EFFECTS OF THE EUROPEAN ECOVNOMlC
COMMUNITY AGRICULTURAL
POUCIE‘S 0N ARGENTlNE
EXPORTS 0F BEEF

Thesis for the Degree of Ph. D.
MCHiGAN STATE UNWERSKTY
EREESYG S. LiBOREkRO
1970

 

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301005£NI&4

Mzclngan State
University

 

This is to certify that the

thesis entitled

Effects of the European Community Agricultural
Policies on Argentine Exports of Beef

presented by

Ernesto Liboreiro

has been accepted towards fulfillment
of the requirements for

_P_@__de ee in
Agriculture Economics

    

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Major professor

Date November l9, I970

 

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ABSTRACT

EFFECTS OF THE EUROPEAN ECONOMIC COMMUNITY
AGRICULTURAL POLICIES ON ARGENTINE
EXPORTS OF BEEF

BY

Ernesto S. Liboreiro

Implementing the agricultural policies common to all
countries the BBC is eXpected to produce changes important
in its structure of prices, production, and marketing.
Since this economic block constitutes a large outlet for
Argentine beef exports and there are indications that the
importance of this market could increase or decrease, it
is relevant to determine the direction and magnitude of the
changes.

The most important objectives of the study are:

1. To build a model that closely represents the location
of beef production, consumption, price, and trade
patterns in the 1966 base period for the EEC, Argentina,
the United Kingdom, the United States, Australia, and
other countries.

2. To utilize the model in estimating Argentine beef

exports to 1975 under several alternative EEC agricultural

 

 

Ernesto S. Liboreiro

policies, including the possibility of the United
Kingdom's entrance into the Common Market.

The core of the research lies in formulating a static,
partial equilibrium model. Data requirements are estimates
of excess demand functions for each of the world regions
considered, the determination of the policy instruments most
likely to be used, the value of other parameters such as
levels of income, competitive commodity prices, and transfer
costs to 1975. A test was made for 1966 and the results,
under "most likely conditions," allowed for a quantification
of the EEC market. Changes in the value of the parameters
permitted an evaluation of their effects upon the solutions
of the Basic Run.

Finally, data which constituted the linear constraints
of the quadratic model were obtained and discussed on the
basis of various sources, and a quadratic formulation devel-
Oped by Dr. Richard G. Heifner was need to find solutions
to the alternatives analyzed.

The main conclusion of the study is that Argentina
faces favorable prospects for increasing her beef exports to
the Community by 1975. Her main limitation may be the
capability to increase slaughtering substantially. The
suggested slaughter target of 3,000,000 Tm. would allow
for approximately 464,000 and 810,000 Tm. of exports to the

BBC and total eXports respectively to 1975.

Ernesto S. Liboreiro

Argentina should continue efforts to encourage the
BBC to keep orientation prices of the Common Market from
increasing at rates higher than one percent per year in
real terms.

It would be highly desirable for Argentina to obtain
a preferential trade agreement with the EEC such as a
reduction of import duties. But equally important would
be trade agreements that allow for regular exports.

The entrance of the United Kingdom, Ireland, and
Denmark in the EEC would be favorable for Argentina if the
growth rates of the EEC countries are increased by their
entry.

Argentina should devote considerable efforts to
exporting chilled and frozen beef to the United States.
Attention should be given to the possibility of an agree-
ment with the U. S. by which Argentina would guarantee
a zone free of foot and mouth disease and the U. S. allow
beef imports from this region. An increase in United
States quota imports from Australia, New Zeland, Ireland,
and Mexico is also in Argentina's interest avoiding trade

diversion from the U. S. market towards Eur0pe.

EFFECTS OF THE EUROPEAN ECONOMIC COMMUNITY
AGRICULTURAL POLICIES ON ARGENTINE
EXPORTS OF BEEF

.(0

.(‘.
w“

Ernesto SC Liboreiro

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Agricultural Economics

1970

PLEASE NOTE:

Some pages have small
and indistinct type.
Filmed as received.

University Microfilms

 

 

 

 

 

ACKNOWLEDGEMENTS

I wish to thank Professors Dale E. Hathaway and
Richard G. Heifner for their guidance and encouragement
throughout the preparation stages for this thesis. Special
appreciation is also due to Professors Lester V. Manderscheid
and Harold M. Riley for their comments and suggestions.

The Ford Foundation provided financial support which
allowed me to develOp my graduate studies and to undertake
the present research. Proyecto Pro Economia Agraria fur—
nished the necessary academic environment and Professors
Darrell F. Fienup and Alain C. de Janvry provided constant
help and advice.

Finally, I would like to express a well-deserved word
of gratitude to my wife, Cristina, for her understanding
and encouragement throughout all the stages of my graduate

studies and thesis preparation.

ii

TABLE OF CONTENTS

Page

ACKNOWLEDGEMENTS . . . . . . . . . . . . . ii

LIST OF TABLES . . . . . . . . . . . . . . Vii

LIST OF FIGURES O O O O O O I O O O O O O Xi

LIST OF APPENDICES . . . . . . . . . . . . xii
Chapter

I 0 INTRODUCTION I O O O O O O O O O O O 1

II. BEEF AND VEAL POLICY OF THE EEC . . . . . . 8

The Common Agricultural Policy . . . . . 8

Framework of the CAP . . . . . . . . 10

Beef Regulations of the EEC Market . . . 11

Structural Reform Policies . . . . . . 17

Financing of the CAP . . . . . . . . 20

Constitution and Functions of the Fund . . 20
Operation of the Fund . . . . . . . . 20

III. BEEF TRADE BETWEEN ARGENTINA AND THE EEC
COUNTRIES . O O O C 0 O O O O O O O 2 7

The Common Market as an Outlet for Argentine
Exports . . . . . . . . . . . . . 27
Increasing Long-Run Tendency of EEC Imports . 30
Short- Run Instability of Argentine Exports

to the EEC . . . . . . . . . . . 37
Comparison Between the Rate of Growth of

Total Beef Imports of the EEC and that of

Argentine Exports . . . . . . . . . 39

Changes in the Composition of Argentine

Exports to the Community . . . . . . . 41
IV. THE ECONOMIC MODEL . . . . . . . . . . 43

Free Trade and No Transfer Costs . . . . . 45

"Ad Valorem" Import Duty. . . . . . . . 48

Fixed Import Quota. . . . . . . . . . 51

iii

Chapter

Sanitary Regulations . . . .
Voluntary Export Restrictions .
Fixed Export Tax. . . . . .
"Ad Valorem" Export Tax . .

Fixed and "Ad Valorem" Export Subsidies

Variable Levies . . . . . .
Domestic Price Supports . . .
Minimum Export Prices . .

United Kingdom as an EEC Member.

V. FRAMEWORK FOR QUANTIFICATION. . .

The Mathematical Model. . . .
Data Requirements . . . . .
General Assumptions . . . .
Estimation of Demand Functions
Estimation of Supply Functions

Estimation of Excess Demand Functions
Calculation of the Matrix of Transfer

Costs . . . . . . . .
Selection of Policy Instruments

VI 0 THE RESULTS 0 O O I O C I 0

Test for 1966.. . . . . .
Data Used . . . . .

Gross National Product and Prices

Orientation Prices for Cattle
Variable Levies. . . . .
"Ad Valorem" Duties . . .
Fixed Import Duties . . .
Export Taxes. . . . . .
Import Quotas
Results . .
Basic Run for 1975
Data Used . .
GNP Projections. . . . .

Projections of Prices of Products Which
Are Competitive in Consumption with

Beef. . . . . . . .

Projections of Consumption and Slaugh-

terings for Regions 10 to 15.

Projections of Slaughterings for

Regions 1 to 9 . . . .
Orientation Prices for Cattle
Variable Levies. . . . .
"Ad Valorem" Duties . . .
Fixed Import Duties . . .
Export Taxes. . . . . .
Import Quotas . . . . .

iv

Page

51
51
52
52
52
52
53
55
57

61

61
66
67
73
79
88

89

95

95
95
95
96

97
98
98
98
100
105
106
106

108
109

115
121
124
124
124
124
126

Chapter

Results . . . . . . .
Estimated Impact of Model Run with
Argentine Supply of 2, 903, 000 Tm. . .
Data Used . . . . . . . . . .
Results . . . . . . . . . .
Estimated Impact of Model Run with
Argentine Supply of 3, 000, 000 Tm. . .
Data Used . . . . . . . . . .
Results . . . . . . .
Estimated Impact of Model Run with Higher
Orientation Prices for the EEC . . .
Data Used . . . . . . . . . .
Results . . . . . .
Estimated Impact of Model Run with No
EEC "Ad Valorem" Duties for Argentina .
Data Used . . . . . . . . .
Results . . . . . . . .
Estimated Impact of Model Run with the
U. K. "Ad Valorem" Duty Reduced to
5 Per Cent . . . . . . . . .
Data Used . . . . . . . . . .
Results . . . .
Estimated Impact of Model Run with a 25
Per Cent Argentine Export Tax. . .
Data Used . . . . . . . . . .
Results . . . . . . .
Estimated Impact of Model Run with the
U. K., Ireland, and Denmark also in
BBC, and High Rates of GNP Growth of
Regions 2 - 7 . . . . . . . .
Data Used . . . . . . . . .
GNP Projections. . . . . .
Orientation Prices for Cattle . .
Projections of Slaughterings for the
United Kingdom . . . . . .
Projections of Supply, Demand, and
Exports of Ireland and Denmark . .
Variable Levies and "Ad Valorem"
Duties . . . . . . . . .
Results . . . . .
Estimated Impact of Model Run with the
U. K., Ireland, and Denmark also in
BBC with Low GNP Rates of Growth of
Regions 2 - 6 . . . . . . . . .
Data Used . . . . . . . . . .
Results . . . . . . . . . .
Estimated Impact of Model Run with
Unfavorable GNP Growth Rates for
the EEC . . . . . . . . . . .

Page

127

137
137
138

142
142
142

144
144
145

.149

149
149

152
152
152

153
153
155

157
157
157
158

158
159

160
160

163
163
164

166

Chapter Page

Data Used . . . . . . . . . . . 166

Results . . . . . . . . . . . 167
Estimated Impact of Model Run with

Favorable GNP Growth Rates for the EEC . 168

Data Used . . . . . . . . . . . 168

Results. 0 O O I O O I O O O O 169
Estimated Impact of Model Run with High
Orientation Prices and Favorable GNP

Growth Rates in the EEC . . . . . . 171
Data Used 0 O O O O O O O O O O 171
Results 0 O O O O O I I O O O 172
VII. CONCLUSIONS, EVALUATION, POLICY IMPLICATIONS

AND RECOMMENDATIONS . . . . . . . . . 191
Conclusions . . . . . . . . . . . 191
Summary of Conclusions from the Model. . 191
Summary of Secondary Conclusions . . . 197

Evaluation of Conclusions Obtained from
the Model . . . . . . . . . . . 198
Policy Implications and Recommendations. . 204
BIBLIOGRAPHY O O O O O O O O O O O O O O 209

vi

LIST OF TABLES

Table Page

I-l. Argentine Exports: F.O.B. Values and Per-
centages by Main Areas of Destination,
1953-1967 . O O O O O O O O I O O O 3

III-l. Expenditures of the Guarantee Section of the
European Agricultural Guarantee and Guidance
Fund 0 O O O O O O O O O O O O I 2 2

III-2. Distribution of Contributions and Benefits of
FEOGA Among the Member Countries During the
Period 1962—68 . . . . . . . . . . . 23

IIEI-l. Argentine Exports of Fresh, Chilled and
Frozen Beef, 1956-1967 . . . . . . . . 28

IJII-Z. Argentine Share of Total Beef Imports of the
EEC, 1958-1967 0 o o o o o o o o o o 31

IIII-3. Simple Annual Averages of Variable Levies
Applied in the EEC and Equivalent "Ad
Valorem" Duty that they Represent . . . . . 34

IIEI-4. Beef Supply-Demand Balance . . . . . . . 36

IIEI-S. Growth of EEC Beef Imports and of Exportable
Surpluses of Argentina . . . . . . . . 40

IIII-G. Composition of Argentine Beef Exports to the
EEC . C C . . C . . . . . O O . . 42

”VFl. Beef and Veal: Major Exporting and Importing
Countries, Trade and Per Cent of Total Trade,
Average 1956-60, Annual 1963 and 1964 . . . 63

'V-2. Division of the World into 15 Regions and
Corresponding Production, Exporting, Importing,
and Consumption Points . . . . . . . . 70

V-3. Summary of Demand Equations to Use in the
Spatial Equilibrium Model . . . . . . . 78

V-4. Influence of Present and Lagged Prices of

Cattle upon Slaughterings Ranked in a
Descending Order . . . . . . . . . . 82

vii

{Palale

V-S.

V-6o

VI-l.

VI-Z.

VI-3o

VI-4.

VI-S o

vI-6 o

VI-7o

vI-8 o
VI‘9 o

VI-lo.

VI—ll.

vI-lZO

VI-13.

VI-14.

Summary of "Best" Supply Equations Estimated
for Regions 1 to 9 O O O O O O O O O 0

Matrix of Transfer Costs of Beef . . . . .

Comparison of Actual and Predicted Prices,
Consumption, and Net Imports of Beef
Corresponding to the Code 011.1 of the

SITC (Rev. 1961) for 1966 . . . . . . .

Actual Trade on 011.1 in 1966 . . . . . .

1966 Trial: Predicted Trade on 011.1 and
Regional Prices during 1966 . . . . . . .

Alternative Sets of GNP Rates of Growth to
Use for Projections of GNP to 1975 . . . .

Functions Used to Project GNP to 1975 under
Alternative Conditions . . . . . . . .

Equations Used to Project Prices to 1975 . .

Comparison of Point Estimates of Consumption,
Slaughterings and Net Imports of Beef of
Regions 10 to 15 for 1975 prepared by FAO

and OECD . . . . . . . . . . . . .

Point Projections to be Used for 1975 Runs . .

Comparisons of Point Estimates of Slaughterings
to 1975 of Regions 1 to 9 . . . . . . .

