55981 v1 Distortions to Agricultural Incentives in Ecuador Ernesto Valenzuela, Sara Wong and Damiano Sandri World Bank, Washington, DC and University of Adelaide ernesto.valenzuela@adelaide.edu.au Escuela Superior Politécnica del Litoral, Ecuador sawong@espol.edu.ec John Hopkins University, Baltimore dsandri@jhu.edu Agricultural Distortions Working Paper 16, December 2007 This is a product of a research project on Distortions to Agricultural Incentives, under the leadership of Kym Anderson of the World Bank's Development Research Group. The authors are grateful for funding from World Bank Trust Funds provided by the governments of Ireland, Japan, the Netherlands (BNPP) and the United Kingdom DfID). We wish to thank helpful comments from Bruce Gardner, Marianne Kurzweil, Alberto Valdes and workshop participants. We are indebted to Kym Anderson for overall guidance and invaluable support during this study. This Working Paper series is designed to promptly disseminate the findings of work in progress for comment before they are finalized. The views expressed are the authors' alone and not necessarily those of the World Bank and its Executive Directors, nor the countries they represent, nor of the countries providing the trust funds for this research project. Distortions to Agricultural Incentives in Ecuador Ernesto Valenzuela, Sara Wong and Damiano Sandri Introduction and summary Ecuador is a lower-middle-income economy with about 45 percent of its export coming from primary and processed agricultural products. Until the 1970s agriculture was an even more important generator of foreign currency for the country, but the discovery of oil fields in 1967 transformed the country's export profile. Since 1973 oil exports have been the most important source of government revenue, and petroleum now accounts for about 45 percent of export earnings (Banco Central del Ecuador 2005). Historically, agriculture in Ecuador had not only a major economic role but also a crucial socio-cultural one. One third of the country's population still lives in rural areas, and a quarter of the labor force is employed in agricultural activities (Table 1). No less than 60 percent of Ecuador's rural population is considered poor (Sanchez-Paramo 2005). Protection of agricultural producers has always been a stated goal of governments, with the support of the general population. Interventions have been aimed at reducing the variability of domestic agricultural incomes, because the sector is subject to crop diseases, weather fluctuations and variable international prices. Governments have adopted policies that affect agricultural price incentives both directly, and indirectly through industrial protection and macroeconomic policies. Direct government intervention in agriculture includes support for import-competing production through subsidies and border protectionist measures (tariffs and quotas on imports), as well as subsidization of farm credit and certain intermediate inputs to small farmers. On the export side, particularly when farm products were the main source of export revenues (before 1973), governments taxed export-oriented agricultural activities as a key source of their revenues. This amalgam of policies affected farmer incentives by making agricultural activities more or less profitable than other sectors of the economy, and it altered the competitiveness of different industries within the sector as well as the food prices paid by consumers. A key purpose of this chapter is to construct estimates of indicators of direct and indirect assistance to (or taxation of) the agricultural sector in Ecuador. This is done for the whole sector, for aggregates of export-oriented and import-competing activities, and for 2 individual commodities. Following Anderson et al. (2008), the focus is on government policies that cause domestic prices to diverge from what they would be under free markets. The conclusions about agricultural support in Ecuador should be interpreted with the usual caution for estimates of distortion indicators based on price comparisons. Caveats are necessary because assumptions and judgments are made when computing the various components of these measures. Moreover, the aggregate measures reported here ignore interventions in the services sector. Nonetheless, we believe that the measures of distortions to total agriculture and support and taxation of specific industries provide a reasonable basis for assessing the impact of agricultural and major economy-wide policies on Ecuadorian agriculture. Our analysis, based on the period from 1966 to 2003, shows that agriculture as a whole was subject to declining net taxation and, in recent years, has shifted to slight net assistance. Taxation of export-oriented crops was in constant decline and reached a level of minimal intervention recently, while import-competing agriculture's heavy government intervention during the import-substitution period has given way to little or no protection in the 2000-03 period. Despite considerable reforms to import restrictions implemented since the late 1980s, there is evidence that sectoral policies still impose varying distortions to agricultural incentives. The greater the variability of these government policy induced distortions, the greater the impact on the sectoral allocation of factors of production and the higher the national economic welfare costs (Lloyd 1974). The remainder of this chapter is organized as follows. The next section presents a brief background of agricultural evolution prior to the 1960s. Economic growth, structural changes and political evolution from the 1960s to the present are then described. A narrative of the evolution of agricultural policies over the last 45 years follows. Methodological issues are then raised before summarizing and discussing the estimates of indicators of agricultural distortions. The final section draws implications of current policies and prospects for reform. Agricultural evolution prior to the 1960s During colonial times (1534-1822), the Spanish established an agricultural state system worked by native indian peons in the Sierra, the mountainous Andean area. The highlands' climate and peons system was considered appropriate for crop cultivation (maize, wheat, and corn) and livestock farming. On the Pacific coastal plain, the Costa, there were frequent 3 outbreaks of disease, and there were fewer natives composed of mixed ethnicities, which made it difficult for the Spanish to coerce labor. As a result, the Costa was neglected during the colonial period, developing a very different culture from that of the highlands, although there were some export oriented agricultural activities such as sugar cane, bananas, tobacco, cotton and cocoa. On the eastern slopes between the Andes and the headwaters of the Amazon, the Oriente, fierce natives and a difficult climate prevented settlement, so only religious missions attempted to reach these lands (Rudolph 1991). After overcoming a period of regional political distress, Ecuador separated from the Gran Colombia in 1830 becoming a separate and independent republic. 1 The new republic consisted largely of a rural population, most of them under the peonage system, and its economy was based on cash crops and inexpensive raw materials which were vulnerable to international price and market demands fluctuations. Until the beginning of the nineteenth century, the large land tenants "terratenientes" in the Sierra had almost absolute control over labor and resources (Baraona 1965). The peons were highly dependent economically and socially on the terratenientes. Between these two poles there were other subordinated social groups: merchants, small land owners and local authorities (Panchano 1984). The Oriente experienced different social and economic structures, with no dominant class at a regional level. In the Costa at the beginning of the last century, the owners of large cocoa plantations were at the center of the social and political spectrum. They exercised considerable control over land and the economic landscape (Panchano 1984). From 1850 to 1910, cocoa exports were the mainstay of the economy, and to a lesser extent coffee and sugar products. The cocoa industry started to decline due to severe adjustments in the world market following World War I, and the growth of competition from Brazil and Africa, which contributed to over-supply. By the 1920s the cocoa industry was affected by the "Witch's Broom" fungus, which wiped out entire plantations, so that by the 1930s the sector was in serious decline. This had big repercussions for the entire economy (Luxner 1996). This transformation did not eliminate the privileged agro exporter class in the Costa, but it encouraged the evolution of medium-sized land owners. During the 1950s, government-sponsored replanting efforts contributed to a partial resurgence of the cocoa industry, and coffee and bananas started to become important export products with export shares between 40 and 60 percent. In the 1960s, when cocoa and coffee 1 The Galapagos Islands were annexed to Ecuador only in 1832. 4 started to lose their share in the international market, bananas became the most important export product. Since then Ecuador has been one of the world's largest exporters of bananas. In the late 1950s, 90 percent of the country's exports came from primary agriculture (Banco Central del Ecuador 2005). But the Law of Industrial Incentives was decreed in 1957, which involved adopting a development strategy based on import-substituting industrialization. The industrial incentives included tariff and non-tariff measures to protect national manufacturing production, together with low tariffs or exemptions to imports of raw materials and some intermediate inputs used in manufacturing. The law also created provisions for subsidized credit and income tax exemptions for manufacturing industries. Growth, structural changes and policy evolution since 1960 The discovery of oil fields in 1967 transformed Ecuador's agricultural-based economy, attracting large flows of foreign investment. On the political front, this coincided with a military regime (1963-66) which facilitated oil exploration-induced external indebtedness. Between 1965 and 1975, the share of agriculture in GDP decreased from 27 to 18 percent, and non-agricultural activities experienced rapid development, especially the services sector to meet domestic demand growth (Figure 1). Industrial incentives were strengthened and broadened in 1962 and 1965 through the Industrial Promotion Law (which was modified again in 1971). However, the small size of the domestic market, a lack of a large pool of skilled people, and limited physical and financial infrastructure all constrained industrial expansion. Hence a large share of manufacturing was concentrated on what it could do best which was food processing. During the second military interlude, from 1972 to 1979, Ecuador reaped the benefits of high-priced oil exports. Total GDP grew at an average 8 percent per year between 1971 and 1980, and exports earnings increased more than ten-fold (Banco Central del Ecuador 2005). The growth in revenue allowed governments to finance subsidies related to the import- substitution policy. At the same time it encouraged rapidly growing public and private expenditures. This fast economic expansion was accompanied by import growth and foreign debt buildup: imports increased by an average of 7 percent during the 1970s, spawning an inflationary pattern that eroded household purchasing power. From 1974 to 1979 the country's external debt, mainly due to oil sector expansion, grew from 324 to 44,500 million sucres (Flores and Merrill 1991). 