griculture is our most important resource. It
has undergone major technological changes, but still faces major
challenges in contributing to the development of nations. The
founding of civilizations has always been based on food
production. The domestication of plants and animals made it
possible for population centers to develop some 11 thousand
years ago; at present, available technological sophistication
has increased the variety of lifestyles enjoyed by more than 6
billion people.
Agriculture has become much more than farms
and food; it is considered a strategic asset by most nations.
More specifically, last year, the developed countries provided
US$311 billion in government subsidies to support their farmers.
The systems related to agriculture, above all its interaction
with the environment, industry, finance, trade and consumers,
have become more complex, making it necessary to develop new
policy tools and new paradigms with which to meet effectively
the food security needs of the 21st century. Even though the
knowledge economy and the industrial revolution have led to
unprecedented growth and opportunity, food and nutrition
continue to be the bread and butter that turn calories into
capital.
|
800 million
poor people worldwide, and more than 200 million in
Latin America and the Caribbean, face serious problems
in obtaining enough food to meet their minimum
requirements |
As agriculture has developed, we have become
accustomed to food’s always being available. Even though 800
million poor people worldwide, and more than 200 million in
Latin America and the Caribbean, face serious problems in
obtaining enough food to meet their minimum requirements, the
networks for the distribution of food are the most complex and
developed markets in the world today. Yet, despite this
unprecedented capability to provide high-quality, low-cost and
safe foods anywhere in the world, most countries measure the
performance of agriculture and its contribution to economic
development on the basis of harvest data and sales of raw
materials, mostly crops and livestock; in other words, only
primary agriculture is considered.
All of the stages involved in processing food
and manufacturing clothing (based on the use of fibers such as
cotton) or furniture and paper (based on the use of timber
trees), for example, are taken into account when generating
industrial rather than agricultural statistics. The
agroindustrial complex also includes machinery, financial
markets, chemicals, pharmaceuticals, specialized services and,
now, even essential resources for life such as water and air.
All of these activities involve the extraction of primary
resources from rural areas.
Food security in a globalized and
interdependent world reappears as a key challenge for humanity,
and agricultural development plays a key role in reducing
poverty in most developing countries.
Given the challenges posed by the
international context and the process of adapting national
economies to this reality, countries must establish clear
strategies for positioning their economic sectors, prioritize
their resources and strengthen their competitive advantages,
while at the same time promoting equity and sustainability with
a view to improving the living conditions of their inhabitants
and preserving their natural heritage.
It is necessary to find new ways of measuring
agriculture’s contribution to the economy, to better understand
its importance and to improve decision making related to
investment in agriculture, so that the sector can contribute
more effectively to development and the alleviation of poverty.
The time has come to view agriculture from a
different, more complex perspective and to recognize that the
production systems related to agriculture, for example
agroindustry, have become more intricate and complex and require
food distribution networks that are more developed and dynamic.
Aware of this need, the Inter-American
Institute for Cooperation on Agriculture (IICA) wishes to
provide decision makers, policy makers and the public in general
with technical analyses and methodologies which can be used in
making decisions related to investing in, formulating policies
for and allocating budget resources to agriculture on the basis
of its relative importance, with a view to enabling agriculture
to contribute more effectively to development and the
alleviation of poverty.
To this end, IICA conducted a pioneering
research project entitled “More than food on the table:
Agriculture’s true contribution to the economy” (IICA, 2004),
which quantified the contribution of agriculture for 11
countries: Argentina, Brazil, Canada, Chile, Colombia, Costa
Rica, Mexico, Peru, Uruguay, United States of America and
Venezuela. The document showed that agriculture’s contribution,
measured in the traditional way, was underestimated. A study of
several countries in Latin America conducted later by the World
Bank1
reinforced the argument that agriculture and rural life are more
important than they are portrayed in official statistics.
We are pleased to present the results of this
analysis for Ecuador, a country whose economy relies heavily on
agriculture according to several studies.2.
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It is interesting to note that the greater the
degree of diversification of the economic structure
of the country, the greater the weight of food
products and manufactures that transform inputs from
primary agriculture. |
1. The
contribution of agriculture to Ecuador’s economy
In the case of Ecuador, the average
contribution of the agricultural sector between 1985 and 2005
was 12.96%; however, for expanded agriculture the average was
above 25.96%. In other words, seen from a systemic perspective,
agriculture’s contribution is more than double. (See Figure 1.)
