can, and has been overstated112.

156Such view, with its tendency to focus only upon the public research and educational sector, ignores the role of the private supply sector in the transfer of technology to the producers. And in so doing, de Janvry and other holders of that view overlook what perhaps were the greatest differences between the u.s. and the Argentinean cereal sectors and a key element in their performance.

157The diffusion of new technology, according to Nerlove and Bach-man, “depends in part upon reduction of uncertainty concerning the probable results of adoption and in part on the ease and cost with which changes in the productive structure can be made”113. In either instance the nature of the innovation is of capital importance ; but so are, as these authors point out and Ohlin’s theory emphasizes, the nature of the productive unit and that of the various economic sectors that form the industry in question and link the productive unit with the outside economy.

158In order to examine the interplay between the producers and those economic sectors, the agricultural industry can be divided into :

1. the producers,

2. the input supply sector,

3. the marketing for output sector, and

4. the financial sector (capital markets, credit, insurance, and related services), which is difficult to isolate since it permeates through all others.

159In the post World War II years, the supply sector to the u.s. agriculture has tended to market its products in ways similar to those used by suppliers of consumer goods. That is, it has done considerable research on the needs and characteristics of the users and it has tried to develop a stable market, which included of course the anticipation of further needs. Basically, the supply sector to the u.s.agriculture can be divided into three segments :

1. the machinery and implement industry, competing largely through the incorporation of new labour saving technology into their products, and comprising local and foreign makers (such as Massey-Ferguson, which is Canadian owned but larger in u.s.than in Canada) ; the other two segments were :

2. the chemical industries, supplying fertilizers and pesticides, and

3. the seed breeders, vying to produce high yield varieties. Intense competitive pressures and the tendency of the agricultural supply sector to market their products along the lines of the suppliers of consumer goods, resulted in instances in which companies offered to the agricultural users a guaranteed yield programme114.

160If the u.s. producer did obtain the expected yield, he was able to handle it with the appropriate equipment, protect it from the weather and pests with adequate instalations and pesticides, and dispose of it through a reliable and efficient marketing System. Unlike the Argentinean producers, the American ones were able to store their cereals in highly competitive country elevators or their own silos, and dispose of them under the most favourable market conditions. Seasonal storage is very risky, but a well organized grain exchange market allows hedging through forward selling and various combinations which enable the producer to obtain private or government insurance and credit against certificates of deposit or future contracts115. The advantage to dispose of the crop in such fashion is that even in the event of having to hold on to some stock on account of market conditions116 it allows the producer to establish a regular cash flow throughout the year.

161A regular cash flow permits to even out the credit requirements and thus to lower costs, and its importance becomes apparent upon consideration of the equity composition of the agricultural business. Even in the u.s., the equity to debt ratio in the agricultural sector was extremely high. Direct ownership of assets in agriculture went down only slightly from 93 % in 1940 to 84 % in 1965, a high equity position compared to 62 % ownership for food processors and feed manufacturers, 51,4 % for food retailers, and less than 40 % for supermarkets. The debt leverage of the latter arose from a more predictable and stable income stream than agricultural and manufacturing operations. A high equity position cannot of course be equated with readily available capital funds to finance unproven technology ; on the contrary, it reveals the instability of the industry’s income and thus the producers’ inability to raise the debt leverage117. Even though competitive storage leads to maximizing net benefits, over the long run, it is still consistent with wide pride fluctuations and significant differences between expected and realized prices, so that the help from comparative storage in terms of stabilizing the cereal producers’ income must be considered relative. Thus, as Padberg points out, the reluctance of agricultural producers to finance the most exciting and hazardous capital intensive techniques may be more attributable to the industry’s characteristics than to the personal characteristics of agricultural producers118.

162The substantial move of food and feed processors and retailers into agricultural production, which started in earnest in the 1950’s may have eased somehow the producer’s dilemma. The integration of those firms into agricultural production meant a move from a setting where equity capital was scarce and must be shifted towards the highest yield endea-vours to a setting were equity capital is so high that it accounts for a very large part of all assets, so that it cannot be allocated with equal effi-ciency119. That move brought into agriculture new managerial and financial techniques120, knowledge of segments of the capital market not previously linked to agriculture, and the ability to create capital through the enlargement of the equity base of the newly integrated firms. Under those circumstances, managers looking for ways to allocate capital efficiently in order to move the firm towards an optimal position may have determined that investment in the biological process of the production function, though risky was also the one offering the possi-bility of greatest yield on the investment. Thus, their leadership may have contributed to unfold what Kislev and Schori-Bachrach called the innovative cycle, tested in Zvi Griliche’s study on the adoption of hybrid maize121. Their work, which essentially is a theoretical reformulation and empirical verification of Schumpeter’s theory of economic development, suggests that the newly integrated firms may have facilitated the adoption of the newest technology by producers who did not have their capabilities, but could then perceive less risk in the investment.