5 With the economic growth of Ecuador highly dependent on oil, the sharp drop in oil prices in the early 1980s had large consequences. The public deficit reached 7 percent of GDP and the country endured a period of structural adjustment after foreign banks questioned the country's financial strength and resolved not to supply new loans (Whitaker and Greene 1990). With government revenues directly linked to oil exports, the downward price trend not only affected government resources dramatically, but it also led to recession in the economy with a further decrease of the other sources of revenues (de Janvry, Sadoulet and Fargeix 1991). The Government's deficit was alleviated through a devaluation of the currency and tight control of the foreign exchange rate market. Nonetheless, the secondary market foreign exchange rate premium averaged 58 percent during the 1980-84 period (Table 1). For the period 1985-89 average GDP per capita was just over US$1,000. Manufacturing's share of GDP was 17 percent, compared with an average for Latin America of 25 percent. The agricultural sector accounted for 15 percent of GDP but employed 35 percent of the economically active population (Table1). Exports as a share of GDP reached 27 percent, with oil accounting for 48 percent of the total and agricultural products accounting for 29 percent (Table 2). Three weather shocks contributed to a worsening economic crisis during the 1980s. The pluvial phenomenon "El Niño" in 1982-83 caused floods that severed public infrastructure and devastated to a great extent the Costa's agricultural production. In 1987, an earthquake damaged the oil pipeline which runs from the extraction point to distribution sites, interrupting oil exports for 6 months. In 1988, there was a drought in the Sierra, which had consequences for crop production and disrupted hydroelectric power generation. By the late 1980s, it was perceived that the import substitution policy framework had not contributed to the creation of a solid and efficient manufacturing sector. The share of manufacturing in value added was about the same in both periods 1965-74 and 1975-84. By contrast, the share of the agricultural sector in GDP shrunk from one-quarter in 1965-74 to one-seventh in 1975-84 (Table 1). A turnaround in trade policy from the import-substitution framework to an export oriented and less-protective trade policy started in the late 1980s. The trade policy changes included tariff cuts and other reductions to import restrictions, elimination of export taxes (although some permits and licenses still apply), export promotion laws, modernization of trade institutions and simplification of trade procedures. Trade reform brought import tariff rates gradually down from an average of 51 percent in 1985 to 29 percent in 1989 and to 11 percent in 1994 (World Bank 1988, Tamayo 1997). 6 During the 1990s, trade policy restructuring lead to consolidation with trade partners from the Andean Community of Nations (Venezuela, Colombia, Peru and Bolivia), and to Ecuador's accession to the World Trade Organization (WTO) in 1995. According to the GTAP database for 2001 (Dimaranan 2006), the average applied rate of protection for all tradeables was 8 percent. 2 In addition to trade policies, there were important economic reforms focused on the labor market and exchange rate, both intended to favor export- oriented activities. The latter included exchange rate harmonization (to reduce the gap between the official and secondary rates), periodical mini-devaluations, and the floating of the currency within fixed bands. Ecuador experienced a very tumultuous period from 1997 to 1999 with a marked economic crisis in 1999 (a GDP growth rate of -7 percent) and four presidents in four years. This resulted from the collapse of the banking system and simultaneous currency and public finance problems. The crisis was triggered by a combination of exogenous and domestic policy-induced shocks, leading to a loss of confidence in both the banking system and the domestic currency. Government liabilities increased dramatically, causing the country to default on its recently restructured `Brady' foreign debt (Jacome 2004). On the brink of hyperinflation, the government in 2000 adopted the U.S. dollar as legal tender as a substitute to the sucre. The exchange rate, in sucres per U.S. dollar, changed from an annual average of 11,787 in 1999 to 25,000 in January 2000. The inflation rate moved from 52 percent in 1999 to a peak of 96 percent in 2000, before falling to single digit rates in 2003 and 2004. The dollarization of the Ecuadorian economy was designed to increase macroeconomic stability by imposing tight fiscal discipline and eliminating governments (ab)use of exchange rate and monetary policies. Production of some non-traditional exports (e.g., flowers, seafood products and processed food) grew at an average rate of 10 percent per year for the period 2000-2005. 3 However, an evaluation of the dollarization regime is compromised by the simultaneous occurrence of high oil demand and prices, and importantly the high volume of remittances sent by migrants who left the country during the economic crisis. In 2005, remittances amounted to 6 percent of GDP, and they were the second source of U.S. dollars for the economy, behind oil but ahead of banana export revenue. 4 2 Kee, Nicita and Olarreaga (2006), using empirical trade models, estimate for Ecuador an own-country trade restrictiveness index of 15 percent. Restrictions faced by Ecuadorian exporters abroad averaged 18 percent. 3 This performance is seen as the result of improved macroeconomic stability that over-compensated the initial real exchange rate appreciation resulting right after the implementation of dollarization (Abrego et al. 2006). 4 In 1998, remittances amounted to 3 percent of the GDP (IMF 2006). 7 López-Cálix (2003) notes that the stability and development of the country is promising, but tighter fiscal controls and a reduction of the external debt service are required to decrease the economy's susceptibility to external shocks in financial and oil markets. As a priority to improve competitiveness, he advocates for a major reform in trade policy to avoid the anti-export bias and to reduce the multiple and chronic distortions that still protect some sectors of the economy. Agricultural policies since 1960 Export taxes on agriculture and import tariffs were the main sources of public revenue up to the mid-1960s (World Bank 1972). In the early 1960s, to anchor agricultural development, the government did three things: it created in 1963 the National Institute of Agricultural Research (INIAP) to accelerate technology adoption; it redefined some of the functions of the Ministry of Development by creating the Ministry of Agriculture in 1964; and it established a national system for agricultural credit (see Table 3 provides a chronological summary of the main agricultural policies in the last 45 years). However, the most significant agricultural policy change occurred in 1964 when the military dictatorship implemented the Law of Agrarian Reform and Colonization. This policy was a response from the military regime, as the masses started to sympathize with socialist reform in the region, to gain acceptance from the people and to validate its government by conceding to the rural poor's demand for land ownership. 5 The stated objectives of the land reform were to improve the conditions of small farmers and laborers, to eliminate absentee ownership and precarious land tenure systems by redistributing land-ownership, the provision of extension services, and the incorporation of agricultural workers into the social security system. The military government referred to the agrarian reform as "the cornerstone on which to build a new, harmonious, just, and dynamic Ecuador" (Blankstein and Zuvekas 1973). The Ecuadorian Institute of Agrarian Reform and Settlement (Instituto Ecuatoriano de Reforma Agraria y Colonización, IERAC) was set up to administer the law. The size of land holdings was limited to 800 hectares of arable land in the Sierra, 2,500 hectares of arable land 5 From some accounts, the law was enacted in response to pressure from abroad to reform feudal agricultural practices, from humanitarian and liberal elements within the country, and from large landowners in the Costa who needed additional cheap labor (Flores and Merrill 1991). 8 in the Costa, and 1,000 hectares of pastureland in either region. 6 The law also set the minimum amount of land to be granted in the redistribution at 4.8 hectares (Flores and Merrill 1991). From the beginning the program failed to be properly funded. The mechanism of payment for expropriations was flawed, and most of the land reassigned was from church and government ownership. Of the 517,049 hectares affected between 1964 and 1969, 70 percent were under the modality of colonization and the rest was under redistribution of land (Blankstein and Zubekas 1973). The slow process of legitimization of new land owners meant there was still a serious obstacle to access to credit and technical assistance for many farmers. Following the departure of the military regime, revisions of the law were implemented in the early 1970s. The revisions required that all land with absentee landlords be sold to the tenants and that farm residents be permitted to acquire title to land they had worked for three years. Many landowners refused to rent their lands to former tenants and in some cases forced them off the land. The role of the government in conferring colonization land rights, in questioning the property right of inefficient systems, and in reassigning land ownership from low productivity systems and abandoned lands was the center of the agrarian conflict, and it became a big political, social and economic problem (Chiriboga 1984). In the Costa, land invasions were promoted by political leaders associated with leftist groups. Poor non-tenant farmers grouped in "cooperativas" were convinced they were entitled to land without having to pay for it, and their leaders were victims of harsh repression from landowners. 7 The land conflict claimed the lives of hundreds of people in the Coast and some parts of the Sierra. 8 6 The distribution of agricultural land in Ecuador up to 1954 was one of most unequal in Latin America. The First National Agricultural census in 1954 showed that 57 percent of agricultural land was concentrated in 3,704 units (around 1 percent of the total number of farms). At the other end of the scale, 73 percent of the landholdings were less than 5 hectares each and comprised only 7 percent of the land area (Blankstein and Zubekas 1973). 7 The groups of non-tenant rural people were known as the "precaristas", referring to the precarious working and living conditions provided by large land owners. 8 In an interview by the authors about land reform accounts in El Salitre Urbina Jado, Ivan and Carolina Mendoza, children of the once terrateniente Don Mendoza, said: "Our farm `Rosa de Oro' had been in our family's possession for generations, it was located in Urbina Jado, province of Guayas. It had 1,200 hectares of livestock, sugar, cocoa and rice production. We lived a harmonious life with workers and their families. The greed of lawyers and political leaders from Guayaquil permeated our workers, and their hope for land-ownership was transformed into an aggressive invasion of our land. The chosen name of their cooperative `Tierra o muerte' (land or death) reflected their actions. 9 From 1964 to 1982 the agrarian reform affected 2 million hectares, 70 percent under the modality of colonization, largely in the Oriental region. 9 The impact of the agrarian reform on agricultural productivity cannot be properly assessed, as data on land use varies widely and is often considered unreliable by analysts (Flores and Merill 1991). Data for the mid-1980s, for example, has estimates of cropland and pastureland that vary around 20 to 50 percent, and estimates for the total land area suitable for agriculture show a variation of 50 percent around 27 million hectares. 10 The government intended to complement the agrarian reform through its policy of agricultural growth including access to credit, subsidies to production, provision of roads infrastructure and guarantee minimum producer prices. However, many of the efforts were contradictory with taxation of export oriented activities, and numerous credit funds were disbursed without technical support and verification of land ownership. Owning land is not a sufficient condition for agricultural progress of small farmers. This is clear from the account of Martinez (1984): "Between 1954 and 1974 the real income for small farms (less than 5 hectares) decreased by 16 percent with respect to the general price index and 31 percent with respect to food prices. The agrarian reform left the small beneficiary without access to proper technical knowledge, credit, irrigation, infrastructure, and technology." In terms of achieving dynamism in the agricultural sector and encouraging economic growth, the agrarian reform produced mixed results. On the one hand, large land owners facing the risk of non-secure land rights were deprived the opportunity to expand their systems according to a pattern of development (Warman 1980). On the other hand, new lands were brought into production which were previously abandoned or not claimed -- especially in the Oriental region (Chiriboga 1984). From the 1960s to the 1980s, the agricultural sector evolved based on the adoption and expansion of labor-saving technologies and the introduction of entrepreneurship. The policy of import substitution provided protection to crops linked to industrial processes, and this led to the modernization of production systems that favored large land owners -- many After facing death threats, we were forced off our land. The once-respected farm was reduced to 70 hectares in our possession and a myriad redistribution among many people. Without proper access to technology, and agricultural assistance funds wasted in non-agricultural private activities, the reform was a catastrophe for this farm and this region -- many wanting to imitate the lifestyle of `Don Mendoza' saw the opportunity in loosely disbursed money from government's agencies." 