Measuring the Effects of U.S. Corn Subsidies on Agriculture in Argentina

Argentina's economy depends heavily on agricultural production, primarily grains, oilseeds, and beef. Exports of these products provide most of Argentina's foreign exchange and a substantial share (20%) of central government revenues through export taxes (rendiciones). Because large net exporters, such as the U.S., subsidize crop production or exports, nations such as Argentina are injured directly. For example, Koo and Kennedy (2006) provide an estimate of global welfare loss from U.S. corn subsidy programs. They also estimate that the elimination of these subsidies could raise the world price of corn nearly 6%. As a net exporter of corn, Argentina is injured directly by the U.S. corn programs, but because price changes in one market may cause inefficient substitution to other crops, there may also be welfare losses in other markets.

Previous studies by Mundlak, Cavallo, and Domenech (1989) and Fulginiti and Perrin (1990) have estimated the effects of Argentina's self-imposed distortions on its agriculture sector and attendant effects on economic growth. However, since their work, the composition of Argentine agriculture, the nation's political system, and its trade policies have all changed significantly.

In this paper, we estimate the direct and indirect effects of U.S. corn subsidies on agricultural production and government revenue in Argentina using an econometric model designed to capture cross-price effects among major agricultural products. Our data cover the period from 1980 to 2008 and were obtained from published sources – including Argentine government ministries, boards of trade, and international agencies – and from unpublished sources available to us in Argentina.

Our preliminary results show significant cross-price effects between different grain and oilseed crops. From these effects, we will estimate the welfare loss to Argentina from depressed world prices for corn and from substitution in production from corn to other crops.