163The input supply sector’s marketing techniques brought that percei-ved risk further down. Behind the supply sector’s ability to offer the results of a huge investment in research embodied in their products, a wide range of additional services, and even guaranteed results in some instances, stood the u.s. financial sector. A large volume would be required simply to describe the u.s. capital market or just the sources of risk capital122. A highly competitive banking and insurance industry is capable of offering terms and schemes tailored to all sort of circumstances, and although the nature of the agricultural business dictates that the number of available options will be always lower than in other segments of the economy, it was still able to profit from those enjoyed by the chemical industry and other input suppliers. The cereal producer was also able to profit from the us financial sector’s ability to attract investors to the commodity exchanges and other sectors of the economy, such as transportation. Much of the railway’s rolling stock, for instance, particularly special cargo units, were (are) not owned by the railway companies, but by large users or investment syndicates – and often leased to the former. The railway companies supply their network and management, and thus it is in their interest to manage those units efficiently so as to maximize their fees and the owner’s income. Indirectly, therefore, they acted in the best interest of the cereal producers and those marketing their output.

164About 85 % of all the u.s. cereal exports are made by the Big Five international trading firmes – Cargill, Continental, Bunge, Louis Dreyfus, and Andre – and the rest by smaller firms. The Big Five also have extensive interests in the industrialization end of cereal and other agricultural products and byproducts, seed breeding (Cargill is well known for that), and provide other agricultural services. The American cereal export performance bespeaks the outstanding services rendered by the marketing sector – and the financial one supporting its subs-tantial credit requirements – to the American cereal producer. The quality of the market intelligence and trading expertise of these firms, compared with the best run state monopolies, such as the Canadian or the Australian Wheat Boards, is best illustrated by sales to markets like China. For all of Prime Minister Trudeau’s catering to the Chinese political or diplomatie moods or Australia’s strategic location neither country has been particularly successful after China became a significant market in the late 1970’s. In 1980, for instance, the Chinese bought 8 865 000 tons of wheat and the u.s. supplied 7 693 000 tons and in 1981 8 107 181 tons out of 13 000 000 imported by China123.

165However incomplete, it is clear from this rough outline of the u.s. agricultural industry that the interaction between the input supply, the marketing for output and the financial sectors, dynamically supporting, inspiring and stimulating each other, offered the American cereal producer a wide range of options from which to choose the most suitable ones for the needs of his enterprise, which changed over time. This is his main task as a manager. Production economists concerned with technological change have traditionally regarded agricultural producers as innovators and studied the relative efficiency of alternative production practices and techniques. However, William Scofield is correct, in the same context, in viewing agricultural producers as prac-titioners of technology, rather than as innovators (since he is aiming at the source of the new technology ; in general economic theory though, following Schumpeter, they could be “innovators” and generators of economic growth by combining existing technology in a new and more efficient way). Thus, in 1966, he could define the managerial role of American agricultural producers essentially as “that of selecting from an ever-increasing stock of new machinery, chemicals, and seeds, the best combination for their particular operation”124.

166Such, was not the luck of their Argentinean counterparts. To the already mentioned shortcomings in the commercialization, transport, and storage of cereals, it must be added those of an sclerotic financial sector. The agricultural producers were served primarily by a single bank, which also channelled and administered discretionally the Federal Government credits to agriculture. The Banco de la Nacion, the largest in the country was a state – owned bank, well known for its large bureaucracy and its somnolent and often arbitrary ways. The Banco de la Nacion functioned reasonably well as a mortgage bank, but it was incapable of offering innovative and imaginative banking, a characteristic that must be borne in mind in evaluating the producers’ business strategies. Private bankers, and especially foreign ones, faced several restrictions and were based mostly in Buenos Aires. Some had branches in Rosario, Santa Fe, Cordoba, and a few other large cities. The Bank of Boston, the First National City Bank of New York, the Banco Aleman Transatlantico, and the Bank of London and South America served some agricultural producers, predominantly but not exclusively the large ones. The Banco Shaw and the Banco Tornquist, two Argentinean private banks, based in Buenos Aires also served the agricultural producers, and so did a few other small banks and cooperative quasi banks. However, these institutions were neither able under the conditions in which they operated nor permitted to upgrade them to a position in which they could challenge the virtual monopoly of the Banco de la Nacion, and thus to prod it into becoming a dynamic and modem institution. The insurance branch of the financial sector suffe-red from the same imposed limitations, and it was just as out of date, expensive and unimaginative as the banking branch, and quite incapable of thinking much beyond fire, accident, or hail damage.