Annual Percentage Increases of Orientation
Prices in EEC Countries in Nominal and
Real USS Of 1965 C O O O O O O O O 0

Calculation of Orientation Prices for 1975 on
the Basis of l and 2% Annual Increase . . .

Consumption, Net Imports, and Slaughterings
Projected to 1975 under "Most Likely
Conditions" . . . . . . . . . . . .

Comparison of Net Imports of 011.1, of Other
Beef, and of Total Beef between 1966 and
1975 O O O O O O O O O O O O O 0

Basic Run to 1975: Total Trade Flows and

Regional Prices under "Most Likely
Conditions" . . . . . . . . . . . .

viii

Page

86

94

101
103

104

107

109

111

112

114

116

122

125

128

129

132

 

 

Table

VI-150

VI-16 9

VI-l7 o

VI_18 o

VI-19.

VI-ZO.

VI-Zl o

VI-ZZ o

VIE-23.

V1-24 O

V1-25.

V1-26.

Changes in the Destination of Argentine
Exports Between 1966 and Basic Run Results
to 1975 O O O O I O O O I O O 0

Basic Run Projections of Regional Prices to
1975 and Its Comparison with Respect to
those Of 1966 O O O O O O O O O 0

Comparison of Net Total Imports of Beef in
1966 and Model Run with Argentine Supply
of 2,903,000 Tm. in 1975 . . . . . .

Changes of Market Shares of Argentine EXports

to the EEC and United Kingdom from 1966 to
1975 with Argentine Supply of 2,903,000 Tm.

Changes in the Percentage that the EEC, and
the EEC and the U.K. Represent out of the
Total Beef Exports of Argentina from 1966
to 1975 with the Argentine Supply of
2,903,000 Tm. . . . . . . . . . .

Model Run of 3,000,000 Tm. with Argentine
Supply . . . . . . . . . . . .

Comparison of Argentine EXports to the Six,
the U.K., and the Six plus the U.K., and
Total Exports Assuming Argentine Supplies
of 2,860,000 and 3,000,000 Tm. . . .

Projections of Quantities Supplied to 1975
Assuming an Annual Increase of 2% of the
Orientation Prices of the Community
Instead of a 1% . . . . . . .

Comparison of Net Total Imports of Beef of
1966 and Basic Run with those of Model Run
with Annual Increases of 2% for EEC

Orientation Prices . . . . . . . .

Comparison of Net Total Imports of the Basic
Run with those Verified under the Assumption
of No "Ad Valorem" EEC Duties for Argentina

Comparison of Net Total Imports of Basic Run
with those Verified under the Assumption of
a Reduction of the "Ad Valorem" Import Duty
of the U.K. to 5% . . . . . . . . .

Comparison of Net Total Imports of Basic Run

with those Verified under the Assumption of
an Export Tax Applied in Argentina of 25% .

ix

Page

, 134

, 137

, 140

141

141

143

144

146

147

151

154

156

 

Table

VI-27.

VI-38 o

VI-29.

VI-30.

VI-3l o

VI-32 o

VIII-l.

Point Estimates of Supply, Demand, and Exports
of Ireland and Denmark under Assumption of
Entrance into EEC . . . . . . . . . .

Comparison of Net Total Imports of Basic Run
with those Obtained with the U.K., Ireland,
and Denmark also in BBC . . . . . . . .

Comparison of Net Total Imports of Basic Run
with those Obtained Assuming Enlargement of
the EEC and Low Rates of GNP Growth of
Regions 2-6 . . . . . . . . . . . .

Comparison of Net Total Imports of Basic Run
with those Verified under the Assumption of
Unfavorable GNP Growth Rates for the EEC
Countries . . . . . . . . . . . .

Comparison of Net Total Imports of Basic Run
with those Verified under the Assumptions of
Unfavorable and Favorable GNP Growth Rates

of the EEC Countries . . . . . . . . .

Comparison of Net Total Imports of Runs
Reflecting Basic Conditions, High Orientation
Prices, High GNP Growth Rates and those
Verified under the Combined Effects of Both
High Orientation Prices and GNP Rates of
Growth of the EEC . . . . . . . . . .

Summary of Argentine Beef Exports to the EEC
and United Kingdom, and Total Exports under
Various Alternatives to 1975 . . . . . .

Page

161

163

165

168

170

173

200

LIST OF FIGURES

Figure Page
IV-l. Gains From Trade . . . . . . . . . . 44

IV-2. Trade with a Transfer Cost, a Fixed Import
Duty or a Quota . . . . . . . . . . 46

IV-3. Trade with an "Ad Valorem" Import Duty . . . 49
IV-4. Trade with Domestic Price Supports . . . . 54
IV-5. Trade with a Minimum Export Price . . . . 56

IV46. Effects of the U.K. Entrance Into the EEC
Upon Argentine Exports . . . . . . . . 58

VII-l. Argentine Slaughterings, Consumption, and
Exports, 1950-1969 . . . . . . . . . 201

xi

Appendix

Ch.

Ch.

Ch.

Ch.

Ch.

Ch.

Ch.

Ch.

Ch.

A

VI-l.

VI-Z.

VI-3.

VI-4.
VI-S.

V1-6 o

VI-7.

VI-80

VI-9.

Ch. VI-lO.

Ch. VI-ll.

Ch. VI-lZ.

Ch. VI-l3.

LIST OF APPENDICES

Abbreviations . . . . . . . . . .

Estimation of Total Net Imports for 1966,
According to Spatial Equilibrium Model . .

GNP Projections Under Unfavorable Con-
ditions O O O I C O I O O O O O

GNP Projections Under "Most Likely
Conditions . . . . . . . . . . .

GNP Projections Under Favorable Conditions.
Producer Price Projections to 1975 . . .

Model Run with Argentina Supply of
2,903,000 Tm. O O O O O O O O O 0

Model Run with Orientation Prices for the
EEC Increased by an Annual 2 Per Cent with
ReSpect to 1969. . . . . . . . . .

Model Run with No EEC "Ad Valorem" Duties
for Argentina . . . . . . . . . .

Model Run with the U. K., "Ad Valorem"
Duty Reduced to 5 Per Cent . . . . . .

Model Run with a 25 Per Cent Argentine
Export Tax 0 O O O O O O O O O 0

Model Run with the U. K., Ireland, and
Denmark also in EEC, and with High Rates
of GNP Growth of Regions 2-7 . . . . .

Model Run with the U. K., Ireland, and
Denmark also in EEC, and with Low GNP
Rates of Growth of Regions 2-6. . . . .

Model Run with Unfavorable GNP Growth
Rates for the EEC . . . . . . . . .

xii

Page

xiv

176

177

178
179

180

181

182

183

184

185

186

187

188

Appendix

Ch. VI-l4o

Ch. VI-15.

Page

Model Run with Favorable GNP Growth Rates
for the EEC . . . . . . . . . . . 189

Model Run with High Orientation Prices and
Favorable GNP Growth Rates in the EEC. . . 190

xiii

US$
m$n
beef

CAP

Tm.
e.c.w.

e.c.w.t.

Germany

APPENDIX A

Abbreviations

 

United States dollar

Argentine peso

beef and veal

Common Agricultural Policy

not available

thousand

Metric ton

equivalent carcass weight
equivalent carcass weight terms
zero

West Germany

xiv

CHAPTER I

INTRODUCTION

The Treaty of Rome, signed in 1957 by representatives
of Belgium, France, Germany, Italy, Luxembourg, and
Netherlands, gave origin to the European Economic Community,
also known as the Common Market, the Six, the Community,
and the EEC. The overall aim of this organization is to
provide coordination of economic and social policies
allowing a more vigorous and balanced economic deve10pment.
frhis coordination included the gradual elimination of
tariffs and non-tariff barriers to trade within the area,
the adOption of a common commercial policy towards non-
Inember countries,1 a common transportation policy, free
Imobility of production factors and a common agricultural
Policy.

It was argued that the agricultural sector was so
imnportant to these countries that specific provisions
Silould be designed for it. This element and the com-
Eilexity of the sector required a separate common agri-
c=ultural policy with achievement of higher agricultural
Ixroductivity, market stabilization, regular supplies and

Iavailability of goods to consumers at reasonable prices

\

1And more particularly, the use of identical
tariffs in each of the six countries.

1

as its explicit objectives. Implementation of this
agricultural policy was to be financed through the
European Agricultural Guidance and Guarantee Fund (EAGGFI
and the administration facilitated by the elaboration of
different and separate regulations for the most important
products, taking into account the particularities of each.
Although the Community would not be fully operational
until 1970 because a transitional period was allowed for
a gradual harmonization of policies, the creation of the
Community created serious concerns in several countries
from its very inception. Despite the interest of many
nations (particularly Western countries) in the creation
and development of a successful Community for economic
and political reasons, concern grew because of some
,possible negative effects. The undesirable effects of
trade diversion with respect to non-member countries
became a factor of serious analysis. As time went on
Chaubts increased. Contradictory statements grew as EEC
(XEficials manifested their "good intentions" on one hand,
311d their adoption of opposing policies on the other.
Countries having strong trade relations with the Six
were mainly affected, and Argentina was one of these
Chauntries. Table 1 shows that the value of Argentine
eacports to the EEC represented 41.5% of total exports in
‘1967, that the EEC was the most important area for

Argentine exports in 1967 and that exports to the EEC

 

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.Ammb uncuuso mo pcmmzonav nOmHImmmH scoHumcHummh
mo momma . .

umbeoaxm mcfiucmmLO-I.H-H mamag

have been increased in both absolute and relative terms.
The value of exports to the EEC in 1967 was 265% of the
1953 level, and doubled in percentage terms over the
same period.

It was clear by 1967 that the most important and
likely risk for the Argentine economy resulting from EEC

decisions were concerned with exports of beef and veal.

Information was conflicting. On one hand, substantial

increases were projected for the future demands for beef
and veal to the Common Market,1 and on the other hand, a
dim outlook suggested increasing levels of protectionism
and sharp drOps in the level of exports. Since this

research deals with the effects of the EEC agricultural

policies upon Argentine exports of beef and veal,2 trade

in these products will be surveyed in Chapter III.
(Argentina did export 146,300 Tm. [product weight] of
beef to the Six in 1967, which represented 38.4% of the
total exports of chilled and frozen beef.) The Common
Ifiarket constitutes an important outlet for Argentine beef

exports. Because there are indications that the impor-

txance of this market could either increase or decrease,

jfit is particularly important that Argentina's production

k

lAlthough projections of the future total demand for
beef and veal of EEC differ, and some of them very radically,
"1081: of them agree in predicting "substantial" increases.

d. 2The word beef will be used in this thesis to
e’1'71c>te beef and veal.

 

 

 

and trade policies determine the direction and approximate
magnitude of these changes.

The objectives of the study are as follows:

1. To build a model that represents, as closely as
possible, the location of production, consumption,
prices, and trade pattern of beef in the base
period, 1966, for the Six, Argentina, the United
Kingdom, the United States, Australia, New
Zealand, Ireland, Denmark, the rest of Latin
America, Canada, and the rest of the world.

2. To utilize the model in estimating Argentine
beef exports to 1975 under "most likely condi-
tions," taking into account EEC policy decisions.

3. To utilize the model in estimating probable
changes in the location of production, con-
sumption, prices, and trade patterns resulting
from possible changes in the agricultural
policies of the Community.

4. To utilize the model in estimating probable
changes in the location of production, consump-
tion, prices, and trade patterns resulting from
the possible incorporation of the United Kingdom,
Ireland, and Denmark into the EEC.

5. To utilize the model in estimating possible
changes with respect to the results obtained in

2, in the location of production, consumption,

prices, and trade patterns resulting from
modifications of the parameters of the excess
demand equations or the policy instruments
other than those of the BBC.

The core of the research lies in formulating a static,
partial equilibrium model. The requirements for an
Operational model are estimations of excess demand
functions for each of the regions into which the world is
divided, the determination of the policy instruments most
likely to be used during 1975, and the value of other
parameters for the same year such as levels of income,
prices of commodities competitive on the demand side, and
transfer costs. A test was made for 1966 and the results
on the basis of "most likely conditions" for 1975 will
allow for an approximate quantification of the EEC Market.
Changes in the value of the parameters will permit the
determination of changes in the solution with respect to
the base solution for 1975 and a knowledge about the
sensitivity of the model to changes in some of its
parameters.

Ordinary least squares were used to estimate the
demand functions for the 9 most important countries in the
model, while point estimations were used for the quantities
demanded by the remaining 6 regions and for the quantities
to be slaughtered in all the regions by 1975. The excess

demand functions for each of the 15 regions were obtained

by subtracting the supply estimates from the demand
functions.

Finally, data which constituted the linear con-
straints of the quadratic model were obtained and elaborated
on the basis of various sources and a quadratic formulation
deVeloped by Dr. Richard G. Heifner was used to find the

solutions to the various alternatives analyzed.

CHAPTER II

BEEF AND VEAL POLICY OF THE EUROPEAN

ECONOMIC COMMUNITY

The Common Agricultural Policy

National policies of the present EEC countries were
partly develOped during the 19305 to offset cheaper foreign
sources of supply and were continued during the World War
II and early postwar period to avoid war induced shortages
and to overcome foreign exchange shortages.1 Although the
objectives of the agricultural policies followed by the
six countries were very similar,2 the economic, political,
and social conditions led to different organization in
their economies and to the use of very different instru-
ments to implement their particular agricultural policies.
In 1957 the Treaty of Rome3 introduced a unifying element

in some of the economic policies of these countries and

1Dale Hathaway and Vernon Sorenson, The Grain-
Eiyestock Economy and Trade Patterns of the EurOpean
Egpnomic Community, Research Report No. 5 of Institute of
InternationaI AgfICulture, Michigan State University, 1968,

Pa 19.

2Organization for Economic Cooperation and Develop-
ment, Agricultural Policies in 1966, OECD Publication,
France, 1967, p. 10.

3Treaty Establishing the European Economic Community
and Chonnected Documents (an undfficial EninSh translation).
Pu iShed By the Secretariat of the Interin Committee for
the Common Market and Euraton, Brussels.