9 The amount of land legally redistributed was 1.5 million hectares (IERAC 1982). 10 This situation is compounded by the lack of accurate information on agricultural employment. Blankstein and Zuvekas (1973) point out the faulty procedures of the 1968 census and the lack of comparability with the 1954 census. 10 of whom consolidated (and even expanded) their positions, by negotiating with small tenants the direct sale of the newly allocated lands. Modernization was more evident in the Sierra, given the presence of traditional production systems directed to livestock and dairy; while the Costa had already evolved to some extent to more rent-oriented systems -- although many large rice and sugar farms were affected by the precaristas (Panchano 1984). During the 1980s, numerous governments' efforts were directed to provide support to agriculture through the creation of a marketing board, implementation of minimum producer floor prices, the provision of credit, direct output subsidies and subsidies to fertilizers, the loaning of government agricultural machinery, irrigation projects and low fees for water usage, the construction of rural roads and crops-storage installations, and funds for agricultural research and extension programs. Nonetheless, agriculture as a whole was negatively impacted by policy measures that created incentives for import-competing activities through import barriers to primary agriculture linked to industrial processes, over valued exchange rates, government marketing of agricultural products, and fixing of low consumer prices (Vos 1983, Chiriboga 1984, Whitaker and Greene 1990, Whitaker 1996). The focus on a more rent-oriented system led to an increase from 36 percent to 46 percent in the export share of agricultural production during this decade. A new law of agricultural development was implemented in the mid-1990s with the objective of improving access to credit and providing technical assistance and extension programs to rural communities. However, governments later eliminated the programs for the commercialization of agricultural products (ENPROVIT) and grain storage (ENAC). The latter action was due to the opening of Ecuador to imports and a dismantling of stockpiling of grains on world markets. Both programs had a positive influence on food nutrition for the poorest segment of the population and improved harvest prices for small farmers. Important trade reforms were implemented during the 1990s in Ecuador. Agricultural export-oriented activities benefited from the elimination of export taxes. Agricultural imports were facilitated by the elimination of most quotas and cuts in tariffs levels. Ecuador joined the Andean Community of Nations (CAN) trade partnership in 1994, adopting the Common External Tariff (CET) involving tariffs of 5, 10, 15 and 20 percent for all tariff lines. However, the classification of agriculture as a sensitive sector led to the adoption in 1995 of a mechanism for price stabilization known as the Andean Price Band System (SAFP). This system, currently still in place, is a mechanism of variable tariffs to maintain the import price between a floor and a ceiling price. In theory, domestic price stabilization is achieved by 11 applying an extra import tax (variable) when the import price (reference) plus the "regular" tariff does not reach the floor price, or reducing the tariff down to zero when the reference import price is higher than the ceiling price. The SAFP sets tariffs that fluctuate between 35 and 95 percent and it applies to 12 "marker" products, which amount to 138 related products and 148 tariffs sub-headings. 11 In 1995 when Ecuador was granted membership of the World Trade Organization (WTO), tariff ceilings were established at 10 percentage points higher than the CET except for automobiles, chemical products, and certain primary agriculture and lightly processed food products. The country successfully set its tariff schemes before 2001 and currently receives preferential treatment in the framework of the Global System of Preferences for developing countries and the U.S. General System of Preferences (GSP). Both mechanisms are oriented to favor industrialization and accelerated growth (Hachette 2003). In addition to these schemes, Ecuador receives preferential access to U.S. markets for certain products under the Andean Trade Promotion and Drug Eradication Act (ATPDEA). 12 In 1993 the Most Favored Nation (MFN) tariff rate on primary agricultural products was 8 percent, and the rate for processed food was 15 percent (authors' calculations using the WITS system). 13 The bound rates in 1996, following WTO accession, were 20 percent for primary agriculture and 29 percent for processed food, respectively (World Trade Organization 2005). In 2001, the effectively applied tariff rate for primary agriculture was 8 percent, 11 percent for processed food, 4 percent for other primary, and 8 percent in other manufacturing (authors' calculations using the GTAP database). Kee, Nicita and Olarreaga (2006) estimate an overall rate of protection (a trade restrictiveness index) including tariffs and non-tariffs barriers for the period 2001-04 of 36 percent for agriculture and food and 12 percent for non-food manufactures. The trade policy reforms have resulted in a greater openness of the Ecuadorian economy to international markets. There was an increase in the share of total merchandise imports plus exports as a percentage of GDP from 37 percent in 1993 to 49 percent in 2004 (authors' calculations using Banco Central del Ecuador data). In particular for the agricultural 11 The SAFP marker products are palm oil, white rice, sugar, sugar cane, pork, barley, milk, yellow maize, white corn, soybeans, wheat, and chicken meat. 12 The ATPDEA was implemented in 2002 adding product coverage to the Andean Trade Preferences Act (ATPA) enacted in 1991. The ATPDEA expired in December 2006. However, after two approved extensions by the U.S. Congress, it is set to expire in February 2008. 13 According to the tariff information reported for the first time to the United Nations Conference on Trade and Development (UNCTAD). 12 sector, the reforms have produced noticeable structural changes. From 1980 to 2003, the share of crops in the total value of farm production decreased from 70 to 57 percent, and the share of livestock rose from 30 to 43 percent (derived from data in FAO 2004). Despite this orientation to protected import-competing dairy and livestock activities, the export performance of agriculture saw an improvement with an increase in exports' share of the value of farm production from 36 percent in 1980 to 53 percent in 2003. The adoption of the dollar as the local currency in 2000 had an initial negative impact on agricultural exports, reducing the total value by one quarter from the previous year. However, the stability brought by the new currency system has served as a productivity boost. Some non-traditional exports have evolved in an important manner in the last five years (e.g., flowers exports reached 11 percent of non-oil exports for the 2000-04 period). By 2003 the value of agricultural exports, in nominal terms, was at the same level as before the currency and debt crisis in 1999. Estimating distortions to incentives In their seminal volume, Krueger, Schiff and Valdes (1991) quantitatively assess Latin America policy intervention in agriculture from 1960 to 1985. The study differentiates the direct effects due to sectoral policies (price and border protection, and subsidies) from the indirect effects due to economy-wide policies. Ecuador was not included in that study, but it was one of the 8 countries included in the World Bank's subsequent surveillance of agricultural price and trade policies in Latin America, covering 1986 to 1993 for Ecuador (Valdes and Schaeffer 1996). There are several other studies quantifying the role of policies in the Ecuadorian agriculture, but they focus on a limited set of commodities and/or years (Vos 1983, Whitaker and Greene 1990, Whitaker 1996, Josling 1997, Quiroz and Chumacero 1998, Banco Central del Ecuador 2003, Fernandez 2003). Defining and calculating various policy indicators The present project's methodology (Anderson et al. 2008) defines indicators to study policy- induced agricultural price distortions (as distinct from market factors, infrastructural investments and services that change prices and incentives more generally). The focus is on government-imposed distortions that create a gap between domestic prices and what they would be under free markets. Since it is not possible to understand the characteristics of agricultural development with a sectoral view alone, the project's methodology not only 13 estimates the effects of direct agricultural policy measures (including distortions in the foreign exchange market), but it also generates estimates of distortions in non-agricultural sectors for comparative evaluation. It thereby considers the overall economic incentive environment. Nominal rate of assistance to agriculture, and products selected The nominal rate of assistance (NRA) to farmers involves a direct price comparison and is defined as the price of a product in the domestic market less its price at the border, expressed as a percentage of the border price. A crucial task in constructing this measure is to make transport costs and margins adjustments to derive an equivalent level of comparison in the marketing channel (see Anderson et al. 2008). In the absence of trade flows because of prohibitive tariffs, an international reference price is compared with the domestic price, taking into account international trading costs. The same applies for preferential fob prices on some quota-restricted exports -- a comparison of that export price with the domestic price would be misleading. The Appendix contains the data sources for producer and border or reference prices, and information on the adjustments and assumptions made. To account for governments' induced distortions in the market for foreign currency, an equilibrium exchange rate is estimated. The parallel market exchange rate is used as an indicator of the marginal price paid for foreign exchange by importers. The exporters' exchange rate is calculated as a weighted average of the official and the parallel market exchange rates with weights based on the exporter retention rate. The difference between the importer exchange rate and the equilibrium exchange rate is used as a measure of the exchange rate distortion component of protection to importables. Similarly, the difference between the exporter exchange rate and the equilibrium rate is used as a measure of the exchange rate distortion to exportable goods. Indicators of distortions are estimated for the agricultural sector as a whole, for aggregates of export-oriented and import-competing activities, and for individual commodities. Based on data availability, from 1990 to 2000, the NRA also includes assistance to primary factors and purchased farm inputs and any other non-product-specific subsidies net of taxes. This study includes the following production activities: banana, beef, cocoa, coffee, maize, milk, chicken meat, pig meat, rice, sugar, and soybeans. These 11 products cover between 60 and 84 percent of the total market value of production for the period under study 14 (1966 to 2003), as depicted in Figure 2. These commodities were subjected to heavy direct intervention in the form of export taxes, import quotas and tariff restrictions, and bans. Classifying the tradability of products The classification of products according to their trade status is straightforward for traditional exported products such as banana, coffee, cocoa, and sugar before 1983, and rice before 1975. However, the classification of the remaining products according to their trade value data could be misleading in the presence of hindering trade barriers, or export subsidies designed to stabilize domestic prices. These remaining products are traded in very small amounts, or not traded at all, because governments have deliberately directed efforts to protect national industries. The approach adopted here is the "potential" net trade status in the absence of distortions and how domestic prices compare with international price equivalents -- notwithstanding the absence of actual border prices. Thus, the remaining products are considered import-competing activities, 14 with exceptions in sugar and rice for years in which weather-induced over-supply resulted in a clear net exporter trading position. This assumption accords with the policy debate between interest groups and the government regarding interventions for these activities: it has focused almost exclusively on tariffs, and occasionally safeguards. 