167Fundamentally, the banking and insurance branches of the Argentinean financial sector reflected a capital market which had been protec-ted and regulated out of existence, or at least suffocated to such a degree that it was incapable of playing the fundamental role that a capital market has in economic development.

168It is against this background that the managerial decisions of the Argentinean cereal producers must be examined. Although it is true that under the Argentinean conditions, and all going well, the use of fertilizers could have made some producers marginally better off, the results would have hardly justified the extra cost and risk incurred. Studies such as Alain de Janvry’s, which is to be welcomed not only for being the only one, but because of its intrinsic theoretical and methodo-logical interest, can at times be too theoretical and forget the harsh realities of that business “milieu”125.

169Whilst the goal of the biological and physical resource researcher – and it seems that a little too often that of the agricultural economist as well – is to maximize yeld per unit of land, that of the producer is to maximize the yield of the capital and labour used in the productive process. Concern with yield per unit of land usually means that relative capital and labour per unit of land is high and consequently that the marginal return to those resources would be low. Concern with the returns of those inputs, on the other hand, is thus likely to resuit in lower yields per unit of land than attained in experimental conditions126.

170But even disregarding that caveat, and assuming that the Argentinean producer was able to obtain the higher than average yield estima-ted by de Janvry, it is by no means certain that he would have been able to realize the calculated benefits from his extra investment and higher risk. Ordinary losses in the field (to weeds, pests, and delays after harvest) were extremely high in Argentina, and estimated to be about 40 % of total output127. Since in addition to that the transport and storage constraints remained unresolved, it is doubtful that the profits from a theoretically higher than average yield would have accrued to the producer.

171Private initiative tried sometimes to offset some of those constraints. Bernhard Clare began to build underground cement silos at his Estan-cia “La Alpina”, but the death of this most experienced and forward looking entrepreneur truncated the experiment – and its eventual outcome is unknown to this writer. Others, like Dr. Ernesto Perez León studied carefully a similar investment at the Estancia “San Guillermo”, but decided that it would not pay off even if the difficulties to finance the project could have been overcome.

172On the whole, the realities of the Argentinean situation made it highly questionable to think that the producer would be better off using fertilizer. That extra investment, which would have been entirely wiped out under only too probable adverse conditions, would have been better invested in furthering the equity position of the producer. The prevai-ling banking practices made even the improvement of his home a better proposition than investing in fertilizers. Aside from giving him certain pleasure the whole year round, it would have enhanced his collateral for future credit (since it was incidentally the banking practices rather than social or political clout that channelled the greatest part of available credit to those with the largest equity). Conversely, the producer would have, in the Argentinean context, a greater probability of coming better off by investing that extra money into sowing more land-through leasing or a sharecropping agreement – under conventional methods. As D. Gale Johnson has noted, an agriculture with few purchased inputs (or to which those offered are not attractive enough) can only expand output by working more land or longer hours128. In the Argentinean setting to expand horizontally was the most attractive way to do so, and eventually would have been consolidated with the purchase of more land.

173The success of that strategy has been proven many times. Luis Carnise, from María Susana, is a good example of that, and of the possibilities for social and economic improvement that historically, and even in the 1960’s and 1970’s, offered the Argentinean agriculture. The son of a country lorry driver and with a secondary education in commerce, he was during the early 1960’s the assistant to a cattle dealer in Las Rosas. From the mid 1960’s onwards he began to rent some land and used the profits to buy a lorry and equipment and eventually some land. Today he is a haulier with a substantial fleet of his own, and through the owenership of several tracts of land and leasing and sharecropping agreements he is active in the cattle and cereal business.

174Given his tenacity and his success, he would seem to be a man capable of seeing the opportunities offered by the market and of taking chances when the odds made them acceptable to him. It was neither routine attachment to tradition – which Carnise could not have had – nor necessarily ignorance or lack of interest that dictated the managerial choices of the Argentinean cereal producers. They were made accor-ding to, and reflected, what the financial, the marketing, and the supply sectors of the industry had to offer.

