Agriculture in an export boom economy: A comparative analysis of policy and performance in Indonesia, Mexico and Nigeria

World Development,

Vol. 17. No. 4, pp. 543-560, 1989.

0305-750X/89 0

Printed in Great Britain.

$3.00 + 0.00

1989 Pergamon

Press plc

Agriculture in an Export Boom Economy: A Comparative Analysis of Policy and Performance in Indonesia, Mexico and Nigeria SARA J. SCHERR* International Council for Research in Agroforestry,

Nairobi

Summary. -The 1970s oil boom was accompanied, for most developing country exporters. by stagnating agricultural production, high rural emigration, and high levels of food imports. This paper evaluates the experiences of Indonesia, Mexico. and Nigeria. “Dutch disease” and other macroeconomic phenomena had important effects on agricultural performance, but equally. if not more, important were microeconomic factors, including: agricultural price policies; changing patterns of food demand based on distribution of petroleum income and public investment: structural characteristics of the agricultural sector (factor-intensity of different subsectors, labor availability and migration patterns, and geographical concentration of agricultural activity); and strategies of agricultural development and investment.

which the impact of a petroleum (or other export commodity) boom is transmitted to the agricultural economy, and the kinds of policy options outside the macroeconomic sphere - which may be pursued by governments seeking to minimize agricultural disruption. This paper attempts such an evaluation. comparing and contrasting the experiences of agricultural change in Indonesia,

1. INTRODUCTION The period 1973-81 saw a remarkable boom in commodity exports from the developing nations, as prices for a number of key primary commodities rose dramatically. Most spectacular was the twelve-fold rise in the real price of petroleum between 1970 and 1981 (Odell, 1984; de Golyer and MacNaughton, 1983). The 1970s experience of export-led growth, however, was profoundly disappointing. GDP growth in the oil exporting countries as a group was slower in the 1970s than during the 1960s (World Bank, 1983). Observers have pointed with special concern. to the economic decline of the agricultural sector experienced by many of these booming economies - as evidenced by low agricultural growth rates, massive rural-urban migration, and high food import bills (Amuzegar, 1982). Explanations of this phenomenon have emphasized macroeconomic factors leading to inappropriate sectoral shifts in the economy - especially exchange rate distortions and poor government management of oil revenues. Policy recommendations - and most of the policy debate - have emphasized macroeconomic, foreign exchange, and export revenue management. There has been much less systematic evaluation of the microeconomic mechanisms by

Mexico,

and Nigeria.

2. “DUTCH DISEASE” The impact

of primary

commodity

exports

*This paper was researched and written while the author was a Visiting Scholar at the Food Research

Institute of Stanford University, 1984-85, following extended dissertation research for Cornell University on the impact of the oil syndrome on agriculture in Mexico. I am most grateful for financial support from the Tinker Foundation and the Mellon Foundation, and to Food Research Institute scientists for their generosity with time and research materials. Special thanks for their helpful comments on earlier drafts to: Sara Berry, Wally Falcon, Alan Gelb, Lovell Jarvis, Bruce Johnston, Leon Mears, Scott Pearson, Michael Roemer, Pan Yotopoulos, and an anonymous reviewer. 543

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such as oil on economic growth has been the subject of “staple theory” analysis for decades, with early literature emphasizing problems of enclave development, expatriation of profits, and minimal growth linkages of the export sector (see, e.g., Hirschman, 1977; Pearson and Cownie, 1974). With the growing power of nationalized oil companies and producing nations’ governments to retain export revenues, emphasis in the 1970s shifted to the problems of sectoral imbalance in oil exporting countries caused by massive inflows of foreign exchange. This phenomenon has been commonly referred to as “Dutch disease,“* in reference to declining commodity production in the Netherlands resulting from North Sea natural gas development. It is to be expected that rapid economic growth in one sector, such as oil, will attract a substantial shift of resources from other sectors, such as agriculture. Furthermore, historical patterns of development suggest that with economic growth will come a decline in the role of the agricultural sector in overall production and employment. But in the case of a sharp, temporary export boom, such resource shifts may be exaggerated and premature, as economic signals reflecting short-term comparative advantage and factor scarcity overwhelm long-term signals, which would suggest a more important role for traditional sectors. Many agrarian country oil exporters have reserves estimated to last only 10 to 15 years (Mikesell, 1984). In addition to social and economic dislocations from declining agricultural production during the boom, there is widespread concern that the agricultural sector will be unable to reabsorb resources productively when the boom is over and/or petroleum resources exhausted. The shift away from traditional sectors is accelerated by “Dutch disease.” This can be explained most simply in a three-sector model of a small, open economy. The booming sector draws foreign exchange into the economy raising’ domestic demand and creating inflationary pressures on domestic prices. New demand for internationally traded commodities tradeables, such as many agricultural and manufactured goods - can be met through imports, moderating inflation. For non-tradeables, such as services, transport, and construction materials, however, the shift in demand leads to increased prices. Thus the relative internal prices of tradeables to non-tradeables have a short- or mediumterm tendency to decline, shifting economic resources (spending and resource inputs) away from tradeable goods. Relative prices of products in different sectors are distorted by changes in the real effective

exchange rate of the currency, defined as? R=

(nominal

exchange

rate)

x

which can be

(domestic

price index)

(weighted average of trading partners’ price indexes)

in nontradeable goods leads to appreciation of the currency. Under systems of fixed or slowly-adjusting exchange rates, the overvalued nominal exchange rate (i.e., overly high cost of local currency in terms of foreign curency) will make prices for imported commodities appear even cheaper, and export prices higher for foreign consumers, further constraining domestic production of tradeable commodities. Any policy which leads to yet higher domestic inflation - excessive monetary expansion, expansionary deficit spending by the government, large-scale foreign borrowmg (which operates on the economy in a manner similar to oil revenues) - will exacerbate the deteriorating position of tradeable sectors vis-a-vis the booming and nontradeable sectors. Policies which reduce inflationary pressure on the economy - slowing oil exports, “sterilizing” oil revenues abroad, running a fiscal surplus, limiting foreign borrowing - should reverse or offset the “Dutch disease” process. Broadly defining agricultural commodities as tradeables, “Dutch disease” analysis focuses on the effective exchange rate as the most significant single variable affecting agricultural performance. Nonexpansive macroeconomic management and currency devaluation are emphasized as the most effective instruments to promote agricultural production. While these recommendations are certainly correct, they have three practical limitations. First, most governments have limited political capacity to actively restrict income growth, deny public demand for increased government spending in the face of rising revenues, refuse proffered foreign credit, or carry out multiple devaluations whose benefits are rapidly reduced by continued inflationary conditions. Second, demand and supply of agricultural goods are highly heterogeneous. Demand for different commodities changes rapidly during a boom, and varies by geographical region, while agricultural supply response can vary sharply between commodities, or between producers under different economic and geographical circumstances. Whether specific agricultural products are tradeable or nontradeable will vary between countries, and between different subsectors of the agricultural economy. Third, relative sectoral returns are affected by cost and productivity as well as product price. There is a widespread, but often erroneous, Inflation

AGRICULTURE

IN AN EXPORT

assumption that agricultural productivity increases cannot possibly match those occurring in other sectors. For selected commodities and producers, cost-reducing investments, technologies or marketing innovations can significantly offset intersectoral price disadvantages. Indeed, in formal “Dutch disease” theory, the model is not determinant; the actual direction of sectoral change depends upon factor intensity, patterns of demand, and intersectoral substitution relationships in production and consumption (Corden, 1984). While it is imperative to promote appropriate macroeconomic policies as much as possible, agricultural stability and growth during an export boom may depend upon a much wider set of policies.