8

particularly in their agricultural policies. They were
expected to adjust their policies during a transitional
period,1 until a common agricultural policy, mainly based
on common prices, could operate throughout the community.
By mid-1967, 90% of the agricultural production was
included under the various CAP regulations.

These objectives became less important, however, and
were replaced by others, such as income level protection
for farmers and the stability of the markets for agri-
cultural products. The main objectives according to the
Treaty of Rome are:

1. to increase the productivity of agriculture
through the development of the agricultural
technologies, securing a rational develOpment
of its production and optimal use of the
factors of production, particularly labor;

2. to guarantee a fair standard of living for the
agricultural population, especially through
increasing individual incomes of those peOple
employed in agriculture;

3. to stabilize the markets;

4. to guarantee regular supplies;

5. to guarantee reasonable prices for consumers.

\

. 1This period began in July, 1962, for some com—
?Odlties and by 1962 the main regulations had been prepared
0r beef and dairy products as well.

10

In practice, some of these objectives oppose each
other and originate conflicts which must be solved by
political compromise. An example is the compromise
necessary between guaranteeing a fair level of living
for the agricultural pOpulation and obtaining reasonable
prices to the consumers. Similarly, price increases at
the producer level often negate policies that attempt

increases in productivity.

Framework of the CAP

The six countries adOpted an economic form of
integration known as a common market. This organization
requires that a group of countries liberalize trade
among them (free trade area) and adopt a common external
tariff (customs union) and free factor movements. The
first two features of the EEC policy will be surveyed in
the following paragraphs. References will be made to the
agricultural aspects of these characteristics.

The first move consisted of eliminating trade restric-
tions on farm products between member countries, following
a gradual process of reductions throughout the transition
Period which ended on July 1, 1968. The elimination that
included not only tariffs but also levies that were used
aInong the Six during the transition period, happened 18
months ahead of the Rome Treaty schedule. Some barriers

Still exist, however, and only in time will they disappear.

11

The second aspect refers to the adoption of a common
trade policy for third countries. An important element
here was the adoption, also by July 1, 1968, of a common
external tariff (CET). But this is only one example,
although an important one, of the common trade policy.
Other examples are the common policy for exporting certain

products and the application of variable levies.

Beef Regulations of the EEC Market

 

Since the price levels and market organization to be
reached under free trade conditions were not satisfactory
to the governing bodies and farmers of the Community in
view of the objective to achieve "fair standards of living
for the agricultural population," the Council of Ministers
approved a set of regulations for a number of agricultural
commodities. Each of the regulations covers basic organi-
zational aspects of the markets for each agricultural
product in question. The attention here is on those
affecting beef.

Two main regulations have been enforced up to this
POint. The first was Regulation 14 which became effective
during the fall of 1964 and lasted until July, 1968, when
ReQUlation 805 replaced it. Both of these regulations
define three domestic prices: a guide or orientation
Price, an intervention price, and a market or reference
price. The first is a desirable goal, but is not

gnaranteed, since it is an average price judged as

 

12

satisfactory in a normal year. Guide prices are established
annually by the Council of Ministers upon recommendation by
the Commission before each agricultural year. Two guide
prices are established each year: one for adult cattle
and another for calves, and despite the fact that they are
not guaranteed, some effort is made to keep market prices
close to them.

One tool used to keep market prices close to guide
prices is the variable levy, which could be roughly
defined as the difference between the guide price and the
import price. The objective of variable levies is to
reduce imports when internal market prices are low, and
vice versa. Upon closer look, however, it becomes
apparent that not only the calculation, but also the

application of variable levies or prelevements is a complex

 

business. To begin with the mechanism of both the calcula-
tion and the application changed from Regulation 14/64 to
Regulation 805-68. The calculation for imports of adult

cattle or calves during the use of 14/64 followed this

formula:
VL= GP - (IP + ID)
where;
VL = Basic Variable Levy, that is variable levy per
liveweight Tm.
GP = Guide Price per liveweight Tm.

13

IP = Import Price calculated on the basis of prices
which are supposedly representative of Denmark,
England and Wales, Austria and Ireland. The
simple average of prices obtained for several
types of animals in these countries are
weighted 50, 25, 15 and 10% respectively. An
additional which represents transportation
costs to the EEC frontiers should be added to
the average weekly import price calculated.
ID = 20% over IP
In case of meat imports, the variable levy is cal-
<:tL1ated by multiplying the basic variable levy by a
coefficient that takes into account the relationship
between the value of the particular meat imported and the
value of the live animal. The application of this levy
was not automatic, but depended upon the relationship
bertxdeen the calculated reference price and the guide price.
The weekly calculation of the Reference or Market
Ehrixze is made in the following fashion. A number of
representative markets and weighting coefficients are
assigned for different types and qualities of animals
‘Witllin each of the Six in such a way that a weighted
average price is obtained for each member for adult cattle
arui for calves. Another weighting coefficient which con-
Siders the importance of each of the Six, is then used to
Obtfiain a unique Reference Price for all the EEC. The
COGEfficients for France, Germany, Italy, Netherlands and
Be1&gium are 41.0, 27.6, 19.0, 7.3 and 5.2% respectively.
The prelevement was applied gradually according to

thfi! relationship between the Reference Price and the

Chfiientation Price. If the former was 105% above the latter

14

no levy was applied; the variable levy was 100% of the
<3alculated value if the former was below the latter.
Efiifty per cent of the calculated prelevement was applied
when the situation was between the two extremes.
Regulation 805/68 made some changes in the cal-
ic111ation and application of variable levies, the more
important ones being the graduated scale which is used
ft>1r its application and the determination of a new cal-
CLilxation procedure for frozen beef and veal. The latter
wd.1;1 be explained first. A separate orientation price
wfi.1;1 be established annually for frozen meat and a
separate import price set and modified if a change greater
than US$ 10.00 per Tm. takes place. With this new pro-
cedure, the variable levies for frozen meat will be dif-
ferent from those for fresh chilled meat. Prelevements
ier 'the first will be reported monthly before the 25th of
the month and be applied on the first Monday of the
following month.
The formula to use for the calculation of preleve-

ments for frozen beef is:

VLf = GPf - (IPf + ID + FL)
Where:
VLf = Variable levy per Tm. of frozen beef for
compensated quarters or forequarters.
GPf = Guide Price per Tm. of frozen beef.

15

IPf = Import Price per Tm. of frozen beef
(determined on the basis of the more
favorable purchase possibilities among the
most representative markets).

IDf = 20% over IPf

F:f = Fixed Value, or Fixed Levy that represents
the expenditures incurred after the importa-
tion, such as transportation up to the
freezing chambers, and shrinkage. These
expenses have been fixed at the level of US$
30 per Tm.

Coefficients greater than one are multiplied by VLf when
'trre frozen meat to import is different from compensated
quarters or forequarters.

The changes in the graduated scale for application of

*vaasiable levies consist of changes of the brackets that
determine the relationships between reference and orienta-

‘ticxn prices and the percentages to pay over the calculated

levy. The scale in use is:

 

 

Reference Price as a Percentage of the
Percentage of Orienta- Calculated Levy
tion Price that should be applied
greater than 106% no prelevement

104 to 106% 25%

102 to 104% 50%

100 to 102% 75%

below 100% 100%

The utilization of this scale is common for fresh,
Chilled and frozen beef.

The third type of domestic price defined by the
regulations is the intervention price. It was explained

that efforts are made to keep the market close to

l6

orientation prices by means of variable levies. Another

policy tool is also used for this purpose: market inter-

‘vention when prices drOp below the level of orientation

Lorices established for the season.

Two types of decisions are necessary to effect this:
tile appointment of an agency within each of the Six to
coxrersee purchases and sales, and the establishment of
Earrice levels at which these agencies were supposed to
axzt. Intervention prices are alarm signals which mark
time line below which price supports become effective.
Ifiiis type of price is closer to what is usually understood
as; a support price, since it is only when market prices
reach this low level that agencies are entitled or obliged
tc> act. According to Regulation 14/64, intervention

nmuasures could come into operation at a level to be

dexzided by member states, somewhere between 93 and 96 per

Ceuit of the guide price. Selling Operations, on the

Otluer hand, could be made if cattle prices were at least
98% «of the guide price. Since the end of the transitional
Period on July 1, 1968, prices are supposed to be uniform
thlxrughout the Community and the level of intervention

Prices was also to be uniform. According to Regulation

805/68, purchases can be made when the EEC reference price
for adult cattle is below 98% of the guide price, and when
the market price for a specific quality meat in a member

COuntry or a region is below 93% of the equivalent orienta-

tiOn price. Purchases become compulsory in all the

17

Community countries as soon as the reference price for
adult cattle falls below 93% of the corresponding orienta-
'tion price. Intervention operations can be adopted not
cnnly for live cattle but also for fresh and chilled meat
it} the form of carcasses, half carcasses, compensated

qimarters, forequarters and hindquarters. The EEC Council

can modify the products eligible for intervention.

Stzructural Reform Policies

Community authorities had high hopes for the
described price policies. They foresaw that the higher
prtice levels received by the producers, through the pro-
‘terrtionistic system, would provide the basis for higher
levels of income and consequently a more equitable
relxation with other sectors of the economy. Their hopes
prryved to be false, however, despite the fact that
market prices rose and farm incomes increased. The level
0f :income for the agricultural economy increased but not
"Palri passu" with the rest of the economy and the rela-
tiOnship continued its deterioration.

Migration from agriculture took place, but not at
tflmi Speed necessary for per capita income in this sector
to be comparable with others. Also, the higher price
1eVels meant greater surpluses of butter, grains and sugar.
AS an example, the butter stock in the Community in

January, 1970, amounted to 400,000 Tm.

18

The disappointment caused by these factors, together

‘with the increase in expenditures caused by these policies,

(developed into further interest in structural policies.
rholicies aiming to increase the average size of the farm,
tc: consolidate land holdings, and to modernize buildings,
aanuong others, have been contemplated since the inception
(Df’ the Community, but have taken a secondary role. While
tilezimplementation and financing of price policies has
been transferred from the national governments to the
iristitutions of the EEC, the same did not occur within the
stzructural reform policies. The CAP has as a secondary
rcfile, coordinating and organizing the skeleton of these
pcfilicies. But the main administration and financing of
thenn still remains very much in the domain of the national
governments. Some changes are taking place, however.
The: Vice-President of the Commission, Sicco L. Mansholt

k1 staunch advocator of the structural policies) pre-
Efinrted a ten-year agricultural reform program constituting
time basis for discussion of programs that the Six might
finally adopt.

The main problem, according to the Commission, is
the excessively small size of farms in the Community. As
many as 80 per cent of their farms are too small for one
man to be fully employed using modern technology. Pro-
duCtivity could increase and specialization would allow

for the elimination of present distortion in the allocation

19

of resources and for higher levels of income which would

satisfactorily compare with those of the rest of the

eeconomy. The action would consist of removing economic

ajui legislative obstacles that are now precluding increases

iIl farm size, changes in land use that would permit

sgmecialization, and labor mobility. With respect to this

lEISt point, the Commission foresees very important changes

i11 their current programs. They estimated that during

-t}1e 19603, 4.7 million people left farming and that an
atlditional 5 million people would follow them during the

19708.
The Mansholt programs do not generate much enthusiasm

anuang farmers of the EEC and the program has consequently

farmed considerable resistance. It calls for fundamental

changes in the emphasis of the CAP in favor of structural
reform programs at the expense of price and market pro-
grfuns, and for massive expenditures to assist in enlarging
farTn production units, investment, aid, guaranteed loans

andfinancial compensation for farmers leaving agriculture.

 

1EurOpean Economic Community Commission, Second
General Report on the Activities of the Commission, 1968,

.TIfTications Department of the European Communities,
BruSsels-Luxembourg, 1969, pp. 135-142.

20

Financing of the CAP

Chonstitution and Functions
3f the Fund

———

The EurOpean Agricultural Guidance and Guarantee
.Ftnnd (EAGGF) was formed by the Council of Ministers on

.JaJuuary 14, 1962, as the financial arm of the common agri-

cn1]_tural policy. Their operations began during the 1962—63

nuazrketing year, although the rules under which it was to
opxerate were not completed until February 5, 1964.

The Fund has two sections, as its name suggests.
1316: Guidance Section is responsible for most of the price
anti market policies, i.e., the policies analyzed under the
secrtion entitled Beef Regulations of the EEC Market, while
the: Guarantee Section takes care of the expenditures under
Straictural Reform Policies as well as for improvements in
otluer elements of the marketing structure, such as fruit

anui vegetable auctions, slaughterhouses, refrigeration

Plants , etc .

OEeration of the Fund

The expenditures of the Fund have constantly increased
Since its creation, because of three main reasons. The
firSt.is that a commodity is eligible for Fund support only
after the organization scheme for its market has been
defined and approved by the EEC Council. The number of
CommOdities which have qualified for this support, in terms

of market intervention Operations or export refunds, has

21

ixucreased, and by middle 1967, approximately 90 per cent of
time agricultural output of the Common Market was covered
133r these regulations. The second factor is that the level
caf’ price supports and export refunds has also been con-
stantly increasing. Finally, the Fund has, little-by-
];itrtle, assumed responsibility for part of the expenditures
vflmixch were the domain of the national governments; that is
tc> :say that the Common Market manages and finances Opera-
tirozis formerly carried out by each of its member countries.

Due to the three factors, the Fund expenditures have

clrinnbed from US$ 37.8 million for the agricultural year
196 2—63, to 2,500 million for 1968-69. Total expenses
be1:vween 1962 and 1968 amounted to US$ 2.24 billion divided
between US$ 1.8 billion for the Guarantee Section, US$
284: Inillion for the Guidance Section and US$ 208 million
\HKiear the Special Section. The Guarantee Section reported
mOSVt: of the expenditures of the Fund, 80 per cent; and the
Guidance Section had only 13 per cent of the total. That
thfi <}uarantee Section was responsible for most of the
j~1'1C11r‘ease can be seen from the figures in Table 11.1 which
arefi«estimated for each marketing year from 1962-63 to 1968-
69.