175A simple perusal of the trade literature during the 1960’s and early 1970’s can give a fair idea of what the supply sector was able to offer in the u.s. and Argentina. A more attentive look would reveal how care-fully the u.s. supply sector had studied and segmented the agricultural market. It was offering not only the newest technology and detailed information aimed at each target segment of the agricultural market, but also an enormous variety of goods and services, and of ways and comprehensive schemes in which they could be acquired. These offers were accompanied by technical advice, backed by tests made under all sorts of circumstances, before and after sales services, credit and insurance and even a guaranty of performance in some instances. What the supply sector was able to put forward to the cereal producer in the u.s. and Argentina, and the terms in which it was able to offer it, just cannot be compared.

176That difference did not come only because of the relative size of the markets : it was government policy that prevented the supply sector in Argentina from offering a comparable assortment of goods and services in similarly competitive ways.

177The supply of fertilizers is a good example of that. At the prices received by Argentinean producers in 1968-1970, they were able to buy 13,4 kilograms of fertilizer per 100 kilograms of wheat equivalent, as against 44,0 kilograms of fertilizer per 100 kilograms of wheat equivalent in the u.s. Argentina ranked 47th out of a field of 52 countries in the study of Willis L. Peterson. Not surprisingly, given its naturel endowment, it came out first in the estimated cost of those policies, with a loss of output in wheat equivalent of between 53 and 42 million tons at a total social costs of 1 392 358 000 u.s. Dollars and a loss of 6,21 % of the national income for the producers129.

178At the time Argentina had one plant manufacturing synthetic N. However, it was only able to exist on account of a highly protective tariff wall. With a capacity of 200 tons per day, versus the 1 000 tons per day which was then the minimum output required for an efficient operation, that plant was not only obsolete, but it was working only at 70 % capacity and sustaining heavy losses. Quite simply, there was not suffi-cient demand for its product at the price it was able to offer it130.

179This was at a time in which there was overcapacity and a glut of synthetic N in the world market, and a study carried out by the Tennessee Valley Authority had revealed extensive dumping Worldwide by producers eager to keep their average costs down131. Under those circumstances, the Argentinean producers could have been able to purchase synthetic N at about the same price as their American competi-tors, and probably on good credit terme. (Furthermore, an intelligent economic policy would have been to allow the importation of N duty free in order to develop the local demand to the point that a facility of adequate scale could be built if desired.)

180A supply sector allowed to work freely would have found profitable to offer synthetic N on credit terms ; moreover, it would have been encouraged to do so by manufacturers encountering Worldwide problems to dispose of their output. Pesticide manufacturers may not have had the same problems to keep their plants working above the break-even point, but there is no doubt that a supply sector allowed to work freely would have found profitable to offer pesticides and other critical inputs competitively, in a variety, price, and quality comparable to that available to u.s. producers. Aside from the already mentioned higher costs of many inputs produced in Argentina, there were also differences in quality, even in those bearing the same proprietory name. These inputs could not be asumed to have provided indentical services to those made by the parent companies in their country of origin. Combine and other implements made in Argentina were certainly of inferior quality, tractors were not as bad, but their reliability and the number of options available to the buyer of a unit with the same hp in Germany or the u.s. would have made them different inputs. By way of an anecdotical example, in the early 1960’s and in a country where cattle was as important as in Argentina, it was necessary to go to Santiago de Chile to find a decent German-made cattle syringe and needles. There were plenty made under license in Argentina, but none was capable of performing the same service.

181In the u.s., it was the supply sector which made possible the dissemination of the “new agricultural technology” and its enormous increase in productivity ; a repeat performance of what had been achieved in the 19th Century with the reaper and binder, the sulky plough and the threshing machine.

182Historically, it was also a private supply sector which had competitively equipped Argentinean producers with the tools, implements and machinery necessary to carry out their work. It was through the hard work of demonstrating salesmen that the advantages of the disc plough, the listers for planting maize, the disc harrow, grain drills and other implements were made evident. Their rapid adoption by the Argentinean producers shows how the supply sector managed to disseminate the new technology132, and constitutes a text-book example that ulti-mately it is supply that creates demand.

183Von Motz’s report suggests that there was a large choice of inputs from which to select the most suitable combination, and from the expressed views of the author and the policy of the supply firms as described by him, it is obvious that in the pursue of their own interests they were providing the best available technology to suit the needs of the producers.