3. MACROECONOMIC MANAGEMENT AND AGRICULTURAL PERFORMANCE IN INDONESIA, MEXICO, AND NIGERIA This point is illustrated by a brief review of macroeconomic management and agricultural performance in Indonesia, Mexico, and Nigeria during the last oil boom. Figure 1 shows changing oil production in the three countries, a proxy for rising oil revenues. Table 1 compares key economic indicators for the three countries. A rough measure of the relative importance of these revenues in the national economy is petroleum revenue as a percentage of GNP during the year of peak revenues, 1981. In Indonesia, this figure was 14%, in Mexico 12.5%, and in Nigeria nearly 30%. In actual terms of dollar revenues

Iwo

900

ii”

_

545

BO0.M

per capita, the figures were almost the same for Mexico and Nigeria (US $261 and US $258). and much lower (US $84) in Indonesia. In 1982, petroleum accounted for 77% of total exports in Mexico, 75% in Indonesia, and 95% in Nigeria. The average annual real growth rate per capita was over 6.5% in all three countries during 197080. The rate of growth dropped markedly in Mexico in 1982, less so in Indonesia, and became sharply negative in Nigeria during 1980-82. None of the countries made any significant effort to restrict oil exports, although in Indonesia substantial foreign revenues were “sterilized” by paying back outstanding foreign loans of PERTAMINA in the mid 1970s. Foreign borrowing was relatively low in Indonesia until oil prices began to decline, and in Nigeria until 1979. External public debt’ rose sharply in Nigeria, but to only 8.7% of GNP, and actually declined in Indonesia, to 21.1% of GNP. In Mexico, by contrast, external public debt rose from 9.1 to 31.1% of GNP, while increasing almost sixteenfold in current dollar terms. Unusual fiscal restraint was exercised in Indonesia, with almost no government deficit (possibly a slight surplus) over most of the period. In Mexico, the government deficit rose from 3.1 to 6.9% of GNP during 1972-81. In all cases, there was serious domestic inflation; trends may be seen in the index of GDP deflators shown in Figure 2. In Indonesia between 1971 and 1978, the average inflation rate was double that of its trading partners. In Mexico, the average annual rate of inflation 1970-82 was 20.9%, but this reflects much higher

Mexico

____

Niclerd

....... Indcmia

tmcJ

m

Figure

1. Crude oil production

65

in Indonesia,

ml32

Mexico,

and Nigeria,

194&g2.

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Table

1. Key economic

DEVELOPMENT

indicators for Indonesia, Indonesia

Population.

1982 (million)

Average annual rate of population 1972-80 (percent)

growth,

Average annual rate of population 1970-82 (percent)

growth,

Gross national product (GNP) capita, 1982 (US dollars)

Mexico,

and Nigeria

Mexico

Nigeria

152.6

73.1

90.6

2.3

3.0

2.6

2.3

2.9

2.5

per 585

Per capita average GDP, 197C-80

annual

real growth

rate*

Per capita average GDP, 1970-82

annual

real growth

rate*

Estimated proven reserves, crude (thousand million barrels)

2090

868

7.6

5.2

6.5

7.7

6.4

3.8

9.5

48.3

16.7

oil

Source: World Bank, (1982, 1984), selected annex tables. *Separate figures are given for 1980 and 1982. to reflect effects of the 1981 oil bust and post-1979 policy changes.

rates after 1977: 28-30% per year in 198@-81 and 80-100% in 1982. In Nigeria, the rate of inflation rose steadily after 1975. The response of the three countries to this pressure on the exchange rate differed markedly. In Indonesia, nominal exchange rates were kept constant during 1971-78, but in 1978 a large, protective devaluation was carried out to prevent tradeable/nontradeable price ratios from continuing to fall. This devaluation had an immediate beneficial effect on the tradeable goods sectors, although with continued pressure from oil revenues - particularly after the second oil price shock in 1979 - within two years the currency was again substantially overvalued. A second devaluation took place in March 1983, after high inflation 1978-83 and a decline in the terms of trade for oil and non-oil exports after 1981 (Arndt and Sundrum, 1984; Warr, 1984; Gelb, 1984). Mexico was forced to devalue in 1976, just as oil exports were beginning to take off, after a sharp real exchange rate decline 1975-76 caused by lack of confidence in the economy. The peso remained undervalued until 1978, providing the economy with a temporary cushion against rising inflationary pressures. Despite an increasingly overvalued currency and serious capital flight, no devaluation took place until mid-1981, after the fiscal crisis caused by declining oil prices (Szekely, 1983; El Mallakh, 1984). Nigeria began the oil boom period with an overvalued exchange rate and maintained an almost constant nominal exchange rate, resulting

in extreme overvaluation of the naira. In the 1974-78 period, domestic prices were about 30% higher than international market prices; 1979-81 prices were 70% higher, and by 1982-83, prices were more than double world prices (Gelb, 1984). Real exchange rate appreciation was 61%, compared to 17% for the nominal rate (Oyejide, 1985, p. 3.12). Nigeria did not devalue the naira until the mid-1980s, on the premise that cheap imports were essential to political stability, and that the expected economic benefits of higher agricultural exports were modest (Oyejide, 1985; Tshibaka, 1983; Rwegasira, 1984). To summarize, macroeconomic conditions in Indonesia were the most favorable for agricultural stability, with a more limited role for petroleum in the economy, fiscal and monetary restraint, and protective devaluations. Macroeconomic conditions in Mexico were highly unfavorable, largely due to excessive fiscal borrowing and spending. Macroeconomic conditions in Nigeria were even more unfavorable, due to a more significant economic impact of petroleum on the economy, and a serious and sustained overvaluation of the currency. There is a very rough correlation in these countries of agricultural performance with macroeconomic performance: Indonesia was by far the most and Nigeria the least successful; and Mexico was somewhere in between, as illustrated in Figure 3. But this does not explain very much. It best (but still only partially) explains their differential success in promoting exports and controlling imports, illustrated in Figures 4 and 5.