Another indication of the tremendous increase in
expenditures is seen by the fact that the expenses for the
marketing year 1968-69 were US$ 2.5 billion, an amount
greater than the total expenses accumulated between 1962

and 1968.

 

22

(IQXBLE II.l.--Expenditures of the Guarantee Section of the
European Agricultural Guarantee and Guidance Fund.

 

Marketing Year Million of US$
1962-63 28.7
1963-64 49.9
1964-65 175.7
1965-66 240.1
1966-67 370.4
1967-68 1.313.0
1968-69 2.012.0

 

Sclixnce: Calculated from figures from U.S.D.A.-E.R.S.,
The European Agricultural Guidance and Guarantee
Fund, ERS Foreign 144, USA, June 1966, and several
issues of European Economic Community Information
Office, European Community.

The magnitude of the expenditures reached by the Fund
has been an important source of conflict among the members
0f ‘tlue Community. They realize that despite the rapid rise
in exPenditures in the Guarantee Section, the relative
WDSjution of agriculture is worsening. A major problem area
Witltin the Guarantee Section is dairy products. The costs
0f tflae dairy policy, which did not amount to a million
(killars during 1962-63 represented more than 600 million

dollars during 1968-69. Other important problem areas are

grains, vegetable oils and fats, and sugar.

But the costs of the CAP are not the only source of

firiction among the EEC members. The distribution of the
financial burdens and benefits also constitute a cause of
:iruritation. France received substantially greater benefits
than the other members of the Community despite the fact
tfl1ert Germany is a greater contributor to the Fund, and
:[tealy only a slightly less important contributor than
France. Between 1962 and 1968, Germany payed a total of
$683.3 million while France and Italy contributed $576.3
arufl. $533.3 million respectively. France, on the other
ha11c1, received a total of $919 million, followed by Italy

and Germany with $522 and $359 million respectively.

TABLE II-2.--Distribution of contributions and benefits of
FEOGA among the member countries during the period 1962-68.

g

Contributions Payed

Benefits Received

 

 

 

MemnIDer'
Co
untry Millions % Millions %
(US$) (US$)
Germany 683.3 30.55 359 16.05
France 576.3 25.76 919 41.08
Italy 533.3 23.84 522 23.34
Netherlands 243.4 10.88 320 14.30
Belgium 195.4 8.73 110 4.92
LuXembourg 5 . 4 0 . 24 7 0 . 31
TOTAL 2.237.14 100 2.237 100
\

 

SOlllrce: European Community Information Office,
Community, December l968-January 1969, No.

 

U.S.A.’ p. 15.

Euro§ean
I

24

In percentages, France contributed and received

25.76 and 41.08 respectively and Germany 30.55 and 16.05

respectively.
Both circumstances, the high cost of the CAP and

the failure of these expenses to augment farmers income

pari-passu with those of the rest of the economy, and the
unequal distribution of benefits, are putting pressure

upon the authorities of the Council to restrict the pro-

tectionistic policies of the EEC. The amelioration of

the protectionistic attitude has already been felt in the
orientation prices adOpted for the agricultural year

1969-70, where prices were maintained for most of the

Products and some decreases took place for dairy products.

The effects of the amelioration of their protection-
iStic policies probably will be felt also with respect to

beef , despite the fact that only very minor expenditures

have been directly allotted to it. The latest available

fj~911re shows that only $2 million was allocated for these

Products during 1967-68, of a total US$ 1,313 million

Spent within the Guarantee Section. Space for maneuver-

ability seems to be still very wide in this area, even

more if consideration is given to the unimproved level of

self~sufficiency of beef of the Community. But special

note also should be made that the dairy policy within the

CoITImunity is not independent of the beef policy in its

effects upon beef production. Cows are dual purpose

25

animals in the Community. They produce meat and milk, and
tflue production of beef has been indirectly subsidized
-trrrough the dairy policy. The limits for this policy
valgready have been reached, as was previously seen.
(Eixring incentives for increasing beef production within
tliea Community would give rise to additional production of
rniLLk.with the probable consequences of higher costs for
st:cxrage and export subsidies, and this would be hardly
tc>lJerated. There are two possible ways the Community
CXDLIJJi try to increase beef production and give producers
ar1 (opportunity to increase their revenues: import young
arLiJnals from other countries to be fattened within the
Ccnnununity, and specialization of herds for independent
P113c1uction of beef and milk.

A closer look, however, suggests that both roads
area difficult. The high transportation costs and special
Care which young animals require when being moved long
distances limit the possible sources of supply of young
a31'11’1.rt'1r—::].s to nearby countries. The second road is also
Seeded with thorns because specialization in beef and
milJi herds can only be achieved by means of an ambitious

Stlhactural reform policy enabling larger farms to yield
Sufficiently high incomes by producing beef calves alone.
SuCh an ambitious structural reform plan demands sub-
Stantially greater expenses than those allocated at

Present for the Guidance Section. The unwillingness of

26

the Community authorities to decrease the level of
price supports will result only in modest reductions in
expenditures under the Guarantee Section, which conse-
quently leaves a reduced capability for maneuvering, due

to the invisible but apparently real limits for increasing

the financing of the EEC-CAP. But even if this were

possible, the develOpment of such a program could yield

results only in the long run. This is not to say that

the possibility should be abandoned. On the contrary,

the effects of these more fundamental long-run solutions

should be researched if additional signs indicate that

EEC authorities might follow this road.

CHAPTER III

BEEF TRADE BETWEEN ARGENTINA AND

THE EEC COUNTRIES

One of the salient aspects of beef trade between
Zyrtyentina and EEC has already been mentioned in the Intro-
diicrtion, i.e., that of the importance of the EEC as an
omitilet for Argentina eXports. Others to be analyzed are
tile: importance of Argentina as a supplier for the Common
Market, the longrun tendency for increases of EEC imports,
tJIEB short-run variability of their imports, the comparison
kxetzvveen the rates of growth of total beef imports of the
EEK: and that of exports of Argentina, the changes in the
lewreel of import of the Six since the implementation of the
ReSJtLlation for beef, and the changes in the composition
0f? Zkrgentine exports to this region. Each one of these
aSpects will be analyzed separately.

The Common Market_as an Outlet for
Argentine Exports

If the countries composing the EEC are considered as

a-$ingle market,1 this is the most important outlet

AnJentina has today for her beef exports. Table 1 shows

\
1The existence of free trade within the area and

of common tariff and non-tariff barriers allow for this
Consideration.

27

28

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m.mm o.Hm v.mH m.om o.mH m.wH m.NH v.h h.HH m.o N.¢ v.m mccmaumcumz
H.mm 0.5m h.Hm m.voa m.wm o.mm h.vm m.am m.om m.mm m.mm b.mm wamuH
o.NH H.mm o.mm m.hv m.hN m.oN m.ha H.m v.mm v.mm m.hm N.am >cmfiumu

wmm.mm wnm.om whH.Hm www.mm www.mv wma.om wmm.hm wwo.on www.mm wvw.on me.m> wvm.mw .uou msu m0.0umm
v.mm m.HNH v.moa o.mva h.hmm N.mmH m.mmH m.mma H.nam m.wmm m.mmm m.hvm Eovmcwx .D
m.omm v.Hoq b.5vm m.o~v H.Hmm H.mmm m.mom m.mm~ N.mvm m.mmm m.mom m.mmm muuomxm HmuOB
home coma meme coma mead mood Home omma mmma mmme hmma wmma

 

 

“mommucmoumd paw unmfimz uoppOuo mo .59 .29v
.smmauomma .uwmn cmuoum new poaaaco .nmmum mo wuuomxm ocwucwmu<I|.H|HHH mamas

29

tflnat the level of exports has increased since 1957. In
.15967 this market absorbed 146,300 Tm. which represented
over 38% of the total beef exports, while the exports to
‘trne next most important outlet reached 96,400 representing
over 25%.

The same table can also show that this market has
rust: always been as important. For decades the United
Icilugdom was even more important than today's Common
Market. For many years Argentine exports to the U.K.
represented more than 75% or 80% of the total. The
increasing levels of per capita income in the Six,
together with their pOpulation increases tended to dis-
Place the U.K. from her position. Sales to the U.K.
(haczzreased from 268,328 Tm. in 1957 to 96,400 in 1967, but
111 1:he Six the opposite happened. In 1967 sales were
more than double those in 1957. The case is similar when
ConSidered in relative terms.

For 1957 the shares for the U.K. and the EEC were
alm0st 74 and 19% to change in 1967 to a situation where

the! ranking changes: 25% and 38% respectively.

Upon closer observance, it becomes apparent that
thfii increasing importance of the European Common Market is

due mainly to exports to Italy and the Netherlands.
Italy increased her purchases from Argentina from 28,300
to 69,100 Tm. between 1957 and 1967, while the Netherlands

Went from 4.2 to 35.9 thousand Tm. for the same period.

30
Increasing_Long:Run Tendency
cf EEC Imports

Table 2 shows that total imports Of the EEC have
trebled between 1958 and 1967, going from 182,800 to
556,000 Tm. The largest increases, in 1963 and 1964,
took place after the year of the last drought that
affected most of EurOpe. The unusual number Of slaughter-
ings during 1962 had the effect of reducing the level Of
slaughterings in 1963 and 1964 in the three most important
producers and consumers of the Community. Since the
level of consumption increased in 1963 and remained at
the same level in 1964, with respect to 1962 the level of
imports increased considerably during these years.

The peak of imports reached during 1964 tended tO
be arrested during the following years due to two major
factors. Herd rebuilding began to take place right after
the drought, and by 1965 the first effects of the increases
showed up in increased Slaughterings in France, Germany
and Netherlands.“ This was continued the following year
by all the countries in the Community. The second factor
was the enforcement of Regulation NO. 14 in 1964. As
mentioned in Chapter II, the regulation purported to '
o17951nize the beef market according to the objectives of
the CAP. The Regulation, which began to be implemented

by November, 1964, formed the basis of an increased EEC

protectionistic policy, with detrimental effects to non-

member countries .

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.UMHHmumHOOm OHEOCOOm :uHOOBCOEEOU mg» .30H>om 4 "new: .umflumuwomm OHEOCOOM LuHOOBQOEEOU "mumDOm

 

.mouoom ucwumw
leap mnu mo mmsmomn puma aw pcm .69 CH muwruo Ora pcm mQOu @COH cw pmmmmumxo mum mmwnu mmsmomn

 

puma ca H manma wo mmoru Eoum nomwep 0mm one on aceucooum mo muHOme Hmuou mo monomem dram ”meoz
mmm mmm mmm wom wmm wmm mum wam wmm wmm .mud Eoum w
c.5eH m.oma m.mNH N.Hma m.mmH m.mm H.mm e.Hm o.vm H.Ho Hmuoe

mceucomné Eonw mbHOQEH

31

 

o.emm N.mee e.eme m.mmm m.emm m.mem m.mea a.eem m.aom m.mme Hmuoe
m.HmH e.mme o.meH m.mHH e.mm m.moa m.mm e.mm e.mm m.- .O.3
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.n.n o.mem m.mem m.mmm o.emm m.mm a.mm e.emH m.mm m.mee semue
.m.: m.mm e.mm e.He m.me m.a e.oe m.em m.em e.mm museum
e.mm o.ea e.ee e.- H.om e.ee m.me e.m m.m e.e Esamamm
demonse omm Hence
some some meme eoae mode meme coma mmae mmma daoano

Home

Achu mcoH mo mocmmsoruv

n.eeaa-mmaa

.Umm Orb mo muHomEH Moon Hmuou wo

munch deaucmmuanu.muHHH mamas

32

The most visible and important manifestations of
this protectionistic policy are seen in the level Of
orientation prices annually determined by the EEC Council
of Ministers and by the financing expenditures Of the CAP.
The orientation prices for adult cattle increased in
France from US$ 552.50 per liveweight Tm. in 1964-65 to
US$ 680 during l968-69, an increase Of 23%. Since
variable levies for cattle were calculated by subtracting
import prices plus ad valorem duties from orientation
prices, the variable levies importers were to pay1 tended
to grow pari passu with the rises in orientation prices.2

The same thing took place with beef. The prelevement

 

eligible was calculated by multiplying the basic variable
levy for cattle by a transformation coefficient that
considered the value relationship between the mean in
question, and the live animal. As explained in Chapter II,
the calculated prelevement was to be applied dependent
uP0171 the relationship between orientation prices and
domestic market prices. But as the level of orientation
Prices was being determined so that production would tend
to be stimulated, the normal situation became that of

orientation prices above domestic market prices. The
x

. If market prices were not greater than orientation
Prices ,

Assuming constant import prices.* In fact, import

tended to drop and variable levies consequently
ended to increase even more.

Price 3
t

33

consequence was that during the first months of the imple—
mentation of Regulation 14/64, no pgelevement was applied,
then 50% of it was applied Off and on. Afterwards, the
use of a 50% became normal and the 100% levy entered the
scene. However, although mathematics would put a logical
limit at a 100% levy this is not satisfactory enough when
considering that the 100% may mean very different levels
in absolute terms as the policy decision makers raise the
level of orientation prices. It would be tOO tedious to
analyze the weekly evolution Of these variable levies,
but relating their annual average to that of import
prices will be illustrative.l Table 3 shows that the
average Of levies increased from 0 in 1964 and 1965 to
140, 215 and 373 in 1966, 1967, and 1968, and ended in
July, 1968 at US$ 415 per Tm. An "ad valorem" import
duty of 20% (upon the CIF import price) is also applied.
It might be interesting to translate these variable
levies into "ad valorem" duties tO find out how important
they are in comparison to the "ad valorem" duty of 20%

aPP11i.ed. Using Italy again as an example, the prelevements

 

applied would be equivalent to "ad valorem" duties of
0 in 1964 and 1965, and 66% in 1968. By adding this 66%
to the actual "ad valorem" Of 20% we would have a total

0f 86% for Italy in comparison to an "ad valorem" duty

for the United Kingdom of only 20%.
x

. The unrealistic nature of this calculation is
mall-Zed, but thought to be useful.