184It is significant in this regard that the three biggest import houses, two British and a German one, and another German house which was the largest amongst the nine second rank importers, had branches in New York and imported heavily from the u.s.133.

185Obviously, they were doing that for the same reason that the British an French owned railways imported German locomotives, Belgian freight cars, and American and German rails : price, performance, and adaptability to the Argentinean conditions134. (These facts run coun-ter the often repeated view that those foreign companies were only interested in promoting the technology and the manufactures of their country of origin. Moreover, it was with the help of British importers that the American threshers competed with the British made in the Argentinean market135.

186It is equally significant that mass produced American farm trucks and wagons could not be sold in Argentina, since they were outperfor-med and outsold by locally made products, amongst others by those manufactured at the ultramodern factory of E. Noe ) Cia., in Buenos Aires136. Similarly, von Motz found no market foi land rollers for linseed and other small grains, since they were made locally137. This shows that some indigenous industry could and was able to manufacture reliably and competitively, and proves what economics has taught us for two hundred years : that comparative advantages are relative, not absolute.

187The interplay between the supply sector and the cereal producers was not entirely free. Even in 1916, government interference had considerable effect upon the technology that could be offered to and adopted by the cereal producers. Up to then, the sales of gasoline tractors of 30-40 hp draw-bar pull, and those of stationary and portable gasoline or kerosene engines of between 1 and 14 hp were described by von Motz as having been very good and with excellent propects for growth. But the Argentinean government’s huge import duties and excise taxes on gasoline and kerosene had put a halt to that. In view of the acute interest he had detected in the prospective buyers von Motz recommended some diplomatic leaning upon, to convince the Argentinean government to lower the taxes on gasoline and kerosene. If such diplomatie persuasion was ever attempted, it never succeeded. Nor were fulfilled von Motz’s hopes that with the development of the government oil fields prices will be lowered138. Brewster Smith and Collins, in their 1920 report, calculated that the government was making a 260 % profit on the oil brought to Buenos Aires from the Comodoro Rivadavia state-owned fields139. The authors reiterated the effect that the high prices of oil had on the sale of tractors, as well as motor trucks and the light and cheap American cars, which u.s. demonstrators had shown capable of enduring the wear and tear of country life and non-existent roads. The interest had been so great that there was a waiting list on deliveries, in spite of an increase of 40 % in the import duty levied on motor-cars140.

188At that time, however, that deletereous government interference could be, in part at least, easily offset. The 2 to 3 hp engines used to power the maize shellers, which were sold at a rate of over 5 000 per annum to maize producers, or even the 10 to 14 hp ones required for the large cylinder maize shellers, which as in the u.s. were used by contractors going from farm to farm141 performed a seasonal work for which speed was too essential to be affected by the price of gasoline or kerosene. But that was not so with the small stationary and portable engines which were used in all sorts of farm tasks in the u.s., after a long and consistently followed educational campaign amongst dealers and farmers. In view of the circumstances, von Motz concluded that such an investment on the part of the suppliers would not succeed in Argentina142. Tractors of course suffered badly from the government oil policy, but there were two solutions on hand. One of them was steam traction engines, of which von Motz reckoned that there were large numbers in the country, were cheap to operate, and performed a good job to plough in dry conditions143. The other solution was horses, which were abundant and cheap to keep. In the Argentinean conditions horses provided a cheaper source of traction than tractors run on expensive fuel, and were just about as efficient.

189The effect of the government oil policy on transportation is more difficult to assess. Brewster Smith and Collins reported a total lack of highways in the North American meaning of the term, except in the vicinity of large cities. Cereals were hauled to the railway stations in large carts drawn by teams of 20 to 30 horses. Their cheapness, the cost of gasoline, and the lack of materials and shortage of labour to build and maintain an effective system of highways, made these authors conclude that there were little prospects of change in that situation144. A further complication, not mentioned by Brewster Smith and Collins, was the Constitutional injunction against any form of transit duty or tolls (First Part, Chapter I, Art. 11)145. There was little that private enterprise or an active supply sector could do about that or the provision of bridges, which fell under the same injunction.

190Historically, the Argentinean cereal producer was well served by an enterprising supply sector, which whenever permitted, provided the latest technology and operated largely on credit from abroad146. But the efforts of the supply sector and the producers would have come to nought without the existence of an able marketing sector. And the performance of the latter up to the late 1940’s was simply superlative. The development of Argentina’s cereal production could not have been possible without the agressive international marketing of the exporting houses, which managed to set records even in the difficult 1930’s. Largely dominated by two of the Big Five international trading firms, Bunge and Louis Dreyfus, the marketing sector included many smaller firms, local and foreign owned.