AGRICULTURE

IN AN

EXPORT

BOOM

547

Mexico I50

-

200

140

IOC

____Agrlcultural

SC I!

sector

I

I

I

I

I

I

I

I

1

3 74

73

76

77

78

79

80

61

62

Source: United Nations (1985). l

Carvewon

from nattonal

market

official

or

+ Note that ogrlcultural

in the Figure 2.

he

currencies to US dollar uses the annual ovemge exchange rote, coneswdlng to the country base year

the index shows differences in rate sector. It does not indicate the

of the dote.

of price chcmges in the GDP and the differences in price Levels existing

yeor.

Implicit price deflation

index of GDP and agricultural secror deflators for 1975-82 (1975 = 100).

A more disaggregated analysis is more useful, and highlights striking differences in performance in different agricultural subsectors.

(a) Indonesia In Indonesia, the average annual growth rate of agricultural production 1970-82 was 3.8%, a

Indonesia, Mexico, and Nigeria,

per capita rate of 1.5%, reflecting steady increases throughout the period. Rice production increased by two-thirds over the decade, approaching self-sufficiency (reached by 1984). Maize production increased 50%, cassava by a quarter. Among major food crops, only sweet potato production declined, although there was substantial substitution of rice for other foods. Unlike nearly all other oil exporting countries,

548

WORLD DEVELOPMENT Irdmesic (21.711)

Mexico

( 14,552)

Nlgena

(8,054l

130 -AU

crops

____Cereds

Sovce FAO (1982a1. .The ftqures I” parentheses show overage cereal pwduct~on 1969-71,

Figure 3. Index of per capita agriculturalproduction

I”

in Indonesia,

thousand

metric tens

Mexico, and Nigeria,

_

I

P--,.. I 74

1970 R

Source.

+Note likely

FAO (1984a,

/--__ I 76

_A\

I

I 78

83

I 82

R

7676

74

thut

cossava

is also

in Mexico, a substantial

Figure

EC?70

R

7476

78

BOEE

there are no gcod production surveys. These statisttcs are productjon ati black market exports are not included in the

+ Note that rn Nigeria,yams, cossava ond *Nate

80

1984b)

calcuLatims. although

Production

____Imwts

L-0’

that data on Nigeria are highly ozmtroversid,as to be underestimates, as rmch of s&.isten;e

ccuntries,

= 100).

Nigena* *

Irdcnesia

_

1971-82 (1974-76

4. Production

other root crws cre a fu important in ir!donesia.

paticn

and import

of grain impats

of cereals

the value of agricultural exports was substantially greater than that of imports, a ratio of 1:0.68 for 1973-81. Rice imports were quite high in 197980, but as a proportion of the physical volume of grain consumed, cereal imports were a small and declining part. 1977-80 brought an agricultural export boom, in response to favorable world prices. Over the decade, rubber production

higher

proportion

are used for livestock

in Indonesia,

Mexico,

of the diet

than in the ether

feed (esp sorghum)

and Nigeria,

1970-83.

increased by a fifth, palm oil exports tripled, crop exports rose by nearly half, and coffee exports were up over 40%. The proportion of GDP coming from the agricultural sector declined from 48 to 30% between 1972 and 1982; nonetheless, total agricultural income rose substantially. During the period 1970-80, the proportion of the economi-

AGRICULTURE

IN AN EXPORT

549

BOOM

r

I

,‘“I , ’

I Mexico

‘I

1

I

Nigeria

F

\

-Expats

I \

_--

Imparts /

,A

1970 72 74 76 78 w 02 Scurce:FAO (19f32b, 1984b)

Figure 5.

Agricultural

exports

and imports

tally active population (EAP) in agriculture declined from 66 to 55%) while the rural population declined by only 4%) to a still very high 79% of total population (UN, 1985; World Bank, 1984). Table 2 compares key agricultural indicators for the three countries.

Table 2.

Key agricultural

in Indonesia,

1970-82

Despite very high year-to-year variability in rainfed grains production, overall agricultural production in Mexico was fairly stable through the oil boom period. The 3.4% per year average

% Rural population, 1970 % Rural population, 1980 % GDP in agriculture, 1970

% EAP in agriculture,

and Nigeria,

(b) Mexico

indicators in Indonesia,

% GDP in agriculture, 1982 % Economically active population in agriculture, 1972

Mexico,

Mexico,

and Nigeria,

1970-82

Indonesia

Mexico

Nigeria

85 80 47.2 26

49

87

33 12.2 7

80 38.1 22

66

45

62

57

34

51

(EAP)

1982

Average annual growth rate of agricultural production, 1970-80

3.8

2.3

2.6’

Average annual growth rate of agricultural production, 1970-82

3.8

3.4

1.2’

Per capita average annual growth rate of agricultural production, 1970-80 Per capita average annual growth rate of agricultural production, 1970-82 Average annual ratio of agricultural imports: exports, 1973-81

1.5

-0.7

1.5

0.4

0.68

1.00

0

-0.2 2.37

Sources: World Bank (1984), World Bank (1983). FAO (1984a). ‘The statistics used here reflect 1984 revisions used in internal World Bank studies. Note that World Bank World Developmenr Reporr tables, taken from national statistics, were 0.8 for 1970-80 and -0.6 for 197&82.

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increase in production 1970-82 just kept pace with population growth. Erratic cereals production led to erratic cereals imports, but the volume of per capita cereal imports was higher during the pre-oil boom period than thereafter. Maize production was stagnant, declining in per capita terms, until 1979, when production began to increase significantly. Production of beans, the principal protein source of low-income Mexicans, declined dramatically. By contrast, there was rapid growth in production of long-cycle fruit, forage, and vegetable crops (Mexico, SARH, 1982). The average annual ratio of the value of agricultural imports to exports between 1973 and 1981 was 1:l. The value of agricultural imports (dominated by milk, sorghum, and soybeans) rose sharply after 1976 until the 1981 devaluations, even though domestic production of these products was increasing. The value of agricultural exports continued to grow-with an export surplus - until 1979, declining then as the peso grew extremely overvalued and international commodity prices declined. Fruit and vegetable, coffee and cacao, honey and garbanzo exports all increased significantly during the latter half of the 1970s. Exports of strawberries, sugar, and live cattle declined, but largely due to increasing domestic consumption and periodic export controls prompted by domestic outcry over high prices. The rural population of Mexico declined by about 12% between 1975 and 1980. Between 1970 and 1980, the proportion of those whose principal occupation was in agriculture declined by a quarter, from 45 to 36% of EAP, although the rate of decline was not much higher during the boom than it was before.