34

 

 

 

 

 

 

 

 

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m.mm No.mmm H.vm NH.mom m.~m mm.nmm n.ma ww.HmH m.m mm.om o o mccmaumcumz

o.om vo.mHv o.mm vm.mem H.mm mm.vam o.eH mm.mma o o o o mamuH

m.mm vm.mmm n.mm mm.vmm m.ma om.mm m.m ma.oo o o o o >cmEumo

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o.mm mo.mav m.mm nm.aom m.mm mo.vma m.wa em.eve w.a ma.va o o Edemamm
w Amway w Ammov w Amway w Ammoo m Amway w Amway
moeum >>mq moeum >>OA moeum >>mq moeum >>mq coenm >>mq mowum >>wq
UHOQEH mane quQEH cant uHOQEH wand qudEH mane uHOQEH mane uHOQEH mane
Hm>o leuw> nm>o leum> uw>o neum> Ho>o neum> nm>o leum> Hm>o neum>

$3 San $3 $2 $3 $3 $2
.ucmmwummu wmru umru
xuso =EOHOHM> om: ucmam>escm cam 0mm opp CH cmeamdm moH>oH wabmeum> wo mommum>m Hmcccm OHQEHmII.mIHHH mqmde

35

Despite the protectionistic policy, the Common Market
has not been able to increase its level Of self sufficiency
in beef, and there are indications (other than those pro-
vided here) that it might tend to decrease. The recent
study published by the Institut Fiir Wirtschaftsforchung
(1:1?0)l presents the following table (Table 4), where the
percentage is 93, 85, 86, and 76 for 1960, 1965, 1970, and
1975 respectively.

That study implies that the level Of net imports
will increase in 1975 to 1970 levels. This study, which
is a summary of 6 independent research efforts, projects
the highest level of net imports for Italy at 700,000 Tm.
Following in order of importance are France and Germany
with 319,000 and 273,000 Tm. respectively.

There have been other studies evaluating the future
market for agricultural products, with beef as a separate
Commodity. One has been developed at Michigan state
University under the leadership of Dr. Dale E. Hathaway
and Vernon L. Sorenson.2 Most Of these studies project
considerable increases in the level of beef imports.

\

 

. A re ation of Future Demand and Supplyifor A
Wtfififioducts in the European Economic Community

0-1975, Mfinchen, Germany, 1969, Tables 6—11
mimeographed) .

2 .
r Table 9 of Chapter VI shows the results of their
esearCh together with those Of other studies. ‘

36

.mumw mmmonmo mcwccaoxmm

 

 

 

 

 

”meoz
we as ...... .eea Ha mm mm madden mama,
mem.m- meN . dam maH.H emo.~ mom.a soaudsswsoo
aom.a+ em + m~ . eon + mam + new + manomeH umz
amo.e mmm «mm nae nee.e mm~.H soauosmowd
meme
em as mad am mm mm madden mama
ems.a mam u eem moo.a mmm.e ooe.a soaudesweoo
owe + me + we a wee + mm + see + nanomeH umz
eme.e emm mom cam oam.a am~.H noauoseond
cede
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sma.m own - HNN ass - sem.H mem.e soaudesmsou
mom + mm + mm u Hem + em I mam + nanomeH udz
Hem.m are «an Mme Ham.a and soauostona
meme
mm as mas me see we sanded «awn
eme.m mom . eon see u amm.a smo.a coaudsswsoo
smm + m + em u see + em u mma + manomeH umz
mme.m mas emu flea ooa.a Nam soauoseond
cede
omm .xsqu.Hmm V.Humnumz._ mamuH .wocmum sensumo

 

 

Aeneas ooo.ec

.mOGMHmn tcmEmvl

 

 

madman mmmmnu.v|HHH memes

37
Short-Run Instabilityyof_Argentine
Exports to the EEC

Table 1 shows the variability of the quantity of
Argentine exports to the Common Market. The largest
absolute change was registered between 1964 and 1965
when exports drOpped 68,000 Tm. Of tremendous importance
also was the decrease between 1967 and 19681 and the
increases which took place between 1962 and 1963, 1963
and 1964, and 1968 and 1969.2 This variability has very
undesirable repercussions, not only on the price levels
at the exporter and producer level, but also because of
the inducements they provide for heavy slaughterings of
cows . A painful herd rebuilding process usually con-
tinues until a similar situation takes place. It is no
exaggeration to say that short-run instability is as
serious a problem as the existence Of an adequate
export market.

The most important reason for export instability

seems to be the variability in the level Of domestic

__

. 1Data for 1968 and 1969 were available only after
writing and elaboration of the tables was completed and is
PFeliminary, but the indications are clear as to the direc-
51011 and approximate magnitude of the changes. The follow-
1n9 figures Obtained from the Junta Nacional de Carnes
Show Argentine exports Of fresh, chilled and frozen beef

(thousand Tm. Of product weight).
1967 1968 1969
Total Exports 3817.8 278.1 426.5
United Kingdom 96.4 41.7 124.1
Common Market 146.3 94.4 134.4

the fall between 1967 and 1968 and of the increase between
1968 and 1969.

2Ibid.

38

slaughter in the EEC countries. Given that the difference
between consumption and domestic slaughter is basically
filled by imports, the level Of imports increases or
decreases as the level of domestic slaughter decreases

or increases respectively. Starting with the application
of Regulation 14 in 1964, the Objective Of achieving a
stabilization of the markets in the Six tended to result
in more violent variations. The reason for this was that
while before the application of that Regulation variability
in the level of domestic prices was allowed with no
restrictions (allowing in turn for some stability in the
level of imports), after Regulation 14/64 was enforced
prices are permitted to vary much less than before. Levies
are applied as the level Of domestic price drOps below

the orientation price, and, consequently, as the level Of
domestic price declines because Of increased Slaughterings,
it becomes harder to import. Prices tend to be kept at

the level Of orientation prices, while before 1964 they
were allowed to vary.

Unfortunately there are no signs Of possible future
Changes in the application Of orientation and intervention
Prices and variable levies as a mechanism for achieving
market stabilization. The importance Of the fluctuations
could be reduced if prices increase to such an extent that
domestic prices are above the orientation prices determined

by the Council of Ministers. There are some prospects,

39

as will be seen later, that the height of variable levies
to be applied to achieve the stabilization Of the markets
hmuld tend to decrease as domestic demand in the Six
increases with respect to domestic Slaughterings.
A Comparison of the Rate of Growth
OfITotal EEC Beeffilmports and
Argentine Exports
It is possible to Observe, selecting 1958 and 1967

as reference points for the calculation Of increases,
tiuat the average annual rate of growth Of total imports
Of ‘the Community was greater than that Of imports coming
frcnn Argentina (20.4 against 14.1%). It also appears
that total slaughters for exports of Argentina grew at a
mucfll slower annual rate than for Argentine slaughters

for exports to the Community (0.5 against 14.1%). The
rate; of growth of total Argentine slaughters was even
lower than that of total Argentine slaughters for exports.
The :following Observations could be made from the figures
in Table 5:

l. The increase in Argentine exports to the Six
did not keep pace with the total imports:

2. The increase in total slaughters and slaughters
for exports in Argentina was very small in
comparison with the rates of increase mentioned
in (1). 4

Using three-year averages at the beginning and end of

the Period shows a similar picture. The beef imports Of

4O

 

 

 

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m.o 0.x e.moa m.mma H.b~a.m m.mam.m usabmbzmsbam .ucmmna Hence
H.a e.aa ~.eaa H.ms m.eam a.amm nunodxm not .usnsbam .uswmna
m.~a a.-a a.-~ e.~e m.mm e.ama ensuedmna sowu .neH Omm
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oeummma eb\mbaa ebummaa ebnmbaa unmocoo
Hm>o \oonmmma mmmum>¢ mmmum>4
rezone a rescue
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m.o H.m a.moa m.mm H.5ee 0.0mm wanedxo now .bemsnam .usomna
H.ea b.oea b.oe~ o.bm H.Hb e.eea headstone some .dsH Omm
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umz assess

 

.mceucmmue mo mmmcamucm manmuuomxm no one muHOQEH mmom 0mm «0 nuzouo|n.mnHHH mqm<e

41

the Community experienced a net growth of 142%, while the
exportable surplus in Argentina grew by only 11% and that

exported to the Community by 123% between 1958-60 and

1965-67. In other words, increasing Argentine exports

to the Community was done at the expense Of other markets,

despite the smaller share Of Argentine beef in the total

imports Of the Six.

Changes in the Composition of
Argentine Exports to the
Community

An unfavorable shift has been taking place in

Argentina's exports to the Six. The following table shows

that while the quantities did not change in an important
.fashion between 1965 and 1969, the proportion of chilled
ILas been decreasing and frozen beef increasing. This
cdiange represents a deterioration in dollar value (given
‘tliat the former is better quality meat and demands higher
Exrices for each equivalent metric ton). This change will
lees stressed in the future due to the new Regulation

adOpted in 1968. Regulation 858/68 favors the imports of

frozen beef, and mainly that for manufacture, at the

eXpense Of chilled beef. Consequently, unless some

irnportant changes take place in EEC regulations, such as
5‘ Inore favorable treatment for chilled beef, there is a

J=‘Ii-sk Of these higher quality meats being eliminated from

the market .

42

TABLE III-6.--Composition of Argentine beef exports to the
EEC (Thous. Tm. Of product weight).

 

Total Value in
Year Chilled Frozen Total FOB Term
(mill. US$)

 

1965 35 103 138 100.6
1966 17 112 129 89.4
1967 14 132 146 88.6
1968* 4 , 9o 94 56.3
1969* 13 121 134 80.6

*
PrOVlsory estimates.

Source: Junta Nacional de Carnes, several issues.

CHAPTER IV

THE ECONOMIC MODEL

A static partial equilibrium model will be used to
represent the location Of production, consumption, prices

and trade Of beef among the 15 regions into which the

world has been divided.

A simplified model Of two regions will first be

assumed. Figures 1a and 1c show the demand and supply

relationships corresponding to regions 1 (d1 and 31) and
.2 (<12 and 82) whereas Figure lb presents the supply of

exports Of the first region (sxl) and the demand for imports

of region 2 (dm2) . Under no trade conditions quantity
slaughtered (sll) in R1 (region 1) would equalize con-

_1_
O 82 -d

-1

sumption (dill) and the same would happen in R2 2 .

Prices would be p11 and p31 respectively. Prices would be
lower in the first region than in the second and there

would be 'nO quantities supplied for exports in R1 or

demanded for imports in R2.
Consumer surplus in R1 is given by MEN and producer

Surplus by KEN under this equilibrium condition. Changes

irl ‘these conditions brought about by the Opening Of trade
would carry out alterations in the level of these surpluses
thIIE‘ough shifts in price levels and quantities traded.

43

 

44

 

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'I'
‘0
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I
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a.
no
I
I
I
I
I
I
I
I
I
I
I
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NQFKN \«Okux w§~<0 In-NH “.23ka

 

 

45

Under the assumption of free trade, for example, prices
would climb up from pil to p? in R1 which would imply an
increase in producer surplus from KEN to K60. Consumer
surplus would, on the other hand, drop from MEN to MOP.
The net effect derived from these two Opposite changes

is an increase in the level of welfare of R1 equal to PNQ
Of Figure 1a which is equal to the area Of AéB Of Figure 1b.
Something similar takes place in Figure 1c when price
drops to pg: consumer surplus increases and producer
surplus decreases, the net effect being an increase in
welfare for that region equal to CGB. The total gains
derived from free trade are then equal to the addition of
.increases in welfare of both regions, that is Agc.

The gains from trade for R1 can then be represented
by the area above the supply of exports function which
has as an upper limit the equilibrium price level for the
<3c>untry. Those for R2 can be expressed by the algebraic
aazrea under its demand for import function with the lower

boundary given by its price level.

Free Trade and No Transfer Costs
Assuming free trade and no transfer costs between

hu31;h regions the equilibrium level of production, con-

S"~11'Irlption, trade, and prices in region 1 (5?, d2, x22 =

0 0 0 . 0 0 0 0 0 0
SJ. - d1, p1) and region 2 (82: d2: X12 = 32 - d2' p2)

'361r1 be determined (see Figure 2). The level Of welfare

reaches a maximum at these equilibrium solutions.

46

 

\wofié .2O9hd.aw \Gva \§O \dfifl.&u tR

 

 

 

 

 

 

 

 

 

 

9 . . .
0N1 WV .“6 IN“ “—0” v H ki o W v n v ‘ Own

q 1 q A. q 1
_ _ _ _ _
1 _ _ _ 1
_ r n .u. n _
u _ _ . u _
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n n IIIIIII ml lllll rl ||||||||||||||| IL ”L
_
_ _

ltI 2 .
r a . .e o e .t

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u IIIIIII
h a H l t at
ITT m
n 3
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OUJK

 

 

 

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5.00 Ruthie: s at... USER - N - MN 3394‘

 

 

47

The existence of transfer costs (see Figure IV-2)
decreases the level of welfare that could be achieved in
its absence due to the reduction in trade. If tij is
allowed to represent the transfer costs of shipping one

unit from~region i to j,

Net gains from trade - area under dm2 + area over sxl - TC,

where TC transfer cost

.. 0
ABIE - t1] (xij)

ABC - (IE. x12) - ICE = FBI + ADE

The solution Obtained by maximizing the net gains
:Erom trade function coincides with the Objective of profit
muaximization that we assume each region pursues. Conse-
<g11ently region 2 will import from region 1 if the dif-
:Eesrence in prices between them is large enough so as to
exceed transfer costs. Rl will export to R2 if
572 - p1 > t12 and if p2 - p1 < t12 there will be no trade.

1\t: the equilibrium point, where net welfare is maximized
pz ' p1 = t12

Up tO this point we have considered a free trade
m<13c‘1e1. The analysis of the problem that concerns us
requires, however, the introduction of policy restrictions

alloi the analysis of their effects upon production,

48

consumption, trade and prices. The effects of the various

policies which have been used in the past and which could
probably be used in 1975 will be successively surveyed.