191As in the u.s., many of these firms were involved in the industrialization of cereals and other agricultural products. Bunge y Born was a pioneer at that end, and flour milling, which in 1890 was insufficient to provide the needs of the local market was an established export industry by 1912 and second only to meat packing amongst the manufacturing industries. The group of mills it had set in Buenos Aires with Argentinean, British and Belgian investors (Molinos Rio de La Plata), compri-sed in 1920 four mills in Buenos Aires and two accross the Riachuelo in Avellaneda, others in Córdoba, San Francisco (Córdoba), Nogoyá (Entre Ríos), Tres Arroyos, Tandil, and Coronel Pringles (Buenos Aires), the first of a series to be built in the wheat areas of the country, and four elevators in Buenos Aires with a capacity of 100 000 tons147. Bunge y Born, was also a pioneer in a number of agricultural related industries, a large agricultural producer (Estancias Bunge y Born), and was instrumental in the development of many crops in Argentina. To that effect, it supplied technical information, outlets for the commodity, and often credit for its production, just as Otto Bemberg’s group did to promote the cultivation of hops, malt barley, and other crops.

192In sharp contrast to that active encouragement to expand the production possibilities of the Argentinean agriculture, the slow awakening to the opportunities offered by soybeans illustrates the poverty of the marketing sector operative since the late 1940’s. During the 1960’s and early 1970’s there was a great deal of interest in soybeans amongst cereal producers, particularly in northern Buenos Aires, southern Santa Fe, and southern and eastern Côrdoba. Soybeans in Argentina can be double cropped with wheat and have the added advantage that, like alfalfa, leave rhizobia with ready available nitrogen in the ground. The possibilities offered by soybeans were often discussed at the crea meetings and there were even some trials, but it was difficult to obtain the means of growing the crop and more so to dispose of it. Even in the face of booming export sales from neighbouring Brazil, it was only in the late 1970’s that the government bureaucrats decided timidly – perhaps because they were still smarting from the linseed flop – that there was a market for soybeans, and production reached 3,5 million tons in 1980-81 and 4 million tons in 1981-82148. But the same bureaucrats are yet to discover the possibilities of rapeseed, a lucrative crop which could be grown in many areas of Argentina.

193This reflects the fundamental change that had taken place in the country’s agricultural industry since the end of World War II. Up to then, Argentina’s agriculture grew in spite of some detrimental government action (by commission or by omission in areas in which it had exclusive jurisdiction), free from a prescribed role in the country’s economy, and without demanding the sacrifice of the economic interests of any segment of the Argentinean society. Fundamentally, that growth, characterized by flexibility, was the resuit of the dynamic interaction between a supply sector and a marketing sector with Worldwide access to financial, insurance and shipping services149, well informed about world market developments for agricultural inputs and outputs, and capable of acting upon that information. Through their services, the Argentinean producers were put in contact with those markets and, within limits, were able to select the combination of inputs and outputs at nearly true world market prices that best suited their capabilities. After 1946, that was no longer so.

194During the 1960’s and early 1970’s the Argentinean cereal producers dit not enjoy a comparable range of choice. Government policies had effectively isolated them : not only were they cut off from the possibilities offered by a growing world market for cereals at generally rising prices ; government policies also prevented the Argentinean cereal producers from acquiring the “new technology” so successfully employed by their American counterparts.

V. SUMMARY AND CONCLUDING REMARKS

“Perhaps nowhere in the world is agricultural prosperity so gênerai as in Argentina. It is nothing short of miraculous that the soil be so fertile as to produce the same crops year after year without apparent injury.”
Frank von Motz150

195The main purpose of this paper was to establish the validity of the widespread belief in Argentina, during the 1960’s and early 1970’s, that her cereal producers were competing with the u.s. Treasury rather than with their American counterparts. A survey of the international food trade revealed that shifts in the absolute and relative position of exporters and importers were entirely normal, both in the long and in the short run, and particularly for cereals, which constitute the largest and most dynamic segment of that trade. Examined against that back-ground, the changes in the u.s. and Argentinean positions at the time could not be considered as a singular departure from the ordinary pattern of the international cereal trade, especially in a growing world market and with generally rising prices.