(c) Nigeria Nigerian production statistics are poor, and the figures given here mask disagreements even on the direction of change for some products. Per capita cereal production in Nigeria appears to have been stagnant, while total agricultural production steadily declined. Ninety percent of total agricultural output during the period was of food crops, and the data suggest that food crop production grew at an average annual rate of 2.7% between 1973 and 1982, or about zero growth per capita. Much of the dismay over agricultural performance in Nigeria has been based on the sharp rise in cereals imports, as total consumption increased. But one should note the gains made in domestic production of traded commodities.

There was a steady increase in maize production, despite high maize imports after 1976. Rice production tripled on a small base, though imports eventually accounted for a third of all consumption (World Bank, 1985; Oyejide, 1985). Both in quantity and value, however, traded commodities such as maize, rice, sorghum, and wheat were far less significant than traditional local food crops (yams, cocoyams, cassava, millet), representing less than 10% of the total output of domestic food crops (Oyejide, 1985). Millet and sorghum production stagnated, despite some recovery after 1977. Yam and cassava statistics show either a slight decline or slight increase, depending on the source. The food economy thus remained surprisingly stable, even if it was incapable of meeting the huge increases in domestic urban food demand. This is a better record that that of, for example, Iran and Algeria, which experienced absolute declines in production of major food crops. The real victim of the oil boom - and classic example of “Dutch disease” - was the formerly dynamic agricultural export sector. Between 1973 and 1982, the real agricultural export crop output declined at an average annual rate of around 30% (Oyejide, 1985). Between 1970 and 1982, annual production of cocoa declined by 43%; rubber, 29%; cotton, 65%. Groundnut exports also declined, but largely to meet rising domestic demand. Only the protected palm kernel and palm oil sectors rose, 23 and 30% respectively (World Bank, 1985). Between 1970 and 1982, the share of the agricultural sector in national output declined by 55% (from 49 to 22% of GDP), and its share of employment declined 21% (from 75 to 59%). the proportion of population Unexpectedly, which resided in rural areas declined only minimally, from 83.6% in 1970 to 79.1% in 1981 (UN, 1985; World Bank, 1984). (d) Summary These cases show that while macroeconomic conditions unquestionably affect agricultural performance, it is difficult to predict agricultural response patterns without considerable understanding of other factors affecting demand and supply of agricultural products in a booming economy. Some of these factors are discussed and illustrated below.

4. CHANGING DEMAND FOR AGRICULTURAL PRODUCTS The

major

policy-responsive

factors

which

AGRICULTURE

IN AN

EXPORT

BOOM

jS1

affect the demand for agricultural products in a booming economy are: (1) direct pricing and trade policies (apart from exchange rate price effects); and (2) changing income and income distribution among consumer groups with differing patterns of demand for agricultural products.

rates on manufactured imports averaged 66% effective protection, agricultural exports were in fact penalized witli a -11% effective protection rate (Glassburner, 1984). But overall, agricultural prices rose slightly more slowly than did the consumer price index, slightly faster than the general price level.

(a) Pricing and trade policies

(ii) Mexico The agricultural sector in Mexico was not significantly shielded from intersectoral price distortions until 1980. There had been serious negative effective protection for wheat and maize through 1975, a situation which improved temporarily until around 1978. In 1980, CONASUPO (the giant national food marketing agency) altered trade policy to partially offset the exchange rate “tax” for staple food producers. CONASUPO also operated an enormous subsidized food trading operation, intended to compensate sectors that were hurt by the oil boom. Poor rural producers were paid subsidized prices as production incentives, cheap imports of food were used to help feed the urban population, and food was sold to poor urban (and some poor rural) consumers through special retail outlets. There were other interventions in agricultural markets. Exports of certain items for which there was high internal demand (notably beef and sugar) were restricted occasionally. For some minor commodities (e.g., cocoa), special arrangements for long-term price stabilization were made among domestic consumers, producers, and exporters.

Direct market interventions can artificially raise or lower the prices of agricultural commodities, and act either to exacerbate or compensate for “Dutch disease” distortions. Some examples include guaranteed purchase prices, internal trade restrictions, and retail price controls. Pricing policies need to be integrated with trading policies to be effective. Export/import taxes and subsidies, and nontariff trade barriers have a direct impact on demand from abroad for exports and internal demand for imports or domestic import substitutes. They partially determine whether particular goods fall into the categories of tradeable or nontradeable. Relative protection levels for different commodities and different productive sectors affect their economic attractiveness. As more sectors of the economy are protected, domestic inflation is further increased, and the negative impact on unprotected agricultural goods sectors can become even more acute. Trade and price management is a sophisticated activity requiring centralized and highly commanagement, good information on petent agricultural production and consumption, adequate storage facilities, and broad administrative control. The three countries studied had entirely different approaches. (i) Indonesia In the case of Indonesia, price and trade policies were used to stabilize the agricultural sector. BULOG, the giant national food marketing agency, followed a policy of price stabilization for rice, the national staple. Prices generally followed international prices, but a guaranteed floor price was maintained; imports were targeted only to cover domestic production shortfalls. The costs of world price uncertainty were borne by the government, but there were not large net public subsidies (Mears, 1984). Domestic maize producers were intermittently protected with quantitative restrictions on maize imports (i.e., turning maize into a nontradeable). The other major staple, cassava, was freely traded. Many traditional export taxes were abolished or lowered in 1976 and 1978. But while tariff

(iii) Nigeria Nigerian trade and price policies did not help to offset the deteriorating position of agricultural tradeables. Data suggest that during the period 1973-81, average retail food crop prices increased almost 2.5 times faster than the consumer price index (CPI), which was heavily weighted with cheaper imported foodstuffs. But most notable was the sharp divergence between soaring retail food prices and deteriorating farmgate prices. Oyejide (1985) reports that between 1970 and 1982 when the CPI more than quadrupled - an index of retail food prices rose 14% higher than the CPI index. The export crop prices index rose to only 65% of, and the food crops index to only 76% of, the CPI index. Agricultural trade protection was highly inconsistent and erratic, designed in response to erratic foreign exchange availability, rather than a systematic policy of protection. Between 1978 and 1982, import duties on maize, rice, wheat and sorghum were raised to between 50 and 100%. But, in fact, trade was controlled mostly

552

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through quantitative restrictions, via import licensing. This erratic “protection” in fact exacerbated farmer insecurity, as domestic prices fluctuated wildly. Levels of agricultural tariff protection were lower than (thus uncompetitive with) those for manufactures. Export taxes were maintained until 1976, when the export crop marketing boards were reorganized. By 1982, subsidies had replaced direct taxation. But though domestic prices for many major crops were twice the international price at the official exchange rate, they hardly compensated for the implicit taxation of currency overvaluation, except for palm kernel and palm oil (Bienen, 1983; Oyejide, 1985; World Bank, 1985; Scherr, 1985a). (b) Income growth, income distribution, and the role of the state