For purposes of comparing the contribution of
the Expanded AGDP in Ecuador with the countries mentioned
earlier, the results of the Social Accounting Matrix (SAM) for
1997 were taken into account. As shown in Table No. 1, all of
the countries had this instrument in 1997.
It is interesting to note that the greater the
degree of diversification of the economic structure of the
country, the greater the weight of food products and
manufactures that transform inputs from primary agriculture.
Noteworthy are the cases of the USA, Canada, Argentina and
Brazil, where, when foods and manufactures derived from this
sector are included, the contribution increases considerably. In
the case of Ecuador, the generation of value added increases the
contribution of the sector 1.6 times, which is below the
contribution recorded in other countries of the hemisphere,
illustrating the limited transformation of products of primary
agriculture in the country, as well as the potential for
expansion.
|
In the case
of Ecuador, an analysis of the destination of
agricultural output reveals that agriculture is an
important source of inputs for other production
activities. |
2.
Linkages generated by agriculture in Ecuador
The results for Ecuador can be seen in Table
No. 2. When forward and backward linkages were added to the
contribution of the primary sector in 1993, the contribution of
agriculture climbed from 17.6% to 23.2%; in 1997, it went from
13.6% to 18.4%. When the methodological adjustment mentioned
above is made, the contribution of expanded agriculture is less,
confirming the fact that to simply add up the value added of the
sectors linked to agriculture leads to an overestimation.
As an economy grows and diversifies, the
primary agricultural sector decreases in relative weight as a
component of GDP, but generates strong linkages with the rest of
the economy. Using the SAM, the existence of important linkages
between agriculture and the rest of the economy can be shown.
Using the new methodology, the contribution of expanded
agriculture falls from 23.2% in 1993 to 18.4% in 1997; however,
as will be shown later, this does not mean that agriculture
declines in importance. Also, it is important to point out that
agriculture’s forward linkages (foods, agroindustry and exports)
are stronger than its backward linkages (inputs, transportation,
etc.)..
In the case of Ecuador, an analysis of the
destination of agricultural output reveals that agriculture is
an important source of inputs for other production activities:
58% of primary agricultural output went to meet intermediate
demand for agricultural products in 1993. In other words, 3/5 of
agricultural output is used as inputs for other industries
and/or sectors. Beginning in 1997, and most notably in 2001,
there is a decline in intermediate consumption as a consequence
of an increase in exports. As a result, their use as inputs in
1997 fell to 55.7% and in 2001 to 47.6%. This trend reflects a
greater opening of the sector to external markets.
Likewise, it is important to estimate the role
of agriculture’s linkages in the generation and use of income.
For Ecuador, this estimate was interesting in that it showed
that the food and agroindustrial sectors report intermediate
purchases of inputs equal to 70 cents for each dollar of
production. If we compare this result with those obtained for
the 11 countries of the Americas mentioned above, we see that
intermediate purchases account for 47%, on average, of the costs
of the primary agricultural sector for the countries included in
the analysis. Ecuador generates stronger backward linkages for
labor, capital and investment.
As for the absorption of labor (skilled and
unskilled), agriculture absorbs more than any other sector.
In
1993 and 1997, it absorbed 60% and 54%, respectively, mostly
unskilled labor. It was also noted that the agricultural sector
is restricted in terms of both capital and agricultural
technology, in comparison with the indicators for other sectors.
Of particular note is the natural resources sector, which shows
high levels of modernization due, primarily, to the extraction
of petroleum products.
In general, the results from all the countries show that the
sector is linked to the income of the least skilled labor. In
the expanded agricultural sector, the percentage of skilled
labor climbs to 3.1% and the corresponding figure for unskilled
labor falls to 15.5%. The link between agricultural production
and unskilled labor is confirmed, as is the fact that the link
to skilled labor is strengthened as the shift from primary to
expanded agriculture takes place.
The analysis of agriculture’s linkages, both
via destination of agricultural output and costs of production,
reveals the importance of agriculture in Ecuador, it being both
a source of inputs for the rest of the industries, and a source
of foreign exchange and value added. It is also argued that the
incomes generated by agriculture stays in rural areas and plays
a key role in the sustainability of rural livelihoods.
3. Is
the contribution of agriculture to GDP,
or the sector’s importance declining?