196The investigation of the possible causes leading to those changes was threefold. The analysis of the u.s. cereal production brought forward changes in the production function resulting in high rates of gains in productivity. These productivity gains determined a strong competitive position, particularly detectable when the u.s. cereal output was considered in conjunction with the direction of changes in the u.s.. Government policies, the exchange rate, the situation in the world market, and the consistent increase of private channel exports. All that strongly sugges-ted that most of the u.s. cereal exports enjoyed a comparative advantage.

197The examination of Argentina’s cereal production possibilities and constraints concluded that the exacerbation of the latter was the resuit of government policies that, reflecting the limited role assigned to agriculture in the economic life of the country, were responsible for the actual contraction of Argentina’s cereal production possibilities. A comparative evaluation of the supply, marketing, and financial segments of the agricultural industry and the cereal producers’ choice in the u.s. and Argentina further confirmed that the problems encountered by the Argentinean cereal sector were primarily Argentinean made, though by no means self-inflicted by the cereal producers.

198Thus, the widespread Argentinean belief that the country’s cereal producers were competing with the u.s. Treasury rather than with their American counterparts – even hinted at by a man with the experience of Jose A. Martínez de Hoz151 – must be considered to have been an exercise in self-deception. Government policies isolated the Argentinean cereal producer from the world market ; and by denying him the receipt of true economic value for his output, the possibility of acqui-ring the newest or even conventional inputs at world market prices and conditions, and an efficient marketing of this crop, he was effectively prevented from competing with the real competitors : his American (as well as Canadian and Australian) counterparts.

199It was beyond the scope of this paper to dwell on how Argentineans were able to mismanage that natural endowment that so marvelled Frank von Motz and many other visitors, accepting government policies which could only erode that God-Given advantage whilst convincing themselves that they were the victims of “unfair” competition. Funda-mentally, their attitude resulted from a deep-rooted perception of agriculture, the foundation and development of which, also examined comparatively with that peculiar to the u.s., will be the subject matter of a forthcoming paper.

200However, it is quite in order to mention here that that outlook most likely compounded a common Latin American perspective at the time. Fixed on attaining an economie “mirage”, which was as much at odds with economie theory as with past and contemporary history, that common Latin American perspective led to similar agricultural and industrial policies throughout the region. Brazil was cited as an example of that and of government financial measures dominated by balance of payments problems. The consequences for Brazil in terms of the adoption of new agricultural technology, and agricultural production and exports were, as shown by G. Edward Schuh and Antonio Delfim Neto, remarkably alike those experienced by Argentina.

201The negative reception to the Prebisch Report’s stark diagnosis and sober prescriptions suggests that those ideas about agriculture and economie development strongly coloured the Argentineans’ perceptions of their problems. Although the author’s commitment to industrialization and his intimate knowledge of the Argentinean economy were well known, with an idea of growth152 and of government’s role in the economy153 undistinguishable from those of Theodore Schultz, Gott-fried Haberler, or Schumpeter, Prebisch’s analysis and proposais were seemingly unpalatable to those who wanted to hear something else.

202In such climate of opinion, the “demands” that the u.s. Government “should do something about the American cereal exports”, which often accompanied the charges against the u.s. Treasury, were an all too tempting corollary of the latter. To the extent that they ignored the comparative advantage enjoyed by the bulk of the u.s. exports they were clearly as insubstantial as the charges themselves. More harmful than that, however, was that those charges and “demands” were based on a misapprehension of the u.s. institutional life, and on either an uninten-ded or a deliberate and dangerous disregard of economie facts and economie theory.

203From the point of view of economie theory, the u.s. and the Argentinean performance confirmed Ohlin’s fundamental proposition that a country can increase its share of the world market for a commodity when demand and prices are constant or have declined ; and, conver-sely, that its exports can decrease even when world demand and prices have increased.

204As Ohlin posited, the volume of exports from a given source would thus largely depend on the relative prices at which the commodity is available from alternative sources of supply. Those prices, in turn, depend upon the domestic prices at which the commodity is available and the rate of exchange. An artificially low rate of exchange can inhibit the domestic supply of an export commodity. That effect will be aggravated by the imposition of high import and export taxes, as Ohlin and already Adam Smith have shown. In the Argentinean case, that deleterious outcome was compounded by what often amounted to a daily manipulation of taxes and the rate of exchange, which greatly increased the uncertainty and risk of cereal production.