In all of the major developing country oil exporters, the decade of the 1970s was a period of enormous increases in overall food demand. Indeed, the historical record suggests that such levels of increased consumption could not have been met without resort to imports, even with very dynamic rates of agricultural growth. Rising food imports per se should not thus be the key indicator of agricultural sector performance, but rather per capita agricultural production and productivity. Incentives for production are markedly influenced by the structure of demand. Aggregate demand for different agricultural products is affected by total income available for food consumption, consumer tastes, income elasticities of demand, and location of consumer markets. During a major economic boom, changes in income can be expected to cause significant changes in what kind, how much, and where food is demanded. Poorer households have high income elasticities for food in general, and for domestically-produced staple foods in particular. Wealthier and more urban households have lower income elasticities for food in general, and higher income elasticities for imported foods. Where demand moves toward higher-value products, increasing levels of staple food imports may even disguise significant intensification of farm production by movement out of staple food production (eminently tradeable goods) into higher-value, less tradeable products such as dairy and poultry production, fruits and vegetables, and bulky raw materials for local processors. Thus demand patterns follow patterns of income distribution. In the case of Third World oil,

unlike many other commodities, almost all domestically retained revenues - earned almost entirely as rents - accrue to the government. The overall role of the government in the economy may increase dramatically. Staple theory notes that these fiscal linkages are the principal opportunity for offsetting the development constraints associated with primary export development - particularly the choice between spending for welfare and current consumption and spending for long-term investment in other productive sectors of the economy. Furthermore, government spending and investment decisions may be the principal determinant of how effective demand is distributed intersectorally - between tradeable and nontradeable goods, between imports and domestically-produced goods, between rural and urban areas, between geographic regions, between food consumers and producers. Through income policies, wage settlements, domination of the job market for certain skills, and geographic distribution of employment-generating direct and indirect expenditures, government policy will affect relative wages and incomes for different skills and regions, and ultimately the profile of food demand. (i) Indonesia The role of the government in the Indonesian economy rose substantially during the oil boom -to over a quarter of GDP or higher, depending upon the statistics used. Between 1972-73 and 1980-81, there was a fourfold increase in real terms in government spending. Average annual growth rates for both public consumption (11.9%) and investment (13.7%) were higher than those for Nigeria and Mexico, and much higher relative to levels in the 1960s. Direct expenditures on petroleum activities were dispersed through a number of producing sites, with substantial offshore activity. A striking difference between Indonesia and almost all other oil exporting countries was the relatively less concentrated distribution of new income between urban and rural areas. and between different geographic regions. Overall rural income increased, particularly for small- and medium-scale rural producers. The result was a large increase in demand for rice, the preferred staple food and a product which could be supplied domestically over large parts of the country. (ii) Mexico In Mexico, the role of the government in GNP rose from 12.1% in 1972 to 20.8% in 1981. The average annual growth of net total expenditures

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for public consumption and gross investment were 8.2 and 8.0% respectively. Domestic demand for agricultural products rose extremely rapidly during the oil boom period. Private sector economic activities encouraged by petroleum wealth continued to be concentrated in the major cities. As Mexico was the wealthiest and most industrialized of the countries studied, with the largest existing middle class, it is not surprising that a significant part of new demand was for “middle class” food items. Demand for livestock products grew especiaily rapidly, reflected in the predominance of milk, sorghum and soybeans (the latter for feed) in agricultural imports. But partially offsetting this influence, an historically high proportion of all government expenditures was directed to rural areas during the oil boom years, and to programs to generate employment among low-income rural and urban workers. A major program of infrastructure construction outside major urban areas was undertaken. Petroleum development activities themselves, located away from the overpopulated central plateau, led to significant decentralization of investment and expenditure activity. The welfare expenditures for both the rural and urban poor led to large increases in demand for the staple food, maize. Maize supplies, however, were already heavily dependent on imports. (iii) Nigeria In Nigeria, the role of government in GNP during the oil boom was marked, rising from around 10% in 1972 to 22% in 1977, and probably rising thereafter, at least to 1979. With concentration of oil revenue distribution and employment generation in urban areas, to a burgeoning middle class, urban demand for all kinds of foods rose dramatically. Both bottlenecks in domestic supply of these foods and high demand for nontraditional foods led to high imports. By contrast, rural food consumption, oriented toward traditional crops, appears to have been stagnant. This can be explained by viewing traditionally-produced foods - millet, sorghum, and the root crops - as nontradeable goods in the rural areas with underdeveloped market infrastructure, but as tradeable goods in the urban markets. It was cheaper to meet urban demand, particularly near the coastal ports, through imported wheat, rice, and maize, rather than through costly transport and distribution from domestic producers inland. But rural consumers without access to imports faced sharply rising prices for their foodstuffs.

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5. CHANGING AGRICULTURAL

SUPPLY OF PRODUCTS

The supply response of the agricultural sector to changing domestic demand in a booming economy reflects three major influences in addition to price: (1) structural characteristics of the agricultural sector; (2) the availability of easilyadoptable technologies to raise agricultural productivity; and (3) the availability of resources for increasing agricultural production and investment. (a) Structural characteristics of the agricultural sector

Fundamental to appropriate policy making during an export boom is a clear understanding of which subsectors of the agricultural economy behave as tradeable goods and which behave as nontradeables. This evaluation must take into consideration not only differences between commodities, but also between groups of producers with different strategies of production and different levels of vulnerability to ‘*Dutch disease” resource shifts. The moving force behind intersectoral resource movements is changing relative returns to factors in different sectors. Real returns reflect a combination of output price incentives, input costs, and productivity gains. Relative rural income more usefully explains factor mobility than product prices alone. Careful microeconomic analysis of the agricultural sector in terms of boom response patterns is thus essential. The overall sectoral response to Dutch disease conditions will be affected by: the size distribution of farmholdings; factor intensities; patterns of agricultural labor supply and demand; and locational characteristics of production (Scherr, 1985c, especially Ch. 9; Maddock and McLean, 1984). Since different types of agricultural producers employ quite different factor proportions of differing mobility, a particular level of output prices will elicit different responses from various subsectors. For example, smallholders will tend to respond to depressed relative incomes (largely measured by labor returns) by seeking nonfarm employment; their capital and land resources will be relatively immobile. Largeholders will respond to lower relative incomes (largely measured by returns to capital) by transferring capital out of the agricultural sector to more profitable urban and nontradeable good sectors. The extent and impact of capital outflow from the sector may vary with capital intensity of farming or importance of fixed investment (e.g.,

