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Some differences between the agricultural sector of Australia, New Zealand, and South America

Source: photo taken in a farm nearby Bundaberg, Queensland

I have been searching for some data in order to find general differences between the Australian, New Zealand, and South American economies as a first approach, keeping in mind that all of these countries make up resource-rich economies.

At the moment, I have summarized my findings in two posts, namely, A brief comparison of Australia and South American countries as resource rich-economies, and The South American Economies’ external constraints: a comparison with Australia and East Asian countries

This time I will be focused on the agricultural sector and stand out some traits briefly. For this purpose, a set of South American countries are taken as a sample, namely: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Peru, Paraguay, Uruguay, and Venezuela. Given its importance as a Latin American country, Mexico is taken into account in the sample.

Agricultural production in the short term is usually volatile, hence the data is divided into decades from the 60s to 2019 in order to capture long-term changes.  

 

Agricultural machinery, fertilizers, and labor productivity

At least since Harrod’s (1939) and Domar´s (1946) theorizations, it is recognized in the economic literature that capital stock is one of the main factors that account for the difference in wealth levels and in the economic growth between countries.

If we measure capital stock through the amount of agricultural machinery and synthetic fertilizer (considered as capital goods), we will observe that Australia and New Zealand by far have more capital per worker engaged in agriculture than the South American countries. 

Argentina and Uruguay stand out among the South American economies with more agricultural machinery per agricultural worker. However, notice that although Uruguay was the South American country with the most mechanized agriculture between 2010 and 2016 (0.25 machine per worker), it was just one-fourth of Australia’s amount (1 machine per worker). The historically less mechanized countries have been Bolivia, Peru, Ecuador, and Colombia, respectively. 

Figure 1. Agricultural machinery per worker engaged in agriculture

Source: data from USDA, Economic Research Service. US. Department of Agriculture.

If we take a look at the synthetic fertilizers per agricultural worker, the South American economies fell far below the Australian and New Zealander levels. Once again, Bolivia, Peru, and Ecuador historically have been the countries with the lowest consumption of fertilizers per worker, followed by Paraguay and Colombia.

 

Figure 2. Synthetic fertilizers per agricultural worker engaged in agriculture

Source: data from USDA, Economic Research Service. US. Department of Agriculture.Up to this point, it is clear that Australia and New Zealand count on much more capital in agriculture than the South American countries, and thus, it is reflected in the levels of labor productivity as can be seen in the chart below.

 

Figure 3. Output per agricultural worker

Source: data from USDA, Economic Research Service. US. Department of Agriculture.Argentina is the most productive South American country in the agricultural sector, however, between 2010 and 2016 roughly speaking this country barely reached the productivity level Australia held in the 70s. This is a picture of how backward is South American agricultural production.

Although the agricultural productivity is subjected to many other variables than capital accumulation, such as land and water availability, population aging, draughts, and environmental conditions which have to do with long-term climate change, besides government’s assistance (Nossal & Gooday, 2009), it is remarkable that none of the South American countries has overcome the burdens of their agricultural sector and reach the productivity levels of Australia and New Zealand, or at least shorten the gap significantly.

 

Food Sovereignty

We could expect that countries furnished with more capital and therefore more productive in the agricultural sector depend to a less extent on the import of food. However, it is important to know that countries with a high-income level may import much more food given the trade openness and desire of households to diversify their consumption through imports.

The chart below shows that Australia’s food imports have been historically lower than South American economies’, with the exception of Argentina, and even less than New Zealand’s which delivered a growing trend.  However, it is noteworthy that the latter is a relatively small island with high income and it is known in the economic literature that small countries tend to trade more than big ones.  

Figure 4. Food imports % merchandise imports

Source: World Bank database. Own calculations

Catch the eye the contrast between the decreasing trend of Argentina and Uruguay in food imports and the growing trend of Chile, Colombia, Ecuador, and Venezuela since 1990. Before that date, they had held a decreasing trend.

Argentina and Uruguay are the South American countries with a higher number of agricultural machinery and use of synthetic fertilizers per worker, therefore they held the highest output per agricultural worker and can rely to a less extent on food imports.   

The subject of food imports is worth to be mentioned because as developing economies these countries are allocating the relatively few foreign exchanges they have to import the food they may produce (this is an argument stated by Fadhel Kabout). 

This matter of lack of foreign exchange is well known in Latin America and the need for structural change of its economic apparatus in order to achieve economic development (Prebisch, 2012).

Regarding this point, the assertion of the former Uruguayan President Jose Mujica is very illustrative when he referred to the international reserves as a fund that the Latin American countries are forced to use to cope with capital flows to stabilize the domestic currency value, instead to invest productively.

The figures showed up to this point coincides with the figures on the prevalence of undernourishment of the population. The most productive economies, Australia, New Zealand, Argentina, and Uruguay delivered the shortest figures on undernourishment, although Chile from 2001 to 2019 and Brazil from 2010 to 2019 held low figures too, despite they did not stand out in the previous figures.

Of course, the undernourishment levels are the outcome of several factors and do not depend exclusively on the internal capacity of the country to produce food. A country may well import the food it requires to feed its population. Nevertheless, what the data shows raises the question: could the South American countries better their agricultural performance and avoid the import of the food they are able to produce? What can these Latin American economies learn from the Australian and New Zealander experiences?

 

Figure 5. Prevalence of undernourishment (% of the population)

Takeaways

The agricultural sector of Australia and New Zealand count on much more capital than the South American countries, and that makes their agriculture far more productive.

The South American countries import more food than Australia, and New Zealand has increased its food imports as a share of total goods imported since the 80s. However, this country as so did Australia, delivered the lowest undernourishment rate in their population, like Uruguay since 2010 on average.

It seems like Australia and New Zealand have taken advantage of its resource industries to keep relatively high levels of investment and furnish its agricultural sector with enough capital to be productive, keeping relatively low levels of food imports in the case of Australia and relatively high in the case of New Zealand, but such imports in the latter have translated into low undernourishment rates. A fact that contrasts with the South American countries, with the exception of Uruguay from 2010 and 2019.

 

References

Domar, Evsey D.  Capital Expansion, Rate of Growth, and Employment. conometrica, Vol. 14, No. 2 (Apr., 1946), pp. 137-147

Harrod, R. F.  An Essay in Dynamic Theory. The Economic Journal, Vol. 49, No. 193 (Mar., 1939), pp. 14-33

Nossal, Katarina. & Gooday, Peter . (2009). Raising productivity growth in Australian agriculture

Prebisch, Raúl. (2012). El desarrollo económico de la América Latina y algunos de sus principales problemas.

USDA, Economic Research Service. US. Department of Agriculture

 

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Medardo Alfonso Palomino Arias

Por Medardo Alfonso Palomino Arias

Economista y Magister en Gestión Pública graduado en la Universidad Santiago de Cali, Colombia. He sido Profesor desde el año 2014 en distintas universidades de Cali. En la actualidad me encuentro adelantando estudios y viajando en Australia. El proposito de mi blog es difundir conocimiento sobre economía y brindar un espacio para el debate.

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