To simplify, the existence of other policy instruments,
which could be simultaneously used, will be assumed away.
The incorporation in the importing country (R2) of a fixed
import duty has the same effects upon production, consump-

tion, trade and prices in each region as the introduction

0f transfer costs. We could assume that Figure 2 represents

t3he hypothetical case of two countries without transfer
Coats and where t12 is the level Of the fixed import duty

that R1 faces when exporting to R2.
The price differential will at the trade limit be

p2 ’ p1 = fd12

fdlz being the fixed duty of R2 for commodities coming

from R1 .

"Ad Valorem" Import Duty
The incorporation of an ad valorem import duty
in Figure IV-3 is similar in its effects to that of the
Previous policy. It would have been possible to think
in Figure 1 of an upward parallel shift in the supply of
exPorts of R1 when transfer costs or fixed import duties
were considerediup .to point I where dm2 would have inter-

cepted sxl. Under the case Of an "ad valorem" duty, sxl,

 

\003 \050 know \0 ER Ems?! «40909

 

49

 

 

 

 

 

 

 

 

 

 

we ..1. ... a. A... a... ..a ... :31.
1 m 1
. .
_ . .
m 1 1
_
1 1 1 .
1 1 s -- ...............
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v \
.\. :1.
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\
\\ 116 was
a . E
v .u \ .
e a ”Net

 

 

 

the tone: Euros—S S... 3. ES meet: - m .. EH 530E

 

 

50

in Figure 3 would shift upwards but in prOportion to the
price level that corresponds to each level Of sxl. If
this were the only restriction to trade, the new supply Of
exports Of R1 would be sxi and production would have
decreased in R1 from s? to $1, increased in R2 from 82 to
3:, while consumption would go up from d? to di in R1
and on the contrary fall down from d3 to d: in R2. The
level of imports in R1 would contract to xiz and prices
would decrease in R1 at the time that they increase in R2.
The reason for not having a parallel shift in the sx1
is that the duty is here a function Of price in the export-

ing country. Therefore, the equilibrium solution for this

case is at
92 ‘ p1 = kpl

whereas k is the percentage "ad valorem" duty determined

on the basis of FOB prices at R1. For those cases where
this duty is applied on the basis of CIF prices, as in

some European countries, the equation will be
Pz ’ p1 = t12 + k (Pl + t12) = t12 + k t12 + k Pl

p2 - (1 + k) p1 = (1 + k) t12

51

Fixed Import Quota

 

The use of an import quota by the importing
country, that is

1

_ l -
x12 — x12, x12 belng a constant

sets up a constraint to the level of imports of R2 coming
from R1 and can be reflected in Figure 2 where the appli-
cation Of a quota equal to X12 has the same effects Of
the previous fixed import duty. In this particular
instance we have chosen the size of the quota in such a
way that the results are identical to those achieved with

a fixed import duty equal to fd12'

Sanitary Regulations
Import restrictions due to sanitary regulations
can be handled in the same way as the previous instrument,
except that the level of the restriction is set equal to

zero.

Voluntary Export Restrictions
Voluntary export restrictions can be managed in a
similar way to fixed import quotas except that the
restriction Operates on the exporter side. The exporter
agrees not to go beyond a certain export volume, since he
knows that otherwise restrictions on the importer side

will become Operative.

52

Fixed Export Tax

 

The implications of using a fixed export tax, such
as that which New Zealand uses for beef, is the same as
if the import duty is established at the importing
country. The exporter ships to the importer up to the

point where
P2 ' p1 = ft12

where ft12 is the tax to be paid in R1 to export one

unit to R2.

"Ad Valorem” Export Tax

 

The adOption Of an "ad valorem" export tax in R1
has the same effects as an "ad valorem" import duty for

R2, already discussed.

Fixed and "Ad Valorem" Export Subsidies
Fixed and "ad valorem" export subsidies in the
exporting zone have exactly the Opposite impact of

fixed and "ad valorem" export taxes, respectively.

Variable Levies

 

Variable levies such as those used by the EEC
countries are much harder to introduce in a model than
any one Of the policy instruments already discussed.
Their effects are the same as those of a fixed import

duty once their calculation and application is made, but

53

a complex process takes place at the calculation stage.
Its determinationl should be endogenous to a model which
encompasses not only beef but also trade in live animals.
Since this model does not cover trade in live animals,
variable levies will be dealt with as exogenous and

handled as if they were fixed import duties.

Domestic Price Supports

The inclusion Of domestic price supports, through
purchases and sales, and variable levies as in EEC
countries or by taxes at the slaughtering stage as in
Denmark or by any other mechanism, can provide a minimum
price at which the sellers will be able to market their
goods. NO matter what the increase in supply or the fall
in the demand schedule is, this minimum price is guaranteed
to be received for each unit. As Figure 4 shows for prices
above the supported level, the market will act freely
without intervention.

The equilibrium world price would have been pe in the
absence of a domestic support price in R2. But if the
support price is established at ps the domestic demand
curve becomes d2 d: with a kink at the price at which the
support becomes effective. Also, the demand for imports
is transformed from dm2 dm2 to dm2 dmé. But without some
kind Of import restriction, the quantity shipped to R2

would be XIZ while the level of consumption would only be

 

1See Chapter II.

 

 

\003 ehvto ‘03 \0 .ELN *h‘wtxos thVUKG

 

54

 

 

   
 

 

 

 

 

.t «v.1 or...” u. H
J 1 1
_ n 1 a
1 . 1 1
u 1 Eu " n
_u u 1 1
1 1 n \
1 1
fl 1 1 IIII
1 1 1 r .
1 . a
... a
I... 1... .
6....
a n «V
«m mu 3
fix
00C
.6 L

 

 

 

BRO-Eb“. NU?<K URONSOQ V tits: UQka I .v. .. .NN Ukboxhx

 

 

55

di. The excess Of imports over consumption of R2, equal

to XIZ minus dé, would have to be stored, reexported or
disposed in some other way. The way to avoid this cir-
cumstance is to impose a duty that will help to reinforce
the desired minimum price. The levy should equal the
vertical distance between the kink of dm2 dmé and the sxl. .h
The level of exports and imports will be x12 and price ’ 1
in the exporting country will drop below the previous

equilibrium level pe.

 

Minimum Export Prices

The use Of minimum export prices (see Figure IV-S),
which are supposedly above the free trade equilibrium
level, is equivalent, as far as its effects on prices and
quantity of exports are concerned, to the use Of an export
tax that will reduce the supply for exports. If pme is
the desired minimum export price, the specific export tax
should be such that 3x1 would move up to the point where
it would intercept the demand for imports Of the other
region at the pme level and xiz quantity. The new supply
for exports will be sxi and the price received in the
domestic market of R1 will equal pme minus the amount Of
the export tax, i.e., pi. However, since this way Of
implementing minimum export prices might not fulfill the
Objective Of higher prices for producers of R1, this
government would perhaps be willing tO use another route.

A more satisfactory way would be to use any administrative

56

 

\003 ‘95 ‘1on \0 ER simug 2.00.50

 

2!
III

.a 1.“.

 

 

 

.
—
_
1
.

      

 

   

O
------—— --- ---------1 “

 

nob
Cs

0 0&an

 

 

 

NUDE .3653 2333} 11. at} New-(k um SH. upset

 

 

57

device that would require an export contract be equal to

the decreed price.1

United Kingdom as an EEC Member

One alternative is that the United Kingdom be
allowed to enter the EurOpean Economic Community. But
since we are interested in the effects that such a situa-
tion might create for Argentine exports, it will be
necessary for our analysis to include not only a group of
countries which represent the Common Market and another
with a set Of supply and demand functions for the United
Kingdom, but also a third country which has kept relations
with these countries although it has not and is not going
to become a partner. The left quadrant Of Figure 6 shows
the demand for imports of the EEC (deEC), the same
schedule subject to an "ad valorem" duty of 100 per cent
(dm1

EEC
country would face if willing to sell in such a market

) and the marginal revenue curve that a non-member

(mr ). The quadrant Of the center for the United

EEC
Kingdom also presents the three schedules mentioned above

. . l . .
for the United Kingdom (deK, deK, mrUK) but the original
"ad valorem" duty we will first assume here is 20 per cent.

An additional demand for import schedule (dmgK) drawn

under the restriction Of an "ad valorem" duty equal to

 

1This is the plan the Argentine government has
followed for exports to the United Kingdom. Previously,
exports were made on a consignation basis and their prices
were subject to fluctuations.

58

 

\Ug 1950\03 ‘0 .EK. .\sxmkg

mu 0 800

 

 

 

0k Qx

 

 

 

.kaOKxM. Netluuke 20.5 Ohm ME
uueevfiem. to ME to wkUMLku

 

 

 

 

 

- O I NM. UMDOFK

 

 

QUCK

 

 

59

that Of the EEC, and the corresponding marginal revenue

curve (mréK) are also shown. Lastly, the quadrant Of the

right depicts the supply Of export of Argentina (sxAR)

together with the horizontal summation Of the marginal

revenue functions Of the other two quadrants. That is to

. l .
say, mrEEC plus mrUK gives mrT and mrEEC plus mrIK ylelds
mri. Up to this point, the only difference with a

regular treatment of price discrimination is in con-
sidering that the demand for import curves is subject
to "ad valorem" duty constraints. We have also allowed
for the U.K. to become an exporter if prices increase

UK) 0
Supposing first that the U.K. is not an EEC member

enough (sx

but Opposes a 20% duty to Argentine exports, while that

of EEC is equal to 100% Argentine exports will be equal

to x0. This quantity is distributed between EEC, xgEC'
and the UK, ng, in such a way that mrT equals its
marginal cost curve (sxAR) and mr equals mr If it

EEC UK'
is assumed now that the United Kingdom enters the

EurOpean Common Market and her duty is raised to the EEC
level, the new equilibrium position will be such that
total exports of Argentina will decrease to XI. The
increased level Of protectionism in the U.K. provides an
incentive to increase production and decrease consumption

with a tendency towards a higher degree Of self-sufficiency.

Imports in this country become equal to zero, producing a

60

diversion of Argentine exports to the "Old" EEC countries

. . 0 l
Wthh increase from xEEC to XEEC'

valorem" duty, the level Of imports in these countries

Assuming an EEC "ad

increases, although at the expense of a lower price for
Argentine exports and domestic EEC prices. This might
not be the case with the utilization Of variable levies
in EEC countries. Under this circumstance U.K. imports
also would be curtailed, but the height Of the variable
levies would increase to the extent that domestic prices
could be held at the intervention levels determined by
the EEC Commission. The use of this measure would allow
for no additional imports into these countries and

Argentine prices and exports would tend to decline.

CHAPTER V

FRAMEWORK FOR QUANTIFICATION

The Mathematical Model

 

The theoretical framework developed for the analysis
of the effects of adopting alternative economic policies-
can be made Operational through adequate mathematical and
programming formulation. These formulations became
possible after Paul Samuelson's pioneering research. He
converted the theoretical problem Of simultaneously
solving for production, consumption, prices and trade
flows among regions into a maximization problem, starting
by defining an excess demand function for each region as
the area which could be related to the notion of consumer
surplus. However, he preferred to avoid labeling this
algebraic area as such (due to the strong connotations
that this concept has in economics) and named it as
"social payoff function." He proceeded then to define a
"net social pay-Off function" (NSP) as the sum Of the
social pay-Off functions Of all the regions involved
minus the transport costs involved in shipping the homo-
geneous commodity from one region to the other. Given
that these are integrable functions, their areas can be

maximized.

61

62

Assuming a simplified model of two regions with

demand and supply functions represented by

di = di + Bi pi ; 8 < 0, i = l, 2 (1)

(2)

III
II
CD
+
.<
"0
.<
V
O

‘
L11
ll
[.4
‘
N

2 2
2 di = Z s. (3)
i=1 j=1 3
where
di = quantity consumed Of beef in Tm. of e.c.w.
sj = quantity slaughtered Of beef in Tm. Of e.c.w.
pi and pj‘= price Of beef in deflated US$ per Tm.

of E.C.W. at the producer level.
The net social payoff function to be maximized could then
be expressed in terms Of demand and supply functions and

1
areas as

 

1This expression can be derived from (1) and (2) in
the following manner:

For d1 = 01 - 8i p. ; l = 1, 2

C1. .
1

fire

)4
at: .21 .9
II
ml I-'
I
go

63

Z x
NSP = Z I) 13 (A - w 2 x..) d(£ x. )
. l 13 1]
1 o J j
2 x..
211 13( >3 )d(£ )
- + x.. x.
,j “3 n3 1 13 i 13
O
- Z 2 ti' 1
ij 3 3

where x.. represents the non-negative flow activities

13

between the supply and demand points, the first term Of

the right hand side is the sum Of the algebraic areas under

the demand functions, the second the sum Of the areas

above the supply functions and the last one the total

transfer costs. Since the purpose is to measure the gains

 

Similarly

p1 = xi - wi lj
=e.+ .‘,' =12
8] J Y: P: 3 '
= e. +
x13 3 Y3 p]
X.
._1.l=_l+p
Y- Y- J
J J
0.
p' = ' 71'+ 7; xi)
3 j J
p = u. + n

64

from trade, the concern refers to the excess demand or
supply functions that result of the difference between

domestic demand and supply.
Samuelson suggested that the maximization Of the NSP

function might be achieved by trial and error or by a more
systematic procedure Of varying exports in the direction
that would increase the value for the function.

His formulation provided the basis for several

interregional competition studies and for the elaboration

of new computational algorithms. A parametric and

iterative procedure proposed by Judge and Wallace and
reactive programming by Tramel and Scale are indicative Of

the latter. More recently Takayama and Judge1 converted

Saunuelson's formulation into a quadratic programming
.szablem by postulating linear dependencies between regional

Supplies, demand, and prices. Using regional and demand

equations as set up in (1) and (2), they wrote Samuelson's
Problem of maximizing the net social payoff function as

one of maximizing (4) . Evaluation (4) the problem could

be written as one of maximizing

- 1 z: n (2 x )2 - z 2: t - Z a (5)
2' j j 1 ij 1 j 13 13 i 1

1"Spatial Equilibrium and Quadratic Programming,"
QQBITual of Farm Economics, Vol. 46 (February, 1964), 67-93.