15 In Ecuador, with the exception of flowers and fruit exports starting in the late 1980s, the remaining agricultural products are considered non-traded internationally. Nominal rates of assistance to non-agriculture and the relative rate of assistance Non-agricultural industries are grouped into five aggregates: lightly processed food, highly processed food, non-agricultural primary resources, non-food manufacturing, and services. Within each of these sub-sectors, shares are defined according to their tradable status: importable, exportable and non-tradable. Tariff information is used to define the assistance estimate in non-agricultural import-competing industries, drawn from UNCTAD (WITS 2006), the World Bank (1976 and 1988) and the IMF (2005). Export taxes, including fees and permits for the later periods, are used to define the (negative) assistance to exportables, drawn from IMF (2005) and WTO (2005). It is assumed that there are no distortions in non- tradables. The classification and weights for aggregation are the authors' best judgment based 14 However, the milk and beef sectors are marginally exporters of high-quality products. 15 Anecdotally, in light of the presence of the avian flu virus (H9) in Colombian poultry farms Ecuador banned poultry imports from Colombia (reported in `El Universo' newspaper 12 October 2005, Guayaquil, Ecuador). 15 on national Input-Output tables from Banco Central del Ecuador, and the GTAP 2001 database. 16 Anderson et al. (2008) suggest that the relevant economy-wide indicator of policy intervention for comparison with assistance to agriculture is not necessarily the aggregate for all non-agricultural activities. They suggest a comparison of the NRAs of just the tradable component of the agricultural sectors and the NRAs of the tradable component of non- agricultural sectors. As such, a Relative Rate of Assistance (RRA) to agriculture is defined as follows: (100 + NRA in Agric tradables ) RRA = 100 * - 1 (100 + NRA in Non Agric tradables) where negative values indicate the policy regime has an anti-agricultural bias, and positive values indicate a pro-agricultural policy bias. What do the estimates of distortions reveal? This section summarizes the results for the agricultural sector and the results for the rest of the economy. Indicators for primary agriculture The nominal rates of assistance to agriculture for the period 1966 to 2003, by commodities and by aggregates of exportables and import-competing activities, are shown in Table 4 and summarized in Figure 3. Agriculture was negatively affected as an aggregate though almost all of that period, with agricultural policies depressing prices by as much as one-third in the early 1970s and averaging above zero only during the import substitution period of the early 1980s. However, this result masks the high dispersion of policy intervention, with export producers facing disprotection of up to 40+ percent and import-competing farmers benefiting during the latter 1970s and 1980s with NRAs averaging as high as 50+ percent. The variability of the nominal rate of assistance, as measured by the annual commodity standard deviation around the value of production-weighted mean, ranges from around 100 percent up 16 We exclude the treatment of value added tax (VAT) in our assistance calculations, as Anderson et al. (2006) consider this a tax on consumption. A VAT was first implemented in Ecuador in 1990 with a 10 percent rate, and later raised to 12 percent in 2000. The VAT includes provisions for exclusion of primary agriculture and lightly processed food. 16 to the mid-1980s but dropping to less than 30 percent during the past two decades. This reflects the very considerable progress made since the late 1980s in trade policies reform. 17 Exportable NRAs show a downward trend, passing from a peak net taxation around 40 percent during the 1970s to minimal intervention in the 2000-03 period -- the remaining intervention is mainly small fees for licenses, permits, and contributions to export promotion activities. Given the large weight of exportables in the production value, this sub-sector has dictated the aggregate NRA trend for total agriculture. The elimination of export taxes and the implementation of more dynamic and transparent trade procedures contributed in recent years to a significant reduction in distortions. The NRA trend for import-competing products shows that for the period covering the land reform years, there was a small degree of disprotection for this sub-sector, but subsequently there was a growing degree of support to import-competing agriculture through the combination of exchange rate policies, border policies and minimum floor producer prices. One consequence of this was the expansion of livestock activities after the land reform, as a way of diverting efforts from labor-intensive activities and taking advantage of the battery of support programs intended to complement the land reform. Our calculations are consistent with the main findings of Valdes and Schaeffer (1996). They too find net taxation of the production of exportables and support to importables for the 1986-93 period. 18 Although they report an increasing degree of taxation for exportables, in contrast to the decreasing disprotection found in this study, the discrepancy is likely due to their use of reference border prices which differs from the actual fob prices used in this study (which are from the Banco Central del Ecuador). 19 The divergent policy treatment of export and import-competing sub-sectors in the past was based on the need to generate government revenues through trade taxes in the absence of a consolidated tax base and institutional capacity for low-cost collection of income taxes. 17 Non-product-specific assistance is incorporated in the calculations of agricultural support using information on public expenditure in agriculture and rural areas from FAO (2006). The FAO (2006) database contains estimates of public expenditures on: internal and external commercialization, education, forestry support, special rural production support programs, agricultural managerial expenses, irrigation infrastructure, agricultural research and extension, land buying programs, phyto-sanitary programs, integral rural development, promotion of association, and regularization of land ownership. It turns out that support conferred through non-product- specific subsidies adds less than 0.1 percent to the total agricultural NRA for the 1990s. 18 The two studies' NRA estimates for exportables, importables and total agriculture yield a correlation of 0.71. 19 Moreover, Valdes and Schaeffer classify beef as exportable. We find that unconvincing, given that the bulk of beef production is not in border provinces. "Although the data suggests that beef is an importable, it is an exportable because it does not capture all the ad hoc trading between the borders. For example, large quantities of beef walk into the country from Peru for summer grazing, and later either walk back or are sent after processing. A similar situation exists with Colombia." (Valdes and Schaeffer 1996). 17 Protectionism to import-competing production activities was always misguided as a source of revenues for the government. It has not been perceived by the general population as the implicit consumer food tax on the general population that it is. Moreover, the greater gap between taxation of exportables and support to import- competing activities found in the 1980s was a direct consequence of the distortions in the exchange rate market. Figure 4 shows the percentage gap between exporters and importers' exchange rates from 1955 to 1998 (which became zero after dollarization). We do not incorporate real exchange rate misalignments into measures of agricultural distortions as is done in Krueger, Schiff and Valdes (1991). Rather, we treat distortions to exchange rates as equivalent to import and export taxes: distortions translate into implicit protection to import- competing activities (Anderson et al. 2008). 20 Figure 5 shows the evolution of agricultural policies effects at an individual commodity level for three periods: the first land-reform years; the period of higher protection conferred through the tariff and non-tariff structure and the exchange rate market; and the most recent period. Banana and coffee, the key sources of export revenue for the country for the period 1966-69, experienced a marked increase in taxation after the land reform years, in contrast to the minimal intervention in recent years. The government's attempts to return the cocoa sector to its main-exporting commodity role are reflected in the support shown in the reform years. This situation changed for the 1980s period through exchange rate distortions, and in the most-recent period through export licenses and contributions. Rice is the main staple food in Ecuador, and as such its policies are particularly important to consumers. From 1951 to 1968, there were some specific exchange rate programs to support exports, amounting in nominal terms to an average NRA of 15 percent (IMF 2005). But the land reform process had a severe impact on many rice production zones, and domestic demand absorbed all production from 1968 to 1974. The annual production average over this period was only 10 percent greater than the 1961 figure. Since 1975, the country has assumed a fluctuating trade position, with the overriding goal of securing domestic floor producer prices. Our calculations show increasing protection of the sector 20 Defining and estimating exchange rate misalignment is a complex problem. There is not a definite position in the economics profession about the long-run behavior of the real exchange rate. In a current period, it could be argued that a real appreciation of the foreign exchange rate lowers uniformly the price of all tradables relative to the price of nontradables, and conversely for a real devaluation, and thus it does not have any effect within the tradables grouping of industries. Moreover, fluctuations in market perception also could lead to foreign exchange rate misalignment relative to what fundamentals would suggest, and again this may be quite independent of distortionary government policy choices. Additionally, the definition of a year base is not without bias when exchange rates vary a lot within each year and products are sold unevenly through the year. 18 reaching as much as 37 percent for 1995-2003, comparable to the estimate by Fernandez (2003) of effective protection conferred by the SAFP system of 24 percent. 21 Sugar evolved as a competitive export product up to 1983. Afterwards, the existence of preferential quota access to the U.S. market and simultaneous import barriers distorted the evolutionary trend of the industry. Both of these mechanisms raised the price received by producers, acting simultaneously as a foreign-conferred export subsidy to local producers and support through import restrictions. Our 22 percent estimate for the period 1995-2003 coincides with the estimate by Fernandez (2003) of effective protection of 21 percent for sugar producers for the same period. The evolution of beef and milk production was a direct result of the land reform: agricultural production was directed to less labor-intensive activities to reduce the risk of land tenure loss through occupancy pressure. Following negative protection in this period, both sectors capitalized on the subsequent protection conferred through the import substitution framework and bans on imports. Our estimates show a peak protection of almost 60 percent for the early 1980s, which is consistent with the finding by Chiriboga (1984) of a four-fold increase in minimum domestic prices from 1978 to 1983. The results for the current period show assistance of 32 percent for beef and 9 percent for milk. 22 In the past, chicken meat was the most distorted sector, due to trade protective policies, subsidies to intermediate imports, and access to subsidized credit. Production benefited through domestic prices as much as three times higher than international prices. The opening of trade has put this sector on track to a normal process of industrial development, although our calculations still show some support (around 25 percent) for the most recent period. In Fernandez's numbers, the SAFP provided an effective protection of 9 percent for the period 1995-2003, and a CATO's note by Calderon (2005) reports an effective protection of 78 percent in 2004. However, poultry production costs are directly affected by tariff-supported domestic prices of maize and soybeans, which represent up to 65 percent of production costs. Pig meat production has developed a pattern of industrialization and modernization with increasing protection conferred through border measures. However, like the poultry sector, this industry faces high production costs because of maize and soybeans supported prices. Our estimate of the NRA at the producer level is volatile because it requires an 21 Our 21 percent estimate for the period 1993-1995 is also comparable to Quiroz et al.'s (1998) of 32 percent. 