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perennial tree crops and annual crops producers have different short-term options). Farmers for whom hired labor or nontradeable products are dominant inputs will face lower returns relative to other farmers. The extent and impact of labor outflow may vary with the labor-intensity of production, local labor surplus or scarcity, cultural rules on labor force participation, and the importance of hired versus family labor. Farmer options during the boom are also affected by the spatial distribution of agricultural land and labor resources vis-his spatial distribution for new agricultural product consumption and petroleum-induced economic activities. Production response in particular geographical areas will be affected by variables such as: proximity to concentrations of petroleum and other economic activities; regional patterns of temporary, permanent and cyclical labor migration; the logistical ease with which farmers and farmworkers can combine on-farm and nonfarm employment; and climatic and infrastructural constraints to switching out of low-priced to higher-priced products. These variables help to explain a significant part of differential agricultural sector response in Indonesia, Mexico, and Nigeria. Indonesia benefited from oil wells scattered thoughout the country, strongly regional labor markets, and surplus rural labor which minimized the disruptive impact of migration out of agriculture. Mexico and Nigeria, with regional concentrations of petroleum activities, well-established circular labor migration patterns between rural areas and major urban centers, highly mobile labor forces, and serious rural labor scarcity during peak agricultural periods, found the rising wages associated with oil development to be a far more serious constraint on agricultural production. (i) Indonesia Indonesia’s agricultural sector was, to a large extent, protected from more serious disruption during the petroleum boom because of the basic structure of rural production. Population density is extremely high, reaching 461 people per square kilometer of agricultural land on the island of Java. In sharp contrast to conditions in Mexico or Nigeria, Indonesia is a country of abundant rural labor resources. Production is dominated by smallholder producers with limited capacity for transferring capital assets out of the rural areas. Even with high levels of rural emigration and important shifts of labor away from agricultural activities, there was no serious labor scarcity in the rice economy, even at the height of the boom. Higher labor costs for export crops in the Outer Islands were offset by technical improvements in returns to labor.

Average real wages did not increase significantly, despite the petroleum boom. As there was no major geographic concentration of petroleum activities, there was no region with very high wages to act as a magnet to rural labor. Cyclical migration by rural workers over large geographic areas was not well-established prior to the boom, and - with ample labor in zones of new urban and petroleum investment, and rising female participation in the work force - did not develop. (ii) Mexico Mexico faced the oil boom under strikingly different conditions. The country is highly industrialized and urban, with an important mediumto large-scale commercial farm sector. Though GNP per capita in 1982 was more than triple that of Indonesia, and infant mortality was half, these figures disguise serious poverty, both rural and urban. Average population density is only 70.9 people per square kilometer of agricultural land, although much of this land is marginal. Farm labor in Mexico is far more expensive and far more mobile than in Indonesia. A high percentage of farmer and farmworker family income is earned off-farm, either locally, or through cyclical, temporary, or permanent migration. As much as 60% of the farm labor force works only part-time in the agricultural sector. During the oil boom, rural wages increased, offfarm employment rose, and rural-urban migration accelerated. Urban unemployment rates were extremely high, as rural migrants, especially the landless and minifundia farmers from the marginal, rainfed, maize-producing region, chose to wait for potentially lucrative jobs in urban and industrial areas rather than work the fields. The rural population declined by about 12% between 1975 and 1980. The impact of Mexico’s cost/output structure on the larger-scale, hired labor-based producers was significant. Those with good connections to urban markets for perishable fruits and vegetables, poultry, and other high-value products grown with modern technology often did well. But high labor costs and superior opportunities for profits outside agriculture led to widespread decapitalization and deintensification. The smallholder private and ejidui sectors - at least in areas with more fertile land and more reliable rainfall - were better able to withstand some of these pressures. Their lower cost of labor, lower capital mobility, and flexible access to family labor meant that many households could both increase off-farm employment and maintain or increase agricultural production,

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particularly for products with stable or rising prices (Scherr, 198k; Nolasco, 1979).’ (iii) Nigeria Nigeria was more vulnerable to “Dutch disease” distortions than either Mexico or Indonesia. At an average of 165.2 people per square kilometer of agricultural land in 1980 (far higher in the richer agricultural regions of the south), land pressure was double that in Mexico, but still well under that of Indonesia. The population was overwhelmingly rural, and over 90% of food and export crop production was by smallholders. GNP per capita was slightly higher than in Indonesia, but income distribution between rural and urban areas was highly skewed and becoming more so. The rural population was largest in the south, with income mainly provided by the major tree crop exports and root crops, whose production was unusually labor intensive. Unfortunately, this was the zone most seriously affected by the petroleum boom - by the collapse of the export markets, geographic concentration of petroleum activities nearby, and increased wages in petroleum-linked sectors. Investment of farm profits in urban enterprises accelerated. The rural labor market was distorted by the high opportunities for employment and self-employment in the service and distributive sectors of the economy. Real rural wage rates reportedly tripled during the period 1970-83, even as the importance of hired labor in production increased sharply (Oyejide, 1985. Table 2.1). Some of the needed labor was provided by temporary or cyclical migration from the drier and less populated middle and northern belts. These workers returned home during the northern cropping season for agricultural activities there, a longstanding practice since the colonial period. But with rising demand for agricultural products from the north and increasing employment opportunities in urban areas, the availability of migratory labor for the south declined. Multi-sector employment was the norm; 60% of adult males in national agricultural development projects had a nonfarm primary or secondary occupation. Because of the scarcity of male labor in the rural areas, crops traditionally grown by women (cassava, e.g.) assumed greater importance in the farming profile.

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pends on the availability of technologies to increase labor productivity. Awareness of the limits of intensification for particular products and particular regions is an important input into policy decision making. Indonesia’s efforts to raise smallholder, irrigated rice production were able to pull tested “off the shelf’ and make them technologies available to farmers through improved input distribution and extension systems. Production of rice especially was highly fertilizer responsive. Lack of comparable technologies partially explains the relatively minor support for crops like maize and cassava. Technical intensification programs were pursued for smallholder export crops on a smaller scale. In Mexico, there were few comparable technologies available for smallholder, rainfed grain production. Mexico’s approach was to achieve modestly higher average yields through higher input use; to reduce for smallholders the risks associated with purchase of commercial inputs; and to invest in other phases of the production processing). (transport, marketing, process Mexico’s more successful examples of smallholder production increases in nonstaple products included those for which high-yielding technologies were already available, and only needed improved marketing, extension, or credit to encourage broad adoption. Technology was even more limited in Nigeria. The major staple foods of southern Nigeria were root crops, for which international research efforts had barely begun. Large-scale, capitalintensive technologies for grain production existed for a few products grown in the sub-humid and semi-arid zones; technologies for smallholder intensification largely did not.

(c) Resources for agricultural production and investment Because government is the most significant distributor of oil revenues through the national economy, government spending and investment decisions are crucial determinants of agricultural sector response, within the structural constraints discussed above. Two conditions are necessary for agricultural stability and growth: that a large proportion of such expenditure be directed to the agricultural sector; and that agricultural investment strategies be well-chosen.