 

65

Two conditions were then necessary to maximize this

concave quadratic function in terms of nonnegative xij:

832:) g xi - wi(£j xij) - “j - nj(£ xij) - tij é o (5)
and
3:9." 15. = 0 (7)
1]
GiVen that in (6)
Al - wl Zj l] = p1
and
U] + nj 2i 13 = pJ
condition (6) can be rewritten as
91 - pj é tij (8)

The economic interpretation of these conditions was
explained in Chapter IV.

After demonstrating that Samuelson's formulation
could be converted into that of maximizing a quadratic
function subject to linear constraints, the same writers
specified a computational algorithm that obtains a direct
and efficient solution for regional prices, quantities and

inter-regional flows.

66

Finally, D. Lee Bawden picked up the thread laid by
Takayama and Judge and showed how, with some simple modi-
fications, spatial models could be extended from the field
of interregional economics to international trade problems.
He explained how to incorporate trade barriers and other
policy instruments, such as price supports and acreage
allotments, within the constraints that may affect the
solution. The importance of this contribution is obvious
for this study since it relies very heavily upon the
effects derived from the application of these policy tools.

The availability of a quadratic programming formula-
tion at Michigan State University made such a model useful
to this research. QUADA (the name of the program) is a

1 for

FORTRAN program developed by Dr. Richard G. Heifner
solving quadratic programming problems using the algorithm

proposed by Philip Wolfe.2

Data Requirements

 

This section will be subdivided into six subsections
which will deal with the general assumptions of the model,
the estimation of demand functions, supply functions,
excess demand functions, matrix of transfer costs, and

selection of policy instruments.

 

1Richard E. Heifner, "Determining Efficient Seasonal
Grain Inventories: An Application of Quadratic Programming,"
m' , Vol. 48, No. 3, Part I (August,
1966), 648-660.

2Philip Wolfe, Econometrica, Vol. 27 (July, 1959), 382-

 

398.

67

General Assumptions

In Chapter I the world was divided into 15 regions
(numbered from 1 to 15), including Argentina, Belgium-
Luxembourg, France, Germany, Italy, the Netherlands, the
United Kingdom, the United States, Australia, New Zealand,
Ireland, Denmark, the rest of Latin America, Canada, and
the rest of the World. The inclusion of the first six
regions is obvious due to the nature of the research. The
United Kingdom and the United States were taken into account
because of their importance in the world market and to
Argentina. The countries combined represent 63.6, 60.9
and 49.8 per cent of the total world imports for the peri-
ods 1956-60, 1963, and 1964 respectively, as can be seen in
Table V-l. Furthermore, the United Kingdom has been the
single most important outlet for Argentine exports for
several decades. Argentines are closely observing the
evolution of the United States market because of its poten-
tial.

On the exporting side, Australia, New Zealand, Denmark,
and Ireland are Argentina's most important competitors. The
most important market for Australia and New Zealand is the
United States, but Argentine failures to meet quantities
demanded by the Six in some years, as well as depressed
prices in the United States, have helped divert their
supplies towards the EEC. Substantial increases in the
.supply of exportsxof Oceania, combined with import restric—

tions in the United States, might provide additional

 

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m o‘me “UP—U ”mm." .NQJCFE ‘OmU‘

69

incentives for them to direct their efforts to the main
Argentine outlets. Ireland and Denmark are important
exporters and have favorable distances to the Western
European markets and are thus deserving of our attention.
Finally, the remaining regions are included to complete
the model.

Each region is assumed to concentrate her production
at one point and her consumption at another, although they
may be the same in certain cases. The main criterion
chosen to select the points of Table V-2 was to single out
those cities or towns around which most of the production
or consumption of the region took place. In those cases
where several geographic areas were important within a
region, a compromise point was adOpted which would be
relatively equidistant from the major subregions. The
motivation that induced to the adoption of this criterion
was the belief that the most important aspect to be con-
sidered was that of transfer costs, where distance was
supposed to be a major determining factor.

Using concentration points may be very easily criticized
as being highly unrealistic. However, the lack of reality
can be diminished to a great extent if relatively small
regions are delineated and the importance of transfer costs
is not overwhelming in the overall phenomena of resource
allocation and pricing. This is thought to be the case
since for all the important trading regions included in the

model production and consumption are pretty much concentrated

70

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71

around particular points, except in the United States. Also,
the use of import duties, variable levies, price supports,
quotas, etc., determines that, although transfer costs are
important to the model errors of a few dollars, choosing one
point rather than other within a country may not be critical
to the results of the model.

The simplification introduced by selecting one point
for consumption and another for production tends to decline
as the regions become smaller. It would be desirable to
design a model which splits the world into a fairly large
number of regions. The main restriction lies in computer
capacity and the lack of good quality data at a very dis-
aggregate level. The first aspect can be partially solved
with the preparation of computer programs for spatial
equilibrium models which allow for dumping the data on
tapes and calling it back when needed, but a limit on the
number of regions and constraints that can be handled is
very easily reached when extending the model. The limita-
tions of computer memory and program capability were a major
factor in determining the number of regions for this study.
It is felt that this number is large enough to avoid impor-
tant distortions.

Each of the regions is represented by a demand and a
supply function from which a demand for imports will be
derived. Their pecularities will be analyzed in the next

section.

72

The regions are separated, but not isolated, by a
physical unit transfer cost made up of transportation,
handling, and insurance costs. Comments on these will also
be made later.

Firms and state trading agencies are profit maximizers
and consequently make shipment decisions which yield the
greatest per unit return. Accordingly there can be no pro-
duct cross-hauling. Also related is a perfect knowledge of
profit Opportunities. None of these assumptions is probably
very far removed from the actual world. Exporters and
importers operate on a highly commercialized basis, making
use of modern communication methods which allow them to be
aware of changes in the most important markets of the world.

Models of this type usually assume that the product
is homogeneous and that consumers are indifferent about
the source of supply. The violation of this assumption
for this case would have introduced some important distor-
tions in the results. Beef trade is made up of several
different qualities which also bring different prices.
Fresh, chilled, and frozen beef, which are all encompassed
in the number 011.1 of the SITC (revised 1961) point out a
range of qualities and prices in a descending order. Trade
of other products such as canned beef was also included in
the model. The distortions introduced by putting all these

products into an homogeneous group were avoided to a large

73

extent by using coefficients which take into account the
value of one type of product in relation to the other.1
To avoid the errors committed in dealing with trade
of 011.1 with trade of canned beef that have widely differ—
ent prices, account was taken of the less important canned
beef by estimating its future imports and exports outside
the model and modifying the linear portions of the excess
demand functions of each region. The changes in the alloca-
tion of production, consumption, and trade in each alterna-
tive analyzed affected the 011.1 category of the SITC

(revised 1961) and the total (production, consumption, and

trade of canned beef were considered fixed for all runs).

Estimation of Demand Functions
A demand function will be estimated for 9 of the 15
regions. Those selected for this purpose, regions 1 to 9,
are the most important for analysis. For the remaining, a
point estimation of consumption will be made dependent upon
the year and alternative assumptions with which the analysis
is concerned. Their estimation will be shown in Chapter VI.
A restriction is imposed upon the functional form.
The quadratic programming nature of the formulation requires
linear relationships between the dependent and the independ-

ent variables, the reason being that the objective function

 

1The coefficients used were:
(a) 0.85 (Price 1 tm.chi11ed beef) = Price of l tm.
fresh beef
(b) 0.81 (Price 1 Ym.frozen beef) — Price of 1 tm.
fresh beef ‘

74

to be maximized or minimized is quadratic and that this
function is raiSed to the second power only after integrat-
ing the area under the demand functions. The empirical
evidence obtained on the basis of different forms in the
past leads one to believe that the linearity restriction

is not a very serious one, at least within the observation
inferals. The results obtained with the two functional
forms have not been different enough to rule out this use-
ful formulation.

Two other requirements are that all the demand and
supply functions, as well as the transfer costs, be expressed
in the same currency, and that all prices be eXpressed
at the same marketing level for a meaningful equilibrium.
The currency requirement will be met by choosing the United
States dollar due to its stability, worldwide recognition,
and data availability. The producer level was chosen to
satisfy the latter requirement because of data availability.

The last general requirement is that all demand and
supply functions be expressed in terms of homogeneous
quantities of beef. The unit chosen was metric tons of
equivalent carcass weight.

The first steps were to collect previous estimates
that satisfied the requirements. It was thought that
available estimates would provide many of the needed demand
functions, but the transformations and assumptions needed
to derive usable estimates were so many and so great that

direct estimates were used.

 

 

75

The single equation approach was used to estimate the
domestic demand function of each region. The Takajama-
Judge model requires for quantities to be expressed as a
function of prices and this implies no contradiction with
the theory developed by Cournot and Marshall and the estima-
tion procedures most usually followed. Besides these the
conditions mentioned by Héctor Dieguezl to advocate for
estimating demand functions using a single-equation approach
where quantity is the dependent variable and prices the
independent ones are satisfactorily met for almost all the
regions of the model. He explains the properness of using
the described procedure when the commodity is traded with
other countries, the international price is independent of
the country exports and the exchange rate is fixed during
the sampling period. The restriction of the exchange rate
can be relaxed if its variation is independent of the
exports volume. Under these circumstances domestic prices
are the exogenous variable and quantities domestically
consumed can be considered as the dependent variable. Such
assumptions are fairly well met for the regions of the
model. The countries for which demand functions were
estimated are important traders, price takers by and large,
and with fairly stable exchange rates. Argentina is prob-

ably the country for which these conditions are not so

 

1Héctor L. Dieguez, Un ejercicio en torno a:1os problemas
de multicolinearidadgy autocorrelacidn, Instituto Torcuato Di
Tella, Mimeo N6 48 of the CIE, Enero 1968, pp. 22-23.

 

:In—‘nm “fir—WW3
.3‘ _‘ -

76

strictly satisfied mainly regarding the last requirement.

Nonetheless the importance of the other factors previously

mentioned and of the possibility of thinking of exchange

rate fluctuations as independent of beef export variability

inclines one to adopt the general formulation.

The starting general formulation used was:

di,t = a: + bli pci,t + bZi ppki,t + b3i psi,t +

+ b4i PPYi,t + bSi yi,t + “it
for i = 1,2, . . . , 9
and t = 1950, 1951 . . . , 1966

where:

d = consumption of beef in thousand Tm. of equivalent

carcass weight ,
pc = average price of cattle per liveweight Tm. received

by the producer in real US$ of 1965.

ppk = average price of hogs per liveweight Tm. received by

the producer in real US$ of 1965.

ps = average price of sheep per liveweight Tm. received
by the producer in real US$ of 1965.

ppy = average price of poultry per liveweight Tm. received
by the producer in real US$ of 1965.
y = total gross national product in millions of real US$

of 1965.

With such a large number of demand functions to estimate

for different countries the achievement of complete homo-

geneity was impossible. Fortunately the problem was less

acute for cattle prices. Prices at the producer level for

- . .51—42'!

I
W' .1

77

'beef substitutes were not obtained in some cases, but for
the two most important variables, prices of cattle and
income, the homogeneity of data was Very acceptable. The
results obtained are condensed in Table V-3 which follows.
All the direct price and income coefficients were
highly significant except for the price coefficient of
the equation for the United Kingdom. The indirect price
coefficients were not so meaningful. The coefficients
of multiple determination were rather high, except for the
United Kingdom and Australia. The only case in which
serial correlation was verified was for France. The income
elasticities were usually in agreement with those of other
studies, although the research efforts regarding demand
usually refer to the retailer stage. The unique estimates
of income elasticities which notably differ from those
commonly observed are for Argentina and the United States.
The surprisingly high "income" elasticity obtained for
Argentina (0.76) suggested a second trial using per capita
domestic product rather than total gross domestic product,

with the expected result according to previous studies:

d = 71.938 - 0.171 pc + 0.056 ppk + 0.035 6;

1
(3.37) (—7.50) (1.29) (0.97)

R2 = 0.86

0w = 1.78

that is, a low "income elasticity" (p.25).

78

 

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79

The direct and indirect price elasticities showed a
slight variation when the formulation was changed: -0.27
and 0.17 respectively. The difference in "income" elas-
ticities between the formulations suggests that the popula—
tion effect included in the equation in Table V-3 is much
stronger than that produced by changes in the gross domestic
product. It also is interesting to observe that for
Argentina, while most direct price elasticities calculated
at the retail level are around 0.45, the estimate obtained
here at the producer level is about 0.27. The lower elas-
ticity at the producer level than at the retailer stage
suggests the existence of constant absolute margins. Most
of the estimates obtained for the remaining countries also
reflected lower levels than estimates obtained in previous

studies at retail or wholesale stages.

Estimation of Supply Functions

Similar to the demand functions, estimating the
supply relationship covered 9 of the 15 regions, and point
estimates were to be calculated for the remaining regions.
Similar restrictions to those affecting the calculation of
demand functions applied here.

From the point of View of available estimations there
was a considerable difference between demand and supply
functions. The supply number is indeed small, and almost
without exception, substantial transformations would have

been required to adapt them to the needs of the present

80

study. The long-run elasticity obtained by Bekerl at the
wholesale level is 0.06, but the regression coefficient is
not significant at a meaningful level. Otrera's2 long-run
estimate, also for Argentina, is -2.48 and from a theoretical
point of View is unacceptable.

Gustavo Nores3 estimated four different price elas-
ticities of supply: two of them refer to live animals; the
third is a short-run elasticity and the remaining one, which
would properly fit this study (because it refers to slaughter
quantities and is a cumulative elasticity), -0.31, was not
accepted; like Otrera's estimate because of its negative
sign.

The short—run estimate developed for the Netherlands
by the Landbouw-Economisch Institut4 for calves is -0.2489

at the producer level; Griien5 also obtained a short-run

 

1Victor A Beker, Elasticidades de Oferta en la pro-
duccién Agropecuaria Argentina: 1935-65, Facultad Ciencias
Econémicas (B. Aires: 1968).