It is well documented in the literature that
economic development leads to a decline in agriculture’s
contribution to GDP. This can be seen in Figure No. 1, where
agriculture’s contribution according to official figures fell
from 28.6% in 1993 to 7.35% in 2005. As a matter of fact, even
in the expanded agricultural sector, its contribution dropped
from 28.6% to 16.08% during the same years.
Even though calculations indicate that each
year primary agriculture’s share of GDP drops by 0.0752
percentage points, on average, for each 1% increase in per
capita GDP, this does not mean that agriculture is declining in
importance as a driving force for economic growth in Ecuador. A
low or declining share does not indicate that the sector is
playing a less important role in the economy; to the contrary,
it may indicate greater generation of value added.
To visualize the impact of agriculture on the
economy as a whole, the analysis was complemented with an
econometric model for the measurement of elasticities. The
results indicate that, in the short term, the rest of the
economy is not expected to respond to changes in the GDP for
primary agriculture. However, long-term elasticity (0.438%)
indicates that the primary agriculture sector has a positive
effect on the rest of the economy: a change in the GDP for
primary agriculture of 1% would lead to an increase of 0.43% in
the GDP of the rest of the economy. This elasticity is greater
than the average for Latin America and the Caribbean, which,
according to the World Bank, is 0.12%.
Also, no evidence was found of effects in the
opposite direction; in other words, of changes in the rest of
the economy on the primary agriculture sector.
4. Main
Conclusions
- Agriculture in Ecuador is
important not only because of its impact on national
economic growth, but also because each dollar invested in
the sector contributes to improving the incomes of the
population. As a result, economic priority must be attached
to the sector.
- The indicators contained
in the study provide a foundation for ensuring that all
efforts are focused on repositioning agriculture in the
political arena, with a view to obtaining more of the State
budget, and to designing support policies and instruments
that are in keeping with the true importance of the sector
in the development of the country. The contribution of the
agricultural sector is fundamental, since, seen from a
systemic perspective, it is 23.2% of GDP, and not 9% as
reported in official statistics.
- An analysis of the
destination of agricultural output in Ecuador reveals that
agriculture is an important source of inputs for other
production activities. Three fifths of agricultural output
is used as inputs for other industries and/or sectors. This
generates important forward linkages.
- The study showed that for
each dollar produced in agriculture, some 66 cents become
value added.
- In general terms, it was
determined that an increase of 1% in the AGDP generates an
increase of 0.43% in the GDP of the rest of the economy,
which is greater than the average generated in LAC (0.12%).
- As regards the absorption
of labor (skilled and unskilled), the agricultural sector
uses more labor than any other sector. In 1993, it used 60%
and in 1997, 54%; most were unskilled labor.
- Based on the performance
of agriculture in other countries of Latin America, there is
great potential to generate greater linkages between
agriculture and the rest of the economy.
- Lastly, the challenge is
to continue to improve the method used to calculate the
contribution of agriculture to economic development,
especially as regards preservation of the environment,
alleviation of poverty, food security and sovereignty and as
a source of new types of energy.
In summary, the measurement of
the true contribution of agriculture to the economy through the
use of better methods helps to understand its importance for
development. This will lead to better decisions regarding
investment in and the formulation of policies for agriculture
and the allocation of budgetary resources in line with its
relative importance, which will enable the sector to contribute
more effectively to development and poverty alleviation.
|
The analysis of agriculture’s linkages, both via
destination of agricultural output and costs of
production, reveals the importance of agriculture in
Ecuador, it being both a source of inputs for the
rest of the industries, and a source of foreign
exchange and value added.
|
|
| 1World
Bank. 2005 “Beyond the City; the rural contribution to
development.” Washington, D.C. 2The
methodology used to conduct the study for Ecuador differs
from that applied by the World Bank in the aforementioned
study, in order to avoid the possibility of overestimating
the contribution of the expanded agricultural sector.
Specifically, the proportion of value added of other sectors
that can actually be attributed to the agricultural sector
was calculated, using the coefficients from the Social
Accounting Matrix for Ecuador. Adjustments were also made to
take into account only domestic intermediate demand, in
order to differentiate it from imported intermediate demand.
In brief, the new indicator is the sum of the contribution
of primary agriculture to GDP, plus the backward and forward
linkages with the rest of the economy.
3
PIB agrícola, silvicultura, caza y pesca más
alimentos y manufacturas derivadas de este sector. |