22 For the period 1993-1995, our estimate of 26 percent is comparable with the Quiroz et al.'s (1998) effective tariff for milk of 40 percent. 19 international reference producer price and trade costs proxies (see Appendix for details). The calculations for the period 2000-03 suggest a domestic price 50 percent higher than border prices. Yellow maize, a SAFP's marker product, is supported by the fluctuating tariff mechanism. Because local maize production is not sufficient to supply poultry and pork activities, which represent 90 percent of total domestic consumption, governments have sponsored programs of import quotas to producers who agree to buy local production. Our NRA estimate for maize of 40 percent for the period covered by Fernandez (1995-2003) compares with their estimate of effective protection of 18 percent. According to a Ministry of Agriculture's study of competitiveness (CORPEI and INCAE 2000), maize production exhibits low productivity and high production costs, and its profitability is due to the high border protection of 70 percent. Soybean production is supported by the SAFP's tariff mechanism too. According to figures from the Ministry of Agriculture, domestic production only meets two months of domestic demand requirements from the poultry and feed industry. Thus, supply security is the policy argument to support this industry. Our estimate for the period 2000-03 shows protection of 12 percent. Indicators for non-agriculture, and the RRA to agriculture The details of the estimates of the nominal rate of assistance (NRA) in non- agricultural industries are presented in Appendix Table 5. The production weighted average for total non-agriculture shows a minimal intervention for the period under study, with a current protection estimate of 3 percent. Import-competing industries have consistently enjoyed protection, reaching a peak of 33 percent in the early 1980s, and the current average estimate for the latest years is 14 percent. Exportables have experienced taxation in the past, while current estimates show almost no intervention. The sectoral view is useful to identify differences in the policy treatment of these industries. 23 Other primary sectors (mainly oil and gas production) have had minimal distortions in the past, and our measures do not capture any distortion since 1995. Non-food manufacturing has experienced a decreasing trend in protection, with an estimate around 5 percent in the most recent period. Based on our calculations, food production activities (lightly and processed) are the most distorted sectors. Protection has focused on these sectors 23 In the absence of reliable estimates we assume zero NRA for services. 20 to enhance production stability and food supply insurance to consumers. Highly processed food industries show minimal intervention, with an average for the latest years of 4 percent. Lightly processed food production has experienced a trend from taxation to protection in recent years, with a peak of 20 percent (conferred through tariffs). Once distortions to non-agricultural industries are considered, the relative rate of assistance to agriculture (RRA) shows that there was a decreasing trend in the taxation of agricultural tradables from a peak RRA level of -30 percent in the 1970-74 period, to a level of minimal intervention in the 2000-03 period. Importantly, during the early 1980s, the RRA shows an offsetting of policies (Table 5 and Figure 6). Conclusions and prospects for Ecuadorian agricultural policy Ecuadorian agriculture experienced a profound transformation as a result of policy intervention during the past 45 years. The agricultural land ownership reforms of the late 1960s and 1970s affected patterns of production and resulted in marked structural changes. Price controls and myriad subsidies to production altered the sector during the 1980s. To a greater degree, however, trade policies and interventions in the foreign exchange markets during the 1980s and 1990s created incentives to transfer resources to import-competing sectors and imposed a burden on export industries. Government protection was largely influenced by the lobbying of interest groups. Arguments advanced for agricultural protectionism included the importance of securing production activities as employment generators and the need to secure domestic food supplies. However, export-oriented agro- industries were successful at competing internationally in spite of policy-induced distortions to their incentives. From a rural income perspective, export-oriented agriculture has the best prospect for offering sustainable and stable employment. The policy environment of the last decade brought dynamic changes to the sector, significantly decreasing the anti-agricultural policy bias. Since the adoption of dollarization in 2000, the direct effect on agriculture from interventions in the foreign exchange market has been eliminated. However, the intra-sectoral bias is still present despite substantial reforms to trade policy, as border measures confer an important degree of protection to import- competing activities. The trade policy reforms included the abolition of export subsidies and export taxes (some contribution and permit fees still apply), and a considerable reduction in tariffs and quota implementations. 21 Economic welfare of the country (including producers and consumers) could still be enhanced by the elimination of remaining agricultural protectionist measures. The greatest role for agriculture in achieving poverty reduction may be through growth of internationally competitive activities, which generate rural employment and increase rural income. For instance, cocoa, banana, shrimps and more recently flowers have become lead export industries. The near-term trade policy challenge for Ecuador is not to lose preferential market access to the U.S., in light of the expiration of benefits granted under the ATPDEA, which have been extended until February 2008. It seems unlikely that further preferential market access extensions could be granted in absence of a free trade agreement between Ecuador and U.S. The current suspension of the negotiations may put the country in a disadvantaged position with risks of trade diversion. Especially considering that Colombia and Peru, the country's most important trade partners in the Andean Community of Nations partnership, have already concluded their negotiations with U.S. 24 Prospects for further trade reform and integration arise in two other areas: negotiations of the Andean Community with the European Union; and indications of the government's desire to initiate negotiations with MERCOSUR. 24 The CAN (Andean Community of Nations), at the time of this research has been completed is enduring heavy scrutiny, as Venezuela decided to withdraw from it as a consequence of the trade agreement of Colombia and Peru with the U.S. 22 References Abrego, L., E. Flores, A. Pivovarsky, and B. 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Report by the Secretariat, WT/TPRS/S/148, Geneva: WTO, July. 26 Table 1: Basic economic indicators, Ecuador, 1965 to 2004 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04 Population (in million) 5.5 6.3 7.3 8.4 9.6 10.7 11.8 12.7 Labor force (in million) 1.8 2.0 2.4 2.7 3.3 3.9 4.5 5.0 Agricultural workers 54 49 43 38 35 32 28 25 (% of labor force) Agricultural land (in million Ha) 4.7 5.0 5.8 6.9 7.6 8.0 8.0 8.1 GDP per capita (in current USD) 268 371 946 1466 1043 1255 1786 1875 Share of agriculture in 26 21 16 13 15 16 15 8 GDP (%) Foreign exchange secondary market 17 7 7 58 32 14 4 premium (%) Source: Sandri, Valenzuela and Anderson (2006). 27 Table 2: Exports total value and product value composition, Ecuador, 1965 ­ 2004 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04 (percent) Oil 1 27 57 69 48 42 31 45 Bananas 43 31 10 7 13 20 22 17 Coffee and products 22 15 13 7 10 5 3 1 Cocoa and products 16 9 3 5 6 3 2 2 Flowers, abaca and wood 0 0 0 0 0 0 4 6 Shrimp 1 2 2 5 14 15 16 5 Tuna and other fish 1 1 1 0 1 2 2 2 Other (incl. manufactures) 17 15 14 8 8 12 20 22 Total 100 100 100 100 100 100 100 100 (current U.S. dollars) TOTAL (in million) 155 474 1425 2426 2313 3117 4634 5723 Source: Based on Banco Central del Ecuador data and Acosta (2006) 28 Table 3: Overview of major agricultural policy developments in Ecuador since 1957 Date Measure Description 1957 and Law of Industrial Incentives · Implementation of tariff and non-tariff barriers to protect manufacturing 1962 Import Substitution Policy · Low tariffs or exemption to intermediate input imports · Subsidized credit and income tax exemption to manufacturing industries 1963 Creation of INIAP · National Institute of agriculture research, main mechanism for technology adoption. 1964 Creation of Ministry of · To delineate the agricultural development, through technology transfers, Agriculture (before functions of services, and prices determination Ministerio de Fomento) 1964 Reform Agrarian Law Redistributing land-ownership with the objectives of: "La Ley de tierras baldías y · Eliminating precarious land tenure systems colonización" · Improving the conditions of the small farmer and agricultural workers · Providing agricultural extension services · Incorporating agricultural workers into the social security system 1964 Establishment of a national · Main mechanism of credit to the agricultural sector system for agricultural credit. Banco Nacional de Fomento 1966 Creation of INERHI. National · Development and assignment of irrigation areas system of irrigation 1970 Law of Abolition of precarious · To eliminate precarious rental agreements and to make all farmers systems landowners 1973 Second Law of Agrarian reform · To promote agriculture efficiency by redistributing land ownership of low productivity systems · .Ownership reassignment of government and church lands · To provide credit and technical assistance · Implementation of subsidies and establishment of minimum prices 1979 Law of Agricultural Development. · To provide support to agriculture through: subsidies to production, Law of Colonization of the technical assistance, access to credits, and minimum floor prices Amazon region · To control further land invasions through hard repression measures 1980-90 Implementation of Land The most notable program was Protierras purchases programs · Negotiated external debt funds were destined to loans for land purchases 1986 Marketing Board · To promote efficient agricultural trading 1992 and Exports Facilitation and Aquatic · To impulse and diversify the country's exports 1994 Transport · To eliminate legal processes which restrict exports 1990 Implementation of VAT · 10% tax on value added, with exceptions on agriculture 1992 Abolishion of export taxes · To promote agricultural exports 1993 Implementation of agricultural · To reduce agricultural price volatility and provide an stable production import tariffs band mechanism environment 1994 New Law of Agricultural · To improve access to credit for production Development · To provide technical assistance and extension programs 1995 WTO accession 1997 Creation of CORPEI · To promote the country's exports offer and attract foreign investment by (Corporation for the Promotion of offering technical assistance to exporters, promoting trade promotion Exports and Investments) events, facilitating the establishment of trade companies alliances, and operating a network of commercial offices 1997 Creation of COMEXI (Council of · To delineate external trade policies and direct investment External Trade and Investments) · To define strategies for trade negotiations and economic integration · To delineate CORPEI's strategic plan for export promotion 1999 Debt, exchange, banking crisis · Default of external debt 2000 Dollarization · Adoption of U.S. dollar as legal tender 2000 Changes in VAT · 12% tax on value added, with exemptions on agriculture 2003 Drawback Law · To reimburse taxes paid on production inputs of exportable goods Source: Authors' compilation. . 