(b) Technological options The always highly

supply of agricultural products is not highly price elastic. Particularly in a labor-constrained economy, much de-

(i) High levels of investment in agriculture The fundamental problem of “Dutch disease” is sectoral imbalance, the inappropriate shift of resources between sectors due to macroeconomic

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price factors. As the principal recipient of new income, the government is in a unique position to counteract the flow of resources from the agricultural sector by investments which increase the relative returns to agricultural production. A less obvious, but critical, corollary is that if such flows of resources are directed instead to other sectors, the relative position of the agricultural sector will deteriorate further. Thus a high and sustained proportion of expenditures in agriculture is essential for sectoral stability during an export boom. (ii) High quality investment in agriculture While high expenditure in the sector as a whole relative to other sectors is necessary to offset “Dutch disease” pressure, the actual choice of investments is critical to successful agricultural performance. The structural variables reviewed above, and public administrative capacity, determine the efficacy of different types of public investments and expenditures. There have been two main approaches to public rural investment in the oil exporting countries: “modern” agricultural enclaves, and broad-based smallholder development programs. The enclave approach defines the agricultural problem rather narrowly as inadequate food supplies for urban consumers and excessive agricultural imports. Public investments are directed to a small number of large-scale, highlysubsidized production units (private commercial farms, state farms, or large-scale, capital-intensive projects) using industrial - largely imported - technologies. The decline of the smallholder economy and high levels of rural emigration may be viewed as an inevitable or even desirable part of economic growth and transformation. Particularly under conditions of an oil boom, this approach is problematic. Displaced agricultural workers, even if jobs were found for them during the boom, cannot be easily reabsorbed into the rural economy afterwards. Post-boom loss of foreign exchange also threatens the viability of large subsidized schemes. Large-scale, high-input projects monopolize scarce management expertise, credit, fertilizer, and other inputs in the sector. Largely based on use of hired labor and capital inputs, they are especially vulnerable to wage and cost increases. When managed by governments, larger-scale production units lack flexibility in an environment where adaptability in the face of a rapidly changing economic environment is critical. For private large-scale producers, the extraordinary profit opportunities in nontradeable activities and rents available to investors with large chunks of capital mean that farming returns must be

unusually profitable to induce them to continue farming (Ul Haque, 1983; Gelb, 1984; Scherr, 1985~; Amuzegar, 1982). The second general approach is a broad-based smallholder development program. Such programs have several components: broad distribution and subsidization of key inputs such as fertilizer; mechanisms to reduce price instability and farmer risk; improved marketing infrastructure to reduce costs (rural roads, storage, and cooperatives); expanded credit facilities; smallscale irrigation and drainage construction and rehabilitation; and organization of extension services to reach smallholders more effectively. These programs may involve substantial investment in social infrastructure and services in rural areas to raise nonmonetary income among smallholders, and hence returns to continued farm production relative to urban alternatives. Smallholders, who both use relatively lesser amounts of purchased inputs, and have flexible access to family labor, can often adapt fairly quickly to changing cost conditions. Smallholder investment generates rural employment and slows rural emigration, relieving pressures on urban areas. Keeping more of the population on the farm encourages subsistence production, and reduces urban commercial food needs. Mexico and Indonesia pursued strategies of smallholder intensification. While their schemes were not inexpensive, they proved to better and more effectively use oil revenues than did the large-scale capital projects of Nigeria and elsewhere. (iii) fndonesia In Indonesia, the Suharto government placed priority on rural and agricultural development, under the village-based Pancasila movement. Spending priorities heavily favored rural areas, with rural infrastructure and direct employment projects, major agricultural input subsidies, and investment programs. The proportion of government spending on agriculture rose from 16% prior to the boom, to a high of 22% in 1979-80; the absolute increase was huge (Glassburner, 1984). Furthermore, the types of agricultural policies pursued were eminently sensible given rural conditions in Indonesia, i.e., the predominance of smallholders and of rice. When the very low rice harvest in 1973 made necessary the import of huge amounts of rice at a time of soaring world prices, the government made a commitment to emphasize rice sector development, and to achieve rice self-sufficiency. These efforts included technical extension programs and input subsidies to promote adoption of existing “green

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revolution” irrigated rice technology, small-scale infrastructure improvements and smallholder irrigation rehabilitation in Java, and the price stabilization program. There was secondarily a big ‘push for exports, especially in the iesspopulated Outer Islands. (iv) Mexico The 1970-76 period in Mexico saw rising political tension - the result of declining economic growth and widespread concern for the extremely inegalitarian pattern of growth and heavy anti-rural bias that had prevailed in the previous two decades. Incoming President Lopez Portiiio (1976-82) announced his commitment widely supported to use oil revenues to promote growth and employment and to attack problems of rural poverty. The share of public spending in agriculture rose from 5-6% in the early 1970s to !&lo% in 1979-80, on a much larger base. The 1980-82 Development Plan budgeted nearly a third of ail expenditures for agriculture and rural development (a proportion similar to that for petroleum), though this goal was not met due to the budget crisis in 1981. This represented an unprecedented level of rural spending, particularly as its geographic distribution was unusually broad (El Maiiakh, 1984; Szekeiy, 1983). Funds were directed to small-scale irrigation rehabilitation, integrated rural development, programs for technical intensification in rainfed agriculture districts, social infrastructure in villages, and rural employment programs for local infrastructure construction. With the SAM (Mexico Food System) program of 1980 and 1981, a huge system of input subsidies, insurance, and technical assistance was set up for smaiiholder staple foods producers (SAM, 1980; Scherr, 1985c, Ch. 1). The size and speed of these programs led to serious inefficiencies, and some technical programs were based on theoretical rather than empirical understanding of producer constraints and strategies. They nonetheless had a significant positive effect on overall levels of agricultural investment, infrastructure, organization, and production. (v) Nigeria The 1960s was a period of impressive economic growth in Nigeria, based on agricultural exports. The civil war, 1967-70, disrupted the economy; recovery was followed closely by the oil boom. Political stability was precarious, and required elaborate care in distributing government iargesse among different ethnic, regional, religious, and economic units. The Nigerian political consensus was that urban, industrial development -

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supported by capital-intensive, large-scale agricultural production - was the key to the future (Political Economy of Nigeria, 1984; Smith and Weston, 1984). The relative price deterioration of azricuiturai products was not offset in any way --indeed, it was exacerbated - by government spending policies. Through most of the decade, spending on agriculture and rural development amounted to only 3-5% of expenditures; rising to 9-10% in 1980-82 (World Bank, 1985). Most employment multipliers from government expenditure were generated in urban areas, and the differential in amenities (other than education) between rural and urban areas was exaggerated (Watts and Lubeck, 1983; Collier, 1983; Bienen, 1983).6 Large-scale, capital-intensive projects dominated agricultural development expenditures, including mechanized state-run food farms, and 18 new irrigation districts in the sub-humid and semi-arid middle and northern belts of the country. Nearly half of the federal budget for agriculture in 1982 went to irrigation; 16% to large farms and large farm services (World Bank, 1985, Vol. 2, Table 8). Import subsidies for agriculture were quite generous - 50% for tractors, and 85% for fertilizers. Most of these projects, even where well-conceived, were inefficient and inadequately managed, and drew resources away from the bulk of smallholders. Only 17% of federal agricultural expenditures went to small farm activities, including the Agricultural Development Projects (ADPs). The share of expenditures for tree crop production, marketing, and processing declined markedly. Some smallholders benefited from .the huge increase in fertilizer subsidies, but most programs (even farm-to-market roads) bypassed traditional smallholders producing dominant food crops. Anti-smallholder bias was only reversed after the oil boom collapsed.