205Altogether, the findings of this paper corroborate Ohlin’s dictum that the natural endowment and the initial availability of factors of production cannot and will not remain static once the highly dynamic process of international trade is set in motion. As he stressed, and the evidence on hand confirmed, the direction of change will be largely determined by the workings of and the interference with the price mechanism.

206The distortions of the price mechanism in Argentina (created by a Government undeterred by Constitutional and judicial constraints comparable to those existing in the u.s.) curtailed the country’s cereal output and exports ; thus, to the extent that Argentina was a cheaper producer than the u.s., interference with the price mechanism there contributed to the comparative advantage of the u.s. exports and the concomitant shift in the flow of trade.

207The ability of the u.s. to be competitive in grain and other agricultural products and, at the same time, in a number of industrial ones, was neither at odds with economic theory nor with economic history.

208That dual competitiveness has been on record at least since the 1880’s, as shown in Robert Lipsey’s Price and Quantity Trends in the Foreign Trade of the u.s. This superb analysis reveals unambiguously the tendency of the u.s. exports, from the 1880’s onwards, the move away from those commodities whose prices have increased the most to those whose prices have fallen relatively, and the u.s.’ ability to enjoy a comparative advantage and to export competitively growing volumes of a commodity at falling real prices.

209In the past, when it was allowed to, the Argentinean cereal sector demonstrated a similar ability. In the difficult 1930’s, it was able to remain competitive and to increase its share of a contracting world market with decreasing real prices by reducing overall costs (despite some factor price increments) and by increasing mechanization and risk exposure. The evidence presented in this paper suggests that it was a close integration with the world economy that facilitated the Argentinean producers’ dynamic responses to technological innovation and to cereal market changes, and that the attitude indispensable to act in that way was well established by the early 1900’s.

210At the time, exceedingly competitive international supply and finance sectors offered a wide choice of the latest factor inputs to the Argentinean producers, and on such generous credit terms that amazed American marketing researchers. The reports from von Motz, Beecroft, Hale, Brewster Smith and Collins are a text-book example of how supply creates demand and of the many benefits that the producers would derive from the keen competition amongst suppliers. And they portray the Argentinean producer as a discriminating buyer, deman-ding and obtaining from international manufacturers equipment adap-ted to the local conditions – which in some instances was no match for competively made local products. An equally dynamic, competitive, and aggressive marketing sector, with a world-wide base, completed the links between the producers and the economy. Through these three vital sectors the Argentinean cereal producer was in effect fully integrated into the international economy, with input and output reference prices resembling closely those of the world market. The producers’ deci-sion-making could thus be realistically adjusted to international conditions.

211Already in the early 1900’s, however, the Argentinean Government had some adverse impact on those decisions. It did so either by neglec-ting to act in areas in which the Argentinean Constitution precluded private initiative, such as roads and bridges, or through the import-tariff policy. The exorbitant customs and excise taxes on oil products (as well as a 280 % profit rate on Government-produced oil) slowed an early enthusiasm for gasoline tractors and engines. This could be obviated at the time, because in Argentina’s conditions horse and steam power were relatively efficient substitutes in the production function. Horse traction seems to have provided an equally acceptable substitution for transportation to the railway stations (and was perhaps the only viable option in the many areas without proper feeding roads). Import duties contributed heavily to a high cost of living relative to the American one, which probably aggravated the problems derived from the perennial shortage of labour.

212But the adverse effects of government interference before 1946 were confined to that, and in spite of causing economic loss they did not prevent the expansion of the cereal sector.

213Until 1946, there was no attempt on the part of any Argentinean Government to “manage” a world-economy business, to boot one where a high degree of substitution is possible and competition is tough, in terms of a vaguely defined “national production and export policy”, constantly altered to ease the tensions between a fractured polity and the shifting pangs of an increasingly strapped economy.

214The outcome could not have been further away from the aims of that fantastic delusion or the complaints so widely voiced against the u.s. : it was a gift to Argentina’s international competitors.

215Clearly, as taught by economie theory and even standard business practice, a world-economy business cannot be managed without due consideration of the world market and the market players. It follows from that it can neither be studied in isolation from those factors, nor without the aid of analytical tools from the pertinent disciplines.

216An important objective of this paper was to pave the way for more comprehensive studies in the economie history of Latin America’s agriculture ; to wit, studies that, by moving away from the standard fare on that subject, could bring about concrete ideas to enhance economic development in the region154. If, in addition to contributing to that, this paper elicits criticism that stimulates a renewed interest in Economic History and Economie Development, it would have fulfilled its ultimate goal.