29 Table 4: Nominal rates of assistance to covered agricultural products, Ecuador, 1966 to 2003 (percent) 1966-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-03 Exportables -20.6 -40.0 -43.2 -31.1 -26.1 -11.1 -10.4 -2.9 Banana -34.6 -48.5 -52.4 -39.1 -37.4 -8.6 -16.4 -7.3 Cocoa 5.6 -16.2 -13.3 -4.0 -13.5 -16.4 -11.7 -6.7 Coffee -19.0 -41.8 -61.9 -39.4 -28.6 -15.6 -21.6 0.1 Import-competing products -1.9 -14.5 26.4 53.8 26.7 -1.0 7.8 22.2 Maize 28.2 39.8 69.9 62.5 39.4 18.6 30.3 49.9 Soybean 50.7 -7.8 29.9 11.9 4.5 -1.8 -7.3 12.2 Milk -14.2 -28.3 22.7 58.1 24.0 9.8 6.6 8.7 Beef -11.7 -29.2 74.9 62.0 41.3 -6.2 5.3 31.8 Chicken meat 284.8 228.8 254.0 315.4 105.7 20.0 28.5 24.6 Pigmeat 6.4 -13.7 -9.1 33.2 4.9 -20.0 -10.9 50.5 Mixed trade status a Rice -6.5 -8.0 -1.7 24.7 25.7 -6.2 35.2 39.8 Sugar -9.6 -47.1 21.4 -15.3 -0.9 -15.2 28.5 13.0 Total of covered products b -14.8 -31.5 -20.8 9.9 -0.8 -6.4 -2.0 12.2 Dispersion of covered products c 99.0 88.6 104.8 106.2 48.5 18.8 27.9 29.6 % coverage (at undistorted prices) 64.8 71.2 71.9 62.4 73.2 82.5 82.1 82.6 a Mixed trade status products included in exportable or import-competing groups depending upon their trade status in the particular year. b Weighted average using value of output at unassisted farm-gate prices as weights. c The the simple 5-year average of the annual standard deviation around the weighted mean. Source: Authors' calculations (see Appendix). 30 Table 5: Nominal rates of assistance to agricultural relative to non-agricultural industries, Ecuador, 1966 to 2003 (percent) 1966-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-03 Covered products -14.8 -31.5 -20.8 9.9 -0.8 -6.4 -2.0 12.2 Non-covered 0.0 0.0 0.0 0.0 0.0 -0.2 -1.7 -3.4 All agric. productsa -9.6 -22.4 -15.0 5.9 -1.0 -5.3 -2.0 10.2 Trade bias index b -0.19 -0.28 -0.54 -0.55 -0.38 -0.09 -0.15 -0.20 Assistance to just tradables All agricultural tradablesa -14.8 -31.5 -20.8 9.9 -0.8 -6.4 -2.6 11.2 All non-agricultural tradables 1.2 -3.2 4.8 9.4 8.6 2.5 5.8 8.5 Relative rate of Assistance, RRAc -15.8 -29.3 -24.5 0.3 -8.8 -8.8 -8.1 2.2 a The inclusion of non-product-specific subsidies from 1990 to 2000 adds less than 0.1 percent to the NRA for total agriculture. b Trade Bias Index is TBI = (1+NRAagx/100)/(1+NRAagm/100) ­ 1, where NRAagm and NRAagx are the average percentage NRAs for the import-competing and exportable parts of the agricultural sector. c The RRA is defined as 100*[(100+NRAagt)/(100+NRAnonagt)-1], where NRAagt and NRAnonagt are the percentage NRAs for the tradables parts of the agricultural and non-agricultural sectors, respectively. Source: Authors' calculations (see Appendix). 31 Figure 1: Agriculture, industry and services shares of GDP, Ecuador, 1965 to 2004 (percent) 60 61 50 40 30 20 10 0 1965-1969 1970-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2004 Agriculture Industry Services Source: Authors' calculations using World Bank's World Development Indicators database. 32 Figure 2: Agricultural production value shares, measured at market prices, by farm product, Ecuador, 1966 to 2003 (percent) 100 90 Residual Soy 80 Maize 70 Sugar 60 Coffee Cocoa 50 Pork 40 Rice 30 Poultry 20 Beef Milk 10 Banana 0 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 Source: Authors' calculations. 33 Figure 3: Nominal rates of assistance to exportable, importable and all covered agricultural products, Ecuador, 1966 to 2003 (percent) 100 Total Import competing 80 Exportables 60 40 20 0 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 -20 -40 -60 -80 Source: Authors' calculations (see Appendix). 34 Figure 4: Proportion by which the exchange rate (LC per U.S. dollar) for importers exceeds that for exporters, Ecuador, 1955 to 1998 1.25 1.20 1.15 1.10 1.05 1.00 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 Source: Authors' calculations (see Appendix). 35 Figure 5: Nominal rates of assistance (NRA) by commodity, Ecuador, 1966 to 2003 (percent) Source: Authors' calculations (see Appendix). 36 Figure 6: Nominal rates of assistance to all non-agricultural tradables, all agricultural tradable industries, and relative rates of assistancea, Ecuador, 1966 to 2003 (percent) 30 20 10 0 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 -10 -20 NRA ag tradables -30 NRA non-ag tradables -40 RRA a The RRA is defined as 100*[(100+NRAagt)/(100+NRAnonagt)-1], where NRAagt and NRAnonagt are the percentage NRAs for the tradables parts of the agricultural and non- agricultural sectors, respectively. Source: Authors' calculations (see Appendix). 37 Appendix: Key quantity and price data, assumptions and sources for Ecuador QUANTITY DATA Banana Production: Almeida and Almeida (1950-1983), FAO (1984-89), SICA (1990-2004). Import: Banco Central del Ecuador Boletín Anuario. Export: Almeida and Almeida (1950-83), FAO (1984-89), Banco Central del Ecuador Boletín Anuario (1990-2004). Cocoa Production: Almeida and Almeida (1950-1983), FAO (1984-89), SICA (1990-2004). Import: Banco Central del Ecuador Boletín Anuario. Export: Almeida and Almeida (1950-81), FAO (1962,1963, 1982-89), Banco Central del Ecuador (1990-2004). Coffee Production: (Almeida and Almeida (1950-1983), FAO (1984-90), MAG (1991-2005). Import: FAO (1961-2001), CORPEI (2002-04). Export: FAO (1961-2001), CORPEI (2002-04). Sugar, cane Production: FAO. Sugar, raw Conversion factor: Colombian average conversion factor for the period 1960-2005 (Guterman, 2006). Import: FAO (1961-2001), COMTRADE (2002-04). Export: COMTRADE (1961-2003). Rice, unmilled Production: FAO (1961-89), SICA (1990-2004). Import: FAO (1961-89), SICA (1990-2004). Export: FAO (1961-89), SICA (1990-2004). Rice, white Conversion factor: MAG estimates for 2001. Import: FAO (1961-89), Banco Central del Ecuador (1990-2004). Export: FAO (1961-89), Banco Central del Ecuador (1990-2004). Maize Production: Authors' estimates using production indexes (1966-68, 1985-89), Almeida and Almeida (Maíz duro) (1969-84), SICA (1990-2004). Import: COMTRADE (1969-94), Banco Central del Ecuador (1995-2004). Export: COMTRADE (1971-96), Banco Central del Ecuador (1997-2004). Soy Production: FAO (1961-68, and 1985-89), Almeida and Almeida (1969-84), SICA (1990- 2004). 38 Import: COMTRADE (1990-2004). Export: COMTRADE (1990-2004). Milk Production: FAO (1961-2004). Beef Production: FAO (1961-2004). Import: FAO (1961-98), Banco Central del Ecuador (1999-2003), COMTRADE (2004). Export: FAO (1961-98), COMTRADE (1999-2001). Chicken meat Production: FAO (1961-2004). Import: FAO (1961-91), COMTRADE (1992-2003). Export: FAO, (1961-2001); COMTRADE (2002-03). Pig meat Production: FAO (1961-2004). Import: FAO (1961-90), COMTRADE (1991-2005). Export: FAO (1961-2001), COMTRADE (1992, 1993, 1998, 2000-02) PRICE DATA Banana: Producer price: FAO (1966-89), SICA (1990-99), MAG (2000-04). Domestic price (exporter's price before customs): Authors' calculations. Producer price is adjusted by using an ad valorem margin of 65% until 1981, and a specific margin of 80 USD afterwards. Based on CORPEI data for selected years and Rosero's (2001) estimate for 1997 of 61% increment on the producer price. Border price: fob price, Almeida and Almeida (1950-81), FAO (1982-84), Banco Central del Ecuador Boletín Anuario (1985-2004). Cocoa: Producer price: FAO (1966-89), SICA (1990-99), MAG (2000-04). Domestic price (exporter's price before customs): Authors' calculations. Producer price is adjusted by using an ad valorem margin of 14%. Based on farm and producer price data from SICA for selected years. Border price: fob price, Almeida and Almeida (1950-81), Banco Central del Ecuador Boletín Anuario (1982-2004). Coffee: Producer price: FAO (1966-99), MAG (2000-04), version FAOSTAT (sept06). FAO series for 1989-1999 has been adjusted by a factor of 10. Domestic price (exporter's price before customs): Authors' calculations. Producer price is adjusted by using an ad valorem margin of 22 %. Data inferred from production and transportation costs of Arabica and Robusta varieties (see pp. 17 and 23, Banco Central del Ecuador Apuntes de Economia No. 40). Border price: Green New York/Hamburg Central America fob Reference Price, adjusted for estimated transportation costs (0.06 USD/lb). 39 Sugar, cane: Producer price: FAO Sugar, raw: Domestic price: Authors' calculations based on producer price and processing costs. Border price: Unit export value from FAO (1966-82). From 1983 onwards, given the existence of a preferential exporters' price in some markets, a reference price is selected following the methodology of Anderson et al. (2008). For this latter period, a reference border price is computed by adding to the Colombia's fob price (as documented in Guterman, 2006) the average gap between Ecuadorian and Colombian fob prices for 1961-72. Appendix figure 1 shows sugar fob prices in Brazil, Colombia, the Ecuadorian fob price (preferential US quota recipient in latter years), and the calculated border price. Rice, unmilled: Producer price: FAO (1966-90), SICA (1990-99), MAG (2000-04). Domestic (milling buy) price: Authors' calculations. Producer price is adjusted for transportation by using an ad valorem margin of 5%. Border price: Use of a reference price. Given the existence of preferential export prices, import tariffs and quota restrictions, a reference border (international) price is selected following the methodology of Anderson et al. (2008). In consideration to the actual trading position without policy intervention, unmilled rice is classified as an exportable until 1974 and as an importable afterwards. We make exceptions for years where weather-induced over supply define a clear net exporter trading position. Authors' estimates of a reference price are based on the Colombian cif price, and calculated transport margins. Using authors' estimates of transportation costs, the Ecuadorian fob price is calculated by reducing the Colombian cif price by 30%, and the Ecuadorian cif price is computed by increasing the Colombian cif price by 12%. (Colombian prices from Guterman, 2006). Authors' estimate of transportation costs are based on grains freight rate US-Ecuador data from SICA (30% for the 1990-2000 period, 39% in 2004, 22% in 2005). Using data from COMTRADE, an 18% average grains freight rate US-Colombia is calculated for the period 1990-2005. Appendix figure 2 shows the Colombian cif, the international reference Thailand, and the calculated border prices. Rice, white: Domestic price: Based on production prices and authors' calculations of milling and transportation margins. Based on own estimates using wholesale data from SICA and Vieria and Nieto (2003)'s estimates for 2002. Border price: Use of a reference price. Given the existence of preferential export prices, import tariffs and quota restrictions, a reference border (international) price is selected following the methodology of Anderson et al. (2008). In consideration to the actual trading position without policy intervention, rice is classified as an exportable until 1974 and as an importable afterwards. We make exceptions for years where weather-induced over supply define a clear net exporter trading position. Authors' estimates of a reference price are based on the Colombian cif price, and calculated transport margins (as in the determination of unmilled rice border price). Appendix figure 3 shows the cif price in Colombia and Brazil, and the calculated border prices. 40 Maize: Producer price: FAO (1970-90), SICA (1990-2004). Previous years are computed by backward extrapolation using price indexes. Domestic (wholesale) price: SICA (1990-04). Previous years are estimated using the calculated average ad valorem margin between wholesale and producer price for the period 1990-2004. Border price: Reference price, US fob price (source: IMF 2006) adjusted by 30% transportation costs. Transportation costs calculations based on the cif/fob average ratio for the period 1990-2000 using trade data from SICA and COMTRADE. Soy: Producer price: FAO (1966-89), MAG (1990-2004). Domestic (wholesale) price: MAG (1990-02). Previous years are estimated using the calculated average ad valorem margin between wholesale and farm price for the period 1990- 2002. Border price: Reference price, US fob price (source: IMF 2006) adjusted by 30% transportation costs. Transportation costs calculations based on COMTRADE data. Milk: Producer price: Milk, whole, Producer price from FAO (1966-97), MAG national average (1998-2005). Border price: Use of a reference price. Milk whole, New Zealand's producer price, source: FAO and IMF average exchange rates. This study follows the OECD's framework for milk Producer Support Estimates (PSE) by using a price comparison between the domestic and the New Zealand producer price after cost adjustments. Authors' assumptions are: 1) transportation costs to processing or final point of consumption are equal in both countries, 2) the calculated ratio cif/fob (equal to 1.25) of actual trade of powder milk from New Zealand to Ecuador is used as a proxy for international transportation costs of `generic' milk products (source: COMTRADE and SICA). Beef: Producer price: FAO dressed carcass weight (excl. fats) producer price. Border price: Use of a reference price, Australia. FAO dressed carcass weight (excl. fats) producer price. Authors' assumptions are: 1) transportation costs to processing/final point of consumption are equal in both countries, 2) Australia's price is adjusted by applying the authors' calculated average ratio cif/fob (equal to 1.251) of Ecuadorian imports from Australia for the period 1999-2003 (source: COMTRADE and SICA). Chicken meat: Producer price: FAO chicken-ready-to-cook producer price. Border price: Use of a reference price, US. FAO chicken-ready-to-cook producer price. Authors' assumptions are: 1) transportation costs to processing/final point of consumption are equal in both countries, 2) US's price is adjusted by applying the authors' calculated average ratio cif/fob (equal to 1.125) of Ecuadorian imports from US for the period 1999-2003 (source: COMTRADE and SICA). Pig meat: 41 Wholesale price: FAO dressed carcass producer price. Cif price: Use of a reference price, US. FAO dressed carcass producer price. Authors' assumptions are: 1) transportation costs to processing/final point of consumption are equal in both countries, 2) US's price is adjusted by applying the authors' calculated average ratio cif/fob (equal to 1.125). TRADE TAXES AND SUBSIDIES Export subsidies: Cocoa, Coffee and Sugar, from IMF (2005 and earlier years). Export Taxes: From Banco Central del Ecuador (2005 and earlier years) and IMF (2005 and earlier years). EXCHANGE RATES Official exchange rates are annual averages from IMF (2006 and earlier years). Secondary exchange rates are from IMF (2005 and earlier years) for 1955 to 1980. Parallel exchange rates are calculated from 1981 to 1993 using the International Currency Analysis (1993 and earlier years) as reproduced as premia in Easterly (2006). 