6. CONCLUSIONS As has been the case for so many commodity booms, the 1970s oil bonanza was not in the end such a boon for most developing, oil exporting countries. Except in Indonesia, and to some extent Mexico, in most countries the economically pivotal agricultural sector was in worse shape after than before the boom. Indeed, without deliberate public action, serious agricuitural decline is almost certain under boom conditions. But this decline is not inevitable. The experiences of Indonesia, Mexico and Nigeria suggest that a wide range of policy tools can be used to

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support agricultural sector performance. Good macroeconomic management is highly desirable, though it is difficult to achieve, and is not insurance against poor agricultural performance during an export boom. Direct price and trade policies can be used to alleviate relative price movements disadvantageous to agricultural producers caused by “Dutch disease,” but require substantial resources and expertise to manage well. The most powerful and flexible policy instruments for influencing agricultural sector performance during an export boom are probably direct government expenditure and investment. The pattern of revenue distribution by sector, region, and income strata substantially affects the structure of demand for agricultural products, and hence relative prices facing different groups of producers. The pattern of rural investment by subsector, region, type of investment, and type of producer substantially affects the potential for agricultural productivity increases to offset rela-

tive price decline in the agricultural sector. There is no single policy formula for successful response by the agricultural sector to boom conditions. Agricultural economies and subsectors can differ importantly in their structures of consumption and production, factor intensity, and technological options, and hence in their vulnerability to “Dutch disease”-type pressures. Decisions regarding revenue distribution and investment priorities must be based on a clear analysis of the microeconomic, as well as macroeconomic, conditions. An empirical, rather than theoretical, approach is essential in devising policy alternatives. The experience of the oil exporting countries during the 1970s offers an extremely valuable set of lessons for future commodity export booms. A far more lasting contribution of short-term windfall gains to national economic development is certainly possible. But only committed, imaginative,

and

empirically-grounded

development

policy will make it happen.

NOTES 1. Some key papers on “Dutch disease,” with comprehensive bibliographies, include Corden (1984). Corden and Neary (1982). Eastwood and Venables (1982). Oveiide (1985). and Roemer (1983). Warr (1984). though focusingon the Indonesian experience, provides a useful general review of exchange rate policy, particularly the effects of devaluation. Timmer (1984) presents an international macromodel, tracing the impact of changing oil prices on agriculture in oil importers and exporters.

2. It is highly complex to evaluate the real exchange rate of a particular currency, or the extent of divergence from purchasing power parity. Most analysts use some variable that measures the ratio of price levels in the oil exporting country to price levels in a weighted average of its major trading partners. But the accuracy of this estimate, and its utility as an indicator of specific economic conditions, depends on choice of the appropriate basket of goods to measure prices and price changes in each country; appropriate weighting of trading partners when these have varied sharply over time; choice of average exchange rates over given time periods where these have fluctuated; and other factors. Maciejewski (1983) provides an excellent review of these issues. I did not make the attempt to devise truly comparable measures for exchange rate valuation in the three countries studied here, but have used estimates provided by a variety of other researchers, whose aims were not always those of this study. While there is substantial disagreement among experts as to the precise extent of currency overvaluation during specific periods for all three countries. there is broad agree-

ment on the general direction and relative movements reported in the paper.

rates of these

3. Becauss it is difficult to distinguish the role played by external public debt in the cumulative public deficit. I have used each here as a separate, rough measure for comparing the magnitude of pressures on the economy stemming from the new oil revenues. and from expansionary public macro policies. 4. Some key references for aspects of the oil syndrome other than “Dutch disease” (particularly issues of absorptive capacity of the economy and the role of government) include UI Haque (1982). Gelb (1981). Gelb (1984). Scherr (1985b);EI Mallakh et al. (1984). and Tshibaka (1983). Urban bias is discussed in Lioton (1976). ~ ’

5. Scherr (198%) presents, for cacao producers in southern Mexico, a microeconomic analysis of differential agricultural production response under oil boom conditions. There, the private and ejidal smallholders were responsible for highly dynamic agricultural growth. despite serious oil economy distortions, in sharp contrast to largeholders, minifundia. or collective ejidos 6. Note, however, that Nigeria’s anti-rural bias appears almost benign compared to the systematic policies of rural disinvestment found in Iran and Algeria. While the average ratio of agricultural imports to exports 1973-81 in Nigeria was a poor 2.37. the comparable statistics were 5.02 in Iran and 10.17 in Algeria. The statistic for Venezuela, despite a massive program of subsidies to large-scale, private agriculture, was 13.45 (FAO, 1984).

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United Nations, Energy Statistical Yeurbook 1982 (New York: United Nations, 1981). Valdes, Alberto, “Exchange rates and trade policy: Help or hindrance to agricultural growth?” paper presented at the International Conference of Agricultural Economists (Malaga, Spain: August 24September 4, 1985). Warr, Peter G., “Exchange rate protection in Indonesia,” Bulletin of Indonesian Economic Studies, Vol. 20, No. 2 (August 1984). pp. 53-89. Watts, Michael, and Paul Lubeck, “The popular classes and the oil boom: A political economy of rural and urban poverty,” in I. W. Zartman (Ed.). The Political Economy of Nigeriu (New York: Praeger, 1983). World Bank, “Nigeria. Agricultural sector memorandum. Vols. I and II,” Report No. 472~UN1 (Washington, DC: World Bank; February 25, 1985). World Bank. World Tables (Washington. DC: World Bank, 1983). World Bank, World Development Report (New York: Oxford University Press, 1982, 1984). World Bank, “Internal migration, rural social change and agricultural development in selected states of Nigeria,” background paper for Nigeria country report (Washingon, DC: World Bank. 1982). World Bank, Indonesia: Employment and Income Distribution in Indonesia, World Bank Country Study (Washington, DC: World Bank. 1980). World Oil, Annual international issues 1971-84. Yutiez Naude, Antonio, “Politica petrolera y perspectivas del desarrollo de la economia hlsxicana. Un ensayo explotatorio,” For0 Internacionnl, Vol. 18, No. 4 (ApriVJune 1978).