42 List of data sources Almeida Guzmán P. and R. Almeida Arroba (1988), Estadísticas Económicas Históricas 1948-1983, Fuentes para la Historia Económica del Ecuador. Serie Estadísticas Históricas vol. 1, Ediciones del Banco Central del Ecuador, Quito. Anderson, K., W. Martin, D. Sandri and E. Valenzuela (2006), "Methodology for Measuring Distortions to Agricultural Incentives." Agricultural Distortions Working Paper 02, World Bank, Washington DC, August. Available at www.worldbank.org/agdistortions Banco Central del Ecuador (2003), "Hechos Estilizados de 31 Sectores Productivos en Ecuador." Agenda de Competitividad y Agenda de Inserción de la Economía a los Mercados Mundiales, April. Banco Central del Ecuador (2003), "Análisis Sectorial del café." Apunte de Economía No. 40, Dirección General de Estudios, Noviembre. Banco Central del Ecuador (2004), "El Banano en Ecuador. Estructura de mercados y formación de precios." Apunte de Economía No. 42, Dirección General de Estudios, Enero. Banco Central del Ecuador, Boletín Anuario (2005 and earlier years). Quito Ecuador. COMTRADE (2006), The United Nation Statistical Division Commodity Trade Data Base, data compiled through the World Integrated Trade Solution (WITS). World Bank, and the United Nations Conference on Trade and Development (UNCTAD). Available at wits.worldbank.org, accessed September. CORPEI (2006), Corporación de Promoción de Exportaciones e Inversión, Sistema de Inteligencia de Mercados Database. Available at www.corpei.org, accessed October- November. Easterly, W. (2006), Global Development Network Growth Database. Available at www.nyu.edu/fas/institute/dri/global%20development%20network%20growth%20dat abase.htm, accessed June. FAOSTAT (2006), Food and Agriculture Organization Statistics Databases. Available at: //faostat.fao.org, accessed October. Guterman, L. (2006), "Distortions to Agricultural Incentives in Colombia." Agricultural Distortions Working Paper, World Bank, Washington DC, December. Available at www.worldbank.org/agdistortions International Currency Analysis (1993 and earlier years), World Currency Yearbook (formerly Pick's Currency Yearbook). Brooklyn NY: International Currency Analysis, Inc. IMF (2005 and earlier years), Exchange Arrangements and Exchange Restrictions: Annual Report. Washington DC: International Monetary Fund (available back to 1950). IMF (2006 and earlier years), International Financial Statistics. Washington DC: International Monetary Fund (annual). MAG Ministerio de Agricultura y Ganadería del Ecuador (2006), Proyecto SICA- BIRF/MAG-Ecuador. http://www.mag.gov.ec/. Rosero J. (2001), "Un análisis sobre la competitividad del banano ecuatoriano." Apunte de Economía, No. 17, Dirección General de Estudios, Banco Central del Ecuador, July. Sandri, D., E. Valenzuela, and K. Anderson (2006), "Compendium of Global Economic and Trade Indicators, 1960 to 2004." Agricultural Distortions Working Paper 01, World Bank, Washington DC, July. Posted at www.worldbank.org/agdistortions. SICA (2006), Servicio de Información Agropecuaria del Ministerio de Agricultura y Ganadería del Ecuador. Available at www.sica.gov.ec, accessed July-October. Viera J. and M. Nieto (2003), "Las fallas en la formación de los precios." Revista GESTIÓN No. 109 Julio, Quito, Ecuador. 43 Appendix Table 1: Prices and NRAs for primary products, Ecuador, 1966 to 2003 (Trading status following the methodology of Anderson et al. (2008): X = exportable, M = importable, HX = non-tradable primary, exportable derived lightly product) Banana (X) Cocoa (X) Coffee (X) Domestic Border NRA = Domestic Border NRA = Domestic Border NRA = price price DP-BP price price DP-BP price price DP-BP LCU/ MT USD/MT BP LCU/ MT USD/MT BP LCU/ MT USD/MT BP 1966 752 59 -0.31 12312 535 0.25 11305 762 -0.20 1967 762 59 -0.35 12484 557 0.13 11463 698 -0.17 1968 741 58 -0.35 12134 579 0.07 11141 681 -0.16 1969 756 57 -0.38 12371 748 -0.23 11359 691 -0.23 1970 873 67 -0.38 9463 608 -0.26 12759 960 -0.37 1971 896 75 -0.56 11153 499 -0.18 12200 796 -0.43 1972 896 76 -0.56 11400 506 -0.15 13261 913 -0.45 1973 1076 78 -0.48 22403 794 0.07 20236 1176 -0.35 1974 1148 83 -0.45 26567 1480 -0.29 15912 1225 -0.48 1975 1254 105 -0.54 29798 1098 0.05 16067 1215 -0.49 1976 1370 110 -0.54 41040 1462 0.04 21960 2907 -0.72 1977 1485 113 -0.52 52212 3224 -0.41 28060 4914 -0.79 1978 1601 123 -0.50 63373 3078 -0.21 39931 3342 -0.54 1979 1683 134 -0.52 64535 2841 -0.14 41358 3535 -0.56 1980 1782 152 -0.56 58710 2235 -0.01 64195 3143 -0.23 1981 1782 172 -0.62 37118 1591 -0.15 39330 2535 -0.43 1982 4433 169 -0.20 46694 1437 -0.01 41480 2759 -0.54 1983 6326 168 -0.35 122105 1733 0.21 80230 2579 -0.47 1984 9456 148 -0.22 166246 2671 -0.24 163596 2846 -0.30 1985 11168 173 -0.40 184395 1965 -0.12 166269 2862 -0.46 1986 16246 201 -0.46 226267 1856 -0.07 360888 3947 -0.29 1987 23310 190 -0.42 344907 1825 -0.10 383894 2164 -0.01 1988 36788 193 -0.51 448670 1469 -0.21 477020 2682 -0.54 1989 112877 211 -0.09 577125 1190 -0.18 1037366 2028 -0.13 1990 179115 213 -0.07 790180 1090 -0.20 1519266 1605 0.05 1991 290445 264 -0.11 1080766 1066 -0.18 1478152 1541 -0.22 1992 393739 247 -0.15 1275683 1016 -0.33 1576826 1117 -0.25 1993 419197 216 -0.03 1856923 1005 -0.08 2610898 1288 0.01 1994 473035 226 -0.07 2570050 1183 -0.04 4346030 3052 -0.37 1995 567790 225 -0.11 3031841 1288 -0.17 10218720 3165 0.14 1996 741330 248 -0.07 3762946 1280 -0.09 7524960 2487 -0.06 1997 945332 291 -0.22 5635111 1400 -0.03 10043040 4014 -0.40 1998 1211036 268 -0.24 7916536 1537 -0.13 9945440 2810 -0.40 1999 2250944 235 -0.19 9811980 1005 -0.17 16728640 2216 -0.36 2000 130 200 -0.35 733 764 -0.04 1298 1847 -0.30 2001 226 232 -0.03 879 991 -0.11 1314 1161 0.13 2002 240 223 0.08 1561 1608 -0.03 1148 1017 0.13 2003 233 231 0.01 1590 1739 -0.09 1080 1039 0.04 Source: Authors' calculations using methodology from Anderson et al. (2008) and data sources reported in text. 44 Appendix Table 1: Prices and NRAs for primary products, Ecuador, 1966 to 2003 (cont.) (Trading status following the methodology of Anderson et al. (2008): X = exportable, M = importable, H = non-tradable primary) Rice, unmilled Sugar, cane (H) NRA = Domestic Domestic NRA = NRA FOB CIF Trading price price DP-BP raw USD/MT USD/MT status LCU/ MT LCU/ MT BP sugar 1966 73 0.01 1264 72 105 X -0.05 1967 74 -0.05 1350 92 134 X -0.26 1968 72 -0.07 1706 86 126 X 0.01 1969 73 -0.28 1754 79 115 X 0.04 1970 59 -0.45 1559 64 93 X 0.16 1971 87 -0.38 1695 59 86 X 0.06 1972 109 -0.34 1901 66 97 X 0.08 1973 65 -0.57 2208 121 177 X -0.31 1974 152 -0.61 3310 212 309 X -0.38 1975 176 -0.63 4109 148 215 M -0.26 1976 200 -0.28 4557 108 157 M 0.07 1977 225 0.19 5009 115 167 M 0.10 1978 247 0.59 5460 151 220 M -0.04 1979 352 1.20 5576 139 203 M 0.04 1980 358 -0.31 5912 170 248 M -0.10 1981 202 -0.29 7130 188 273 M -0.05 1982 391 0.40 8001 122 177 M 0.38 1983 388 -0.27 14501 117 170 M 0.46 1984 466 -0.30 20223 109 159 M 0.55 1985 993 0.70 28581 95 138 M 0.94 1986 1400 0.30 35721 90 131 M 0.81 1987 1167 -0.42 24927 99 144 M -0.18 1988 2581 -0.28 55955 130 189 M -0.23 1989 4640 -0.35 108119 134 195 M -0.06 1990 7890 -0.32 134043 122 178 M -0.16 1991 11220 -0.15 164735 131 190 M -0.30 1992 14870 -0.35 275352 122 177 M -0.17 1993 16600 -0.15 307787 109 158 M -0.03 1994 28000 0.21 380594 125 182 X 0.35 1995 35000 0.00 518879 140 204 X 0.31 1996 51000 0.42 640500 145 211 X 0.37 1997 59000 0.33 951038 133 193 X 0.73 1998 89000 0.41 1203122 132 193 X 0.54 1999 114000 0.28 1502729 108 157 M -0.19 2000 18 0.22 168 90 131 M 0.28 2001 15 -0.15 147 76 111 X 0.92 2002 20 0.38 137 83 121 M 0.12 2003 14 0.07 157 85 124 M 0.27 Source: Authors' calculations using methodology from Anderson et al. (2008) and data sources reported in text. 45 Appendix Table 1: Prices and NRAs for primary products, Ecuador, 1966 to 2003 (cont.) (Trading status following the methodology of Anderson et al. (2008): X = exportable, M = importable, HX = non-tradable primary, exportable derived lightly product) Maize (M) Soy (M) Domestic Border NRA = Domestic Border NRA = price price DP-BP price price DP-BP LCU/ MT USD/MT BP LCU/ MT USD/MT BP 1966 1769 75 0.26 3957 151 0.42 1967 1769 70 0.26 4012 134 0.51 1968 1726 62 0.42 3900 126 0.58 1969 1726 68 0.19 3976 123 0.52 1970 1360 76 -0.15 3522 140 0.20 1971 3139 76 0.53 2302 150 -0.43 1972 3515 72 0.83 4588 167 0.03 1973 4671 127 0.39 5217 346 -0.43 1974 6003 172 0.39 10341 330 0.25 1975 6111 155 0.52 9578 261 0.41 1976 6215 146 0.57 10252 281 0.34 1977 6319 124 0.87 10622 340 0.15 1978 6423 131 0.89 11004 315 0.35 1979 6493 150 0.64 11217 344 0.24 1980 7070 163 0.63 11577 345 0.27 1981 6966 170 0.50 11419 340 0.23 1982 7463 141 0.62 11599 288 0.23 1983 19686 177 0.91 22625 337 0.15 1984 21291 177 0.47 19908 335 -0.28 1985 24168 146 0.55 32731 264 0.16 1986 23914 114 0.39 51752 246 0.40 1987 35536 98 0.72 61914 254 0.16 1988 68160 139 0.27 85235 364 -0.39 1989 88343 145 0.04 169954 321 -0.10 1990 137589 142 0.07 275575 285 0.07 1991 189331 140 0.10 339464 271 0.01 1992 278551 135 0.09 485938 273 -0.05 1993 340677 133 0.28 569514 299 -0.05 1994 435827 140 0.38 622800 298 -0.07 1995 561379 160 0.23 807435 291 -0.02 1996 727518 214 0.05 976461 361 -0.16 1997 815702 152 0.29 1499128 365 -0.01 1998 1180586 132 0.51 1511981 290 -0.12 1999 1965547 117 0.42 2531388 227 -0.06 2000 170 115 0.48 223 238 -0.06 2001 180 116 0.55 296 219 0.35 2002 201 129 0.56 310 245 0.26 2003 193 137 0.41 284 303 -0.06 Source: Authors' calculations using methodology from Anderson et al. (2008) and data sources reported in text. 46 Appendix Table 1: Prices and NRAs for primary products, Ecuador, 1966 to 2003 (cont.) (Trading status following the methodology of Anderson et al. (2008): X = exportable, M = importable, HX = non-tradable primary, exportable derived lightly product) Milk (M) Beef (M) Domestic Border NRA = Domestic Border NRA = price price DP-BP price price DP-BP LCU/ MT USD/MT BP LCU/ MT USD/MT BP 1966 1513 106 -0.22 7100 387 0.00 1967 1534 103 -0.25 7200 418 -0.13 1968 1491 80 -0.04 7000 412 -0.13 1969 1521 75 -0.05 7140 419 -0.20 1970 1900 77 0.17 7165 436 -0.22 1971 1800 90 -0.26 9334 435 -0.21 1972 1800 128 -0.47 9272 458 -0.24 1973 2030 143 -0.46 11602 631 -0.31 1974 2420 158 -0.39 9435 733 -0.49 1975 3662 140 0.01 14280 282 0.96 1976 4000 125 0.19 16000 297 0.99 1977 4330 131 0.21 18500 347 0.96 1978 4670 162 0.11 19783 381 1.01 1979 5110 120 0.61 23076 1049 -0.16 1980 5760 129 0.68 24240 1080 -0.15 1981 7230 147 0.80 42880 992 0.58 1982 8380 157 0.63 55310 749 1.25 1983 12200 150 0.39 80610 755 0.83 1984 15210 132 0.41 113200 865 0.59 1985 19800 120 0.54 157000 746 0.97 1986 25720 132 0.29 190050 717 0.76 1987 32690 131 0.19 216420 762 0.35 1988 90940 168 0.40 307660 929 -0.14 1989 95610 209 -0.22 655290 989 0.13 1990 141600 208 -0.25 751730 1025 -0.19 1991 205590 142 0.17 2364460 2143 -0.11 1992 329390 182 -0.04 2915040 1950 -0.21 1993 497300 200 0.24 4323980 1752 0.23 1994 608650 200 0.35 4635700 2151 -0.04 1995 760830 226 0.19 5675860 2049 -0.02 1996 831950 278 -0.07 6190340 1792 0.07 1997 1038370 245 0.02 7023160 1613 0.05 1998 1449000 186 0.32 12168900 1523 0.35 1999 1969020 192 -0.13 15894300 1655 -0.19 2000 170 177 -0.04 1700 1681 0.01 2001 250 216 0.16 2696 1808 0.49 2002 270 252 0.07 3360 2203 0.53 2003 250 216 0.16 2842 2286 0.24 Source: Authors' calculations using methodology from Anderson et al. (2008) and data sources reported in text. 47 Appendix Table 1: Prices and NRAs for primary products, Ecuador, 1966 to 2003 (cont.) (Trading status following the methodology of Anderson et al. (2008): X = exportable, M = importable, HX = non-tradable primary, exportable derived lightly product) Chicken meat (M) Pig meat (M) Domestic Border NRA = Domestic Border NRA = price price DP-BP price price DP-BP LCU/ MT USD/MT BP LCU/ MT USD/MT BP 1966 27190 379 2.89 10670 566 0.02 1967 27570 330 3.22 10820 474 0.15 1968 26800 352 2.89 10510 459 0.17 1969 27320 377 2.40 10720 550 -0.09 1970 20562 338 1.89 11031 563 -0.07 1971 31250 340 2.39 14000 434 0.19 1972 34032 350 2.66 13910 622 -0.16 1973 40972 595 1.60 17400 953 -0.31 1974 52083 533 2.89 14150 848 -0.34 1975 54580 653 2.23 21420 1143 -0.28 1976 57100 583 2.62 23420 1089 -0.21 1977 59670 581 2.77 25330 983 -0.05 1978 59670 646 2.57 30475 1155 0.02 1979 59670 645 2.51 29292 1046 0.06 1980 58100 684 2.20 29680 950 0.18 1981 103760 702 4.40 43690 1087 0.47 1982 119000 665 4.46 58290 1268 0.40 1983 143370 704 2.49 81970 1091 0.29 1984 220550 834 2.22 127530 1171 0.32 1985 254000 747 2.18 170000 1096 0.45 1986 255670 853 0.99 186000 1232 0.00 1987 320730 694 1.20 218600 1281 -0.19 1988 501540 821 0.58 331860 1050 -0.18 1989 711680 908 0.33 719460 1054 0.16 1990 916890 809 0.26 936050 1332 -0.22 1991 1715140 1070 0.30 1766130 1947 -0.27 1992 2203250 1104 0.06 2172800 1671 -0.31 1993 2719440 1181 0.15 3210290 1812 -0.11 1994 3381150 1215 0.24 3275870 1599 -0.09 1995 4752680 1169 0.43 3691190 1415 -0.08 1996 5892000 1295 0.41 4047880 1814 -0.31 1997 7337610 1281 0.38 5051790 1848 -0.34 1998 9762820 1335 0.24 8064240 1202 0.14 1999 14225990 1260 -0.04 13055100 1059 0.05 2000 1250 1142 0.09 1653 1477 0.12 2001 1724 1335 0.29 2157 1548 0.39 2002 1970 1036 0.90 2253 1167 0.93 2003 1884 2708 -0.30 2047 1299 0.58 Source: Authors' calculations using methodology from Anderson et al. (2008) and data sources reported in text. 48 Appendix Table 2: Prices and NRAs for lightly processed foods, Ecuador, 1966 to 2003 (Trading status following the methodology of Anderson et al. (2008): X = exportable, M = importable) Sugar, raw (X) Rice, white Domestic Border NRA = Domestic NRA = FOB CIF Trading price price DP-BP price USD/MT DP-BP USD/MT status LCU/ MT USD/MT BP LCU/ MT BP 1966 2077 112 0.01 2981 152 221 X 0.07 1967 2105 112 -0.05 3184 194 283 X -0.17 1968 2048 112 -0.07 4023 182 265 X 0.13 1969 2077 135 -0.28 4134 167 244 X 0.16 1970 1679 145 -0.45 3676 135 197 X 0.29 1971 2475 148 -0.38 3996 126 183 X 0.17 1972 3101 178 -0.34 4481 141 205 X 0.20 1973 1849 163 -0.57 5206 255 372 X -0.23 1974 4325 436 -0.61 7803 446 650 X -0.30 1975 5007 527 -0.63 9687 311 453 M -0.17 1976 5690 291 -0.28 10745 228 332 M 0.19 1977 6401 198 0.19 11809 243 354 M 0.23 1978 7027 170 0.59 12874 318 463 M 0.07 1979 10015 172 1.20 13146 295 429 M 0.16 1980 10185 555 -0.31 13938 360 524 M 0.00 1981 5747 294 -0.29 16810 396 577 M 0.06 1982 11124 243 0.40 18865 260 379 M 0.52 1983 11039 258 -0.27* 34189 251 365 M 0.61 1984 13258 231 -0.30* 47682 235 342 M 0.70 1985 28252 156 0.70 67389 206 299 M 1.11 1986 39831 203 0.30* 84223 195 284 M 0.97 1987 33202 271 -0.42* 58773 214 311 M -0.10 1988 73431 265 -0.28 131930 277 404 M -0.15 1989 132011 345 -0.35 254923 287 417 M 0.04 1990 224476 364 -0.32 354521 262 381 M 0.03 1991 319217 304 -0.15 439462 280 407 M -0.13 1992 423062 348 -0.35 558361 261 380 M -0.22 1993 472281 277 -0.15 686829 232 338 M 0.02 1994 796619 293 0.21 964960 265 386 X 0.62 1995 995774 352 0.00* 1330334 297 433 X 0.58 1996 1450985 317 0.42 1393798 307 447 X 0.41 1997 1678591 305 0.33* 2179057 280 408 X 0.88 1998 2532112 305 0.41* 3022846 280 408 X 0.83 1999 3243379 215 0.28* 3712842 228 332 M -0.05 2000 249 203 0.22 360 191 279 M 0.29 2001 223 263 -0.15 325 163 237 X 1.00 2002 267 194 0.38 313 177 258 M 0.22 2003 214 199 0.07 360 180 263 M 0.37 * Defined as importable, as indicated by the high volume of imports. Source: Authors' calculations using methodology from Anderson et al. (2008) and data sources reported in text. 49 Appendix Table 3: Exchange rate, Ecuador, 1955 to 2004 Official rate Commodity Parallel Estimated equilibrium (LC/USD) specific rate market rate exchange rate a (LC/USD) Banana, all exports 1960 15.15 15.6, 16.9 17.60 16.99 1961 16.33 15.7, 17.4 21.70 20.36 1962 18.00 20 22.20 21.15 1963 18.18 22.40 21.35 1964 18.18 18.60 18.50 1965 18.18 18.52 18.44 1966 18.18 18.52 18.44 1967 18.18 20.39 19.84 1968 18.18 20.02 19.56 1969 18.18 22.40 21.35 1970 20.64 21.21 21.07 1971 25.00 27.80 27.10 1972 25.25 27.00 26.56 1973 25.00 26.96 26.47 1974 25.00 25.15 25.11 1975 25.00 26.20 25.90 1976 25.00 27.80 27.10 1977 25.00 28.00 27.25 1978 25.00 26.20 25.90 1979 25.00 26.80 26.35 1980 25.00 27.03 26.52 1981 25.00 28.17 27.38 1982 30.03 33.70 32.78 1983 44.12 63.06 58.32 1984 62.54 88.75 82.20 1985 69.56 119.28 106.85 1986 122.78 160.00 150.69 1987 170.46 223.19 210.00 1988 301.61 414.93 386.60 1989 526.35 608.83 588.21 1990 767.75 947.33 902.44 1991 1046.25 1297.00 1234.31 1992 1533.96 2000.00 1883.49 1993 1919.11 2026.09 1999.34 1994 2196.73 2270.00 2251.68 1995 2564.49 2925.00 2834.87 1996 3189.47 3242.34 3229.12 1997 3998.27 4189.58 4141.75 1998 5446.57 6051.75 5900.45 1999 11786.80 11786.80 11786.80 2000 1.00 n.a. 1.00 2001 1.00 n.a. 1.00 2002 1.00 n.a. 1.00 2003 1.00 n.a. 1.00 2004 1.00 n.a. 1.00 a See Anderson et al. (2008) on the exchange rate methodology used in this study 50 Appendix Table 4: Nominal rate of assistance (NRA) to agriculture, Ecuador, 1966 to 2003 (percent) NRAs covered products NRA NRAs Total Agriculture Total NRA Remaining (including Import Agriculture Import non-product Exports Sub-Total Exports Total NRA specific competing competing subsidies) 1966 -5 -14 -12 0 -5 -14 -7.3 n.a. 1967 -8 -21 -16 0 -8 -21 -10.5 n.a. 1968 6 -19 -11 0 6 -19 -7.2 n.a. 1969 -1 -28 -20 0 -1 -28 -13.4 n.a. 1970 7 -34 -22 0 7 -34 -15.1 n.a. 1971 -6 -44 -32 0 -6 -44 -23.4 n.a. 1972 -25 -41 -35 0 -25 -41 -24.7 n.a. 1973 -27 -35 -32 0 -27 -35 -22.6 n.a. 1974 -21 -46 -37 0 -21 -46 -26.4 n.a. 1975 8 -47 -26 0 8 -47 -18.5 n.a. 1976 28 -49 -24 0 28 -49 -16.8 n.a. 1977 36 -56 -32 0 36 -56 -23.9 n.a. 1978 31 -33 -12 0 31 -33 -8.9 n.a. 1979 29 -32 -10 0 29 -32 -7.1 n.a. 1980 30 -28 -7 0 30 -28 -4.8 n.a. 1981 61 -46 4 0 61 -46 2.2 n.a. 1982 80 -26 25 0 80 -26 14.8 n.a. 1983 50 -29 17 0 50 -29 9.8 n.a. 1984 47 -27 11 0 47 -27 7.2 n.a. 1985 75 -27 15 0 75 -27 9.8 n.a. 1986 45 -28 6 0 45 -28 4.6 n.a. 1987 11 -17 0 0 11 -17 0.2 n.a. 1988 7 -45 -16 0 7 -45 -12.3 n.a. 1989 -5 -14 -9 0 -5 -14 -7.4 n.a. 1990 -16 -8 -12 0 -16 -8 -9.6 -9.5 1991 -5 -14 -9 0 -5 -14 -7.9 -7.8 1992 -12 -20 -16 0 -12 -20 -13.8 -13.7 1993 13 -4 5 0 13 -3 4.4 4.4 1994 15 -10 0 0 15 -10 -0.1 -0.1 1995 11 1 6 0 11 1 4.6 4.7 1996 0 0 0 0 0 0 -0.2 -0.1 1997 7 -16 -7 -2 7 -15 -6.1 -6.1 1998 30 -15 7 -3 30 -14 4.5 4.5 1999 -9 -21 -15 -3 -9 -18 -13.0 -13.0 2000 7 -24 -4 -4 7 -19 -3.8 -1.0 2001 32 4 19 -3 32 2 15.2 n.a, 2002 41 9 28 -3 41 5 21.9 n.a. 2003 10 0 6 -3 10 -1 4.6 n.a. Source: Authors' calculations using methodology from Anderson et al. (2008) and data sources reported in appendix. 51 Appendix Table 5: Value sharesa of primary production of coveredb and non-covered products, Ecuador, 1966 to 2003 (percent) Non- Banana Beef Cocoa Coffee Maize Milk Pigmeat Poultry Rice Soybean Sugar covered 1966 18 4 5 10 1 12 3 0 4 0 7 36 1967 19 4 5 9 1 13 3 0 4 0 6 36 1968 20 4 6 8 1 11 3 1 3 0 8 36 1969 22 5 7 7 1 11 3 1 4 0 7 33 1970 23 5 7 9 1 11 3 1 3 0 6 31 1971 27 5 6 8 2 14 3 1 2 0 7 26 1972 21 4 7 8 1 16 3 1 2 0 6 30 1973 18 5 8 7 3 16 5 1 4 0 5 29 1974 14 5 8 8 3 13 3 1 6 0 11 29 1975 16 2 7 7 3 11 4 1 7 0 14 28 1976 15 2 8 19 2 9 4 1 5 0 5 30 1977 12 2 16 24 1 8 3 1 4 0 4 25 1978 12 2 18 15 1 10 4 1 3 1 3 29 1979 11 6 14 18 2 8 4 1 4 1 3 28 1980 13 5 12 11 2 7 4 1 6 1 8 32 1981 13 5 4 11 2 9 4 1 7 1 4 40 1982 10 4 4 13 2 11 5 1 4 1 3 42 1983 6 5 5 14 2 12 5 2 4 0 4 41 1984 5 5 12 15 3 11 5 2 4 1 3 33 1985 5 4 15 18 2 10 5 2 3 1 2 33 1986 8 4 8 21 2 11 5 3 5 1 3 29 1987 9 5 7 12 2 13 6 3 8 2 4 29 1988 5 6 7 20 2 15 4 3 11 3 3 23 1989 17 5 5 12 2 17 4 3 9 2 4 21 1990 21 6 5 10 2 17 5 3 7 2 4 19 1991 27 11 4 8 2 10 7 4 7 2 3 16 1992 27 10 4 6 2 14 6 4 8 2 4 15 1993 25 9 3 6 2 14 6 4 8 2 3 18 1994 23 9 3 15 1 12 4 4 6 1 2 19 1995 24 10 3 13 2 14 4 4 6 1 3 16 1996 26 8 3 11 2 15 5 5 5 1 2 17 1997 35 7 3 7 2 12 5 6 4 0 1 18 1998 28 9 2 4 0 14 5 5 5 0 3 23 1999 32 10 3 5 1 14 4 7 7 0 2 16 2000 18 12 3 5 2 15 7 10 7 1 3 17 2001 29 11 2 2 2 17 6 8 3 1 3 16 2002 25 13 4 1 1 18 5 6 4 1 2 20 2003 23 13 4 1 1 14 5 15 4 1 2 18 Source: Authors' spreadsheet a Each row sums to 100. b At farmgate undistorted prices, US$. 52 Appendix Table 6: Nominal rate of assistance in non-agricultural tradable industries, Ecuador, 1966 to 2003. (percent) 1966-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-03 Lightly processed food production Importable -3 -19 27 55 28 2 8 20 Exportable -8 -26 -5 -23 -17 -8 -9 21 Nontradable 0 0 0 0 0 0 0 0 Weighted average -6 -23 12 32 20 0 6 20 Highly processed food production Importable 18 16 12 15 30 20 20 18 Exportable -3 -1 -2 -5 -7 -4 -1 0 Nontradable 0 0 0 0 0 0 0 0 Weighted average 2 2 2 1 3 2 3 4 Non-ag primary production Importable 18 16 12 15 30 17 13 11 Exportable -3 -1 -2 -5 -7 -4 -1 0 Nontradable 0 0 0 0 0 0 0 0 Weighted average -1 0 -1 -2 -3 -1 0 0 Non-food manufactures Importable 18 16 12 15 30 17 12 10 Exportable -3 -1 -2 -5 -7 -4 -1 0 Nontradable 0 0 0 0 0 0 0 0 Weighted average 9 8 6 7 14 8 6 5 Total NRA (weighted average of above sectors) to Non-Agriculture Importable 11 3 18 33 29 10 11 14 Exportable -4 -7 -3 -7 -8 -4 -2 1 Tradables 1 -3 5 9 9 2 6 9 Nontradable 0 0 0 0 0 0 0 0 TOTAL non-Agric 0 -1 1 2 2 1 2 3 * Value added used as weights when available otherwise value of production. Source: Authors' calculations 53 Appendix Table 7: Nominal rates of assistance to covered, uncovered and all agricultural products, to exportable and import-competing agricultural industries, and relative to non- agricultural industries, Ecuador, 1966 to 2003 (percent) Non- Total ag Import- Covered covered NRA Exportable competing All ag All non-ag c products products (incl NPS)a NRAb NRAb tradables tradeables RRA 1966 -12 0 -7 -14 -5 -12 2 -13 1967 -16 0 -10 -21 -8 -16 1 -18 1968 -11 0 -7 -19 6 -11 2 -13 1969 -20 0 -13 -28 -1 -20 -1 -19 1970 -22 0 -15 -34 7 -22 1 -22 1971 -32 0 -23 -44 -6 -32 -2 -30 1972 -35 0 -25 -41 -25 -35 -4 -32 1973 -32 0 -23 -35 -27 -32 -5 -28 1974 -37 0 -26 -46 -21 -37 -6 -33 1975 -26 0 -18 -47 8 -26 -1 -25 1976 -24 0 -17 -49 28 -24 3 -26 1977 -32 0 -24 -56 36 -32 6 -36 1978 -12 0 -9 -33 31 -12 7 -18 1979 -10 0 -7 -32 29 -10 9 -17 1980 -7 0 -5 -28 30 -7 2 -9 1981 4 0 2 -46 61 4 11 -6 1982 25 0 15 -26 80 25 16 8 1983 17 0 10 -29 51 17 8 8 1984 11 0 7 -27 47 11 9 2 1985 15 0 10 -27 76 15 15 0 1986 6 0 5 -28 45 6 12 -5 1987 0 0 0 -17 11 0 6 -6 1988 -16 0 -12 -45 7 -16 6 -21 1989 -9 0 -7 -14 -5 -9 3 -12 1990 -12 0 -10 -8 -16 -12 -1 -11 1991 -9 0 -8 -14 -5 -9 3 -12 1992 -16 0 -14 -20 -12 -16 -1 -15 1993 5 0 4 -3 13 5 4 1 1994 0 0 0 -10 15 0 7 -7 1995 6 0 5 1 11 6 7 -1 1996 0 0 0 0 0 0 5 -5 1997 -7 -2 -6 -15 7 -8 5 -12 1998 7 -3 4 -14 30 4 9 -4 1999 -15 -3 -13 -18 -9 -15 3 -18 2000 -4 -4 -1 -19 7 -3 5 -8 2001 19 -3 15 2 32 17 10 7 2002 28 -3 22 5 41 26 13 12 2003 6 -3 5 -1 10 5 7 -1 a NRAs including assistance to nontradables and non-product-specific assistance. b NRAs including product-specific input subsidies and non-covered products. c The Relative Rate of Assistance (RRA) is defined as 100*[(100+NRAagt)/ (100+NRAnonagt)-1], where NRAagt and NRAnonagt are the percentage NRAs for the tradables parts of the agricultural and non-agricultural sectors, respectively. Source: Authors' spreadsheet 54 Appendix Figure 1: Raw sugar fob prices (U.S. $/tonne), Ecuador and other countries, 1961 to 2003 900 Ecuador fob 800 Colombia fob 700 Brazil fob Reconstructed Ecuador fob 600 500 400 300 200 100 0 1960 1970 1980 1990 2000 Source: Authors' calculations Appendix Figure 2: Unmilled rice cif and fob prices (U.S. $/tonne), Ecuador and other countries, 1961 to 2003 600 Thailand (IFS) Reconstructed Ecuador cif Colombia cif 500 Reconstructed Ecuador fob 400 300 200 100 0 1961 1971 1981 1991 2001 Source: Authors' calculations 55 Appendix Figure A3: Polished (white) rice cif and fob prices (U.S. $/tonne), Ecuador and other countries, 1961 to 2003 700 Brazil cif Reconstructed Ecuador cif 600 Colombia cif Reconstructed Ecuador fob 500 400 300 200 100 0 1961 1971 1981 1991 2001 Source: Authors' calculations