2Wyliam R. Otrera, An Econometric Model for Analizipg
Argentine Beef Exports Potentials (unpublished Ph.D. disser-
tation, Texas A. & M. University, May 1966).

3An Econometric Model of the Argentine Beef-cattle
Economy—(unpublished Master's Thesis, Purdue University,
June, 1969).

4Supply and Demand, Imports and Exports of Selected
Agricultural Products in the Netherlands, Landbouw-Economisch
Institut, The Hague, 1967.

5F. H. Gruen, and others, Australia: Lopg_Term
Projections of Agricultural Supply_and Demand, 1965 and
1980, S. Monsen, Jerusalem, May 1968.

 

 

81

estimate (0.162 at the producer level); Cromarty1 a long-run
estimate of beef production for the United States (not of
Slaughterings) of 0.17; and two studies, one of Jones,2 and
the other Clark3 for the United Kingdom were closer to the
needs of this model, given that long-run estimates of beef
were calculated, but at the wholesale level (1.0 and 0.75
respectively).

It was decided that a better approach would be to
estimate directly the required supply functions.

One of the first observations of the behavior of
slaughtered quantities in response to price changes was
that lagged prices seemed to affect the volume slaughtered
in a given year more than present prices. Table V-4 is a
summary of several trials made with quantities of beef
slaughtered in year 5 as the dependent variable and price
of beef of year 3 as the unique dependent variable; using
the same dependent variable, but with price of beef lagged

one year in a second trial, and so forth.

 

lWilliam Cromarty, Predicting the Impact of Alternative
Government Proggams on the Wheat and Feed Livestock Economies,
Michigan State University—-Agricultural Experimental Station,
Technical Bulletin 286, 1962.

2G. T. Jones, "The Response of the Supply of Agricul-
tural Products in the U.K. to Price," The Farm Economist,
Vol. IX, No. 12, 1961, 2nd Vol. X, No. 1, 1962.

3Colin Clark, United Kingdom: Projected Level of
Demand, Supply and Imports of Agricultural Products, 1970,
1975 and 1980, Publication Services Division of the Israel
Program for Scientific Translation (Jerusalem: December
1969.

 

 

 

82

TABLE V-4.--Influence of Present and Lagged Prices of Cattle
Upon Slaughterings Ranked in a Descending Order.

 

 

Region "Price Elast." Prices
Name t t-l t-2 t-3 t-4 Range Used
Argentina 3 5 4 l 2 0.10 - 0.26 defl.mn$
Belgium 4 2 l 3 0.17 - 0.30 curr.US$ ‘
France 3 4 2 l 0.53 - 0.59 defl.US$
Germany 3 4 2 l 1.33 - 1.82 defl.US$ {-1
Italy 3 4 2 l 0.67 - 1.04 curr.US$
Netherlands 3 l 2 4 0.51 - 0.81 defl.US$
Australia 3 4 2 l 0.31 - 0.58 defl.US$

 

The influence of prices upon quantity slaughtered is
summarized by assigning a rank with number 1 to the variable
exerting the greatest influence and so forth in a descending
order. Observation of the data suggested adding one trial
for prices lagged 4 years for the Argentine case.

A clear pattern seems to emerge from the above table.
With some exceptions, prices lagged 3 and 2 years (3 and 4
for Argentina) showing more importance in determining slaugh-
terings than present prices and prices lagged one year. In
5 out of the 7 cases prices lagged 3 years appeared to have
the greatest impact upon slaughters. Also in 5 out of the
7, prices lagged 2 years showed a stronger influence than
present prices.

The results obtained seem logical considering that the
stock of animals a farmer may hold at a time period 3 cannot
be produced in a short period of time, and that the number

of animals he sends to slaughter is strongly related to the

83

number of animals he keeps on the farm. Present prices

may affect the number and the weight of the animals within
the range determined by the stock but these two variables
seem to be less important than the stock itself. Because

of these, some trials were made to include present and
lagged prices as variables influencing present slaughter.
The calculation of the Farrar and Glauberl test clearly
indicated the existence of multicollinearity when present
and lagged prices were simultaneously used as independent
variables. Three procedures were then used as follows:

The Nerlovian2 approach in estimating long-run elasticities,
a procedure which would arbitrarily weigh present and lagged
prices to form an overall index that might reflect the
influence of all price variables considered important, and
the principal components approach which also uses an index
of prices.

The first approach failed because of the negative
response to changes in present prices verified for some of
the countries of the model (Argentina, Belgium, Italy, and
Netherlands). The negative coefficient obtained for present
prices resulted (as a consequence of the manner of calculat-

ing the long-run elasticity of the Nerlovian approach) in

 

1"Multicollinearity in Regression Analysis: The
Problem Revisited," The Review of Economic and Statistics,
February 1969.

zMarc Nerlove, "Distributed Lags and Estimation of Long-
Run Supply and Demand Elasticities: Theoretical Considera-
tions," Journal of Farm Economics, Vol. 40, No. 2, May 1958.

 

84

negative long-run elasticities unacceptable from a theoreti-
cal point of view.

The second approach consisted of assigning arbitrary
weights to present and lagged prices in accordance with
their importance observed in Table V-4. A process of trial
and error, based on the weight modifications, with the
objective of maximizing the coefficient of multiple deter—
mination and minimizing the standard deviations of the
regression coefficients soon led to results similar to those
obtained with the third approach, the use of principal com-
ponents. Since the prOperties of the second method were
even less certain than those of principal components, it
was abandoned.

The principal components method was applied to data
on prices of products which are substitute and complementary
in beef production. Hog, sheep, grain, and milk prices were
transformed into a principal components index. The analysis
of the production structure in each country revealed the
most apprOpriate prices. Finally, the index of lagged beef
prices was computed, omitting explicit present prices
because of the way in which solutions are obtained in the
spatial equilibrium model adOpted.

The quadratic model solves for present prices, among
other variables. This posed an interesting problem since
the demand relationships should only contemplate present

prices as explicit variables. Encompassing present and

85

lagged prices in the index would have yielded a hybrid
solution lacking usefulness. However, present prices could
be left out and lagged prices of cattle grouped in a unique
index. The solution could be reached by either of two pro~
cedures: (a) by projecting exogenously lagged prices to
the years immediately before the year for which the spatial
equilibrium model was to be solved, or (b) by running the
model in a recursive fashion through which the price solu-
tions obtained in one year would be used as imput prices to
build the principal component index to use to forecast
solutions for the following year, and so forth until 1975.
The index of cattle prices was then built using a model
with characteristics of recursiveness.l

Table V-5 presents the summary of the "best" supply
equations obtained by separating present from lagged prices
of cattle. Lagged prices were grouped by means of a prin-
cipal components index, with the exception that the equation
for Australia, where prices of cattle lagged 3 years, seemed
to yield better results. Prices of milk, dairy products,
and lamb were also subject to the same index construction.

The results are not acceptable, not only on the
grounds of the observable coefficients and tests of the

table, but also in terms of the considerable variability

 

lThe reformulation of the program used to solve the
spatial equilibrium problem was not made because the supply
equations estimated were not accepted as reliable. More
on this will follow.

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87

of the coefficients as other variables entered or dropped
into the formulation. The estimation of demand functions
showed Opposite characteristics: the coefficients tended
to remain unaltered when a variable was added or eliminated
from the original equation. Here the coefficients changed
to such an extent that only a few of the equations were

deemed reliable. The case of the Netherlands could be

'0‘. ‘Q<r 1!

cited as an example, in that for some formulations the
overall impact of price changes upon slaughtered quantities

was approximately equal to -1 while for others it tended to

 

be +1. This is the major defect of the used specification. 0’

Other problems which can be observed from the table, such

as inconclusiveness of the Durbin-Watson test and the

erroneous signs for the United States principal components

index of cattle prices and for the Belgium index of milk

prices are important, but are less impressive in the overall

context than the mentioned characteristics.1
The best results were on the United Kingdom, France,

and Argentina. The signs of the coefficients are generally

those predicted by theorization analysis of the sector; the

R2 was acceptable for two of them, the standard errors were

sufficiently small in relation to the regression coefficients

(except for present price of cattle of France), and the

overall stability of the coefficients was reasonable. In

 

1The magnitude of the negative feature explained could
be much better analyzed by presenting the results on the
various trials made but reasons of space precluded this
detail.

88

spite of these outcomes, the efforts involved in the spatial
equilibrium model and program were not justified in view of
the fact that only three of the regions had supply equations
which were relatively acceptable. Also, the equation for
Argentina is unacceptable since the overall impact of
present and past prices tend to outweigh each other and
there is no other relevant independent variable. Conse- F1}
quently, the total package of supply relationships obtained :
was rejected.

The best route open was to evaluate the point esti- j

 

mates made by several previous studies and adOpt those

which appeared most reasonable in View of past and possible

future performance. This was the procedure finally adopted.
The data evaluated and the projections adopted are presented
in Chapter VI where the data used is analyzed, and comments

are made on the results obtained for each alternative run.

Estimation of Excess Demand Functions

Once the demand and supply functions corresponding to
each region are available the derivation of excess demand
functions is a simple algebraic exercise. The supply func-
tion is subtracted from the demand function and the resulting
expression is called the excess demand function. The quan-
tity demanded along the excess demand function will be
positive, zero, or negative according to the level of domes-
tic prices. If prices are low enough for a particular

_’/

country, quantities demanded in excess of quantity domestically

89

supplied will be positive. There will be a higher price
at which quantities demanded and supplied will be equal.
And a higher price level at which quantities demanded in
excess of quantity domestically supplied will be negative,
or expressed in other terms, quantity supplied will be
greater than quantity demanded. The quantities demanded
for imports are positive, zero, and negative respectively
for the threeprice levels.

The need to derive excess demand functions from the
two sets of demand and supply functions, rather than using
them directly, arises from the higher efficiency of this
type of program.1

The fact that point estimates are used instead of
sloping supply functions for the first 9 regions, and that
point estimates are used for both slaughter and consumption
for the remaining 6 regions does not affect the concept of
excess demand equations nor the operability of the program.

Their actual derivation will be shown for each run in
Chapter VI.

Calculation of the Matrix of
Transfer Costs

Spatial equilibrium models specifically take into
account transfer costs between each possible pair of regions.
Transportation costs are the most important items included

as a component of the total cost of transferring one metric

 

1This is explained in the article by Takayama and
Judge previously cited.

90

ton of beef from the production to the export point of the
exporting country, and from that point to the port of the
importing country, finishing at the consumption point. The
other costs are insurance during the voyage and handling
charges for the commodity. No transfer costs were assumed
within any specific region.

Tramel and Seale1 discuss three ways of estimating
transfer functions, namely: actual costs, regression
estimates based on actual mileage, and regression estimates
based on estimated air miles. The last procedure was
excluded because a very large portion of the total trans-
portation is maritime transportation. The use of the first
two approaches, on the other hand, posed one of the hardest
data collection problems of the model. There is no peri-
odical publication concerning beef transportation costs,
and even less available information for the other variables.

Besides the lack of secondary sources, several other
problems became evident. Reliable estimates of ocean
freight rates on the basis of regression analysis were
impossible to obtain because of the many variables inter-
vening in determining a rate (approximately 25 according
to a mimeograph document in internal circulation in the

U.S. Maritime Commission), the impossibility of singling

 

1Thomas E. Tramel and A. D. Seale, "Estimation of
Transfer Functions," Interregional Competition Research
Methods, the Agricultural Policy Institute, North Carolina
State Print Shop, pp. 175-177.

91

out any one of them as being notably more important than
others, and again the lack of information at the inter—
national level.

The "a priori" theory that distance would be a variable
highly correlated with the rates was modified. It explained
some of the variations of the dependent variable, but not
many. Many other factors such as the existence of confer-
ences for a particular route, continuity and magnitude of
the trade route, type of ships used, time of the year, and
direction of the trip (inward or outward) tended to obscure
the relationship between distance and freight rates.

The second problem was the impossibility of predicting
future rates. No base existed as to the direction of freight
rates. Examination of data at the United States Maritime
Commission for recent years and interviews with knowledgeable
men of the field gave no clue as to possible direction of
the changes, if any. One possible outcome is the reduction
in freight rates as ships of greater deadweight tonnage
became available, but another also reasonable outcome is
a rise in world trade greater than the total supply of
deadweight tonnage. In other words, outward shift in the
demand schedule for transportation is greater than the
outward movement of the supply function.

The method finally adopted was a combination of the

first two explained by Tramel and Seale, consisting of:

 

92

1. use actual freight rates for the most important
beef routes. A United States government publication,1 the
file of the Federal U.S. Maritime Commission, and private
sources2 provided this information;

2. estimate transportation costs of the less important
routes using the information by regressing it against dis-
tance. The limitation of this procedure has been discussed,
but the reduced role played by those trade routes in world
beef trade made their use less problematic;

3. use the limited available information on insurance
and handling costs for all trade routes. Data on these
variables was even more scarce than for the main component
of transfer costs, but since they were less important, with
respect to the final results, those available were also used
for the remaining routes;

4. eliminate from the matrix of transfer costs the
routes which registered no traffic in the past and that have
a very slim chance of achieving any importance in the near
future. This decision was based on two different points:
lack of information and importance and reducing the use of

unnecessary space in the computer memory.

 

1Hearings before the select committee on small business,
United States Senate, Expansion of Beef Exports (Washington,
D.C.: U.S. GOvernment Printing Office, 1965).

2Expresas Lineas Maritimas Argentinas (ELMA),
Corporacién Argentinaa de Productores de Carnes (CAP),
Fairplay Shipping Journal, among others.

93

5. add to the figures of ocean transfer costs the
estimates of inland costs necessary to reach export and
import docks when the production and consumption points do
not respectively coincide with them, and assume that no
change is expected to 1975. The calculation of inland
transportation costs was made on the basis of actual figures
when available, and by means of regression analysis, that
used in turn the actual data on costs and distances.

Table V-6 presents the final matrix of transfer costs

derived with these procedures.

Selection of Policy Instruments

 

Data on policy instruments was obtained from many
publications and interviews. Those corresponding to the
trial problem to 1966 were the most important actually
used during that year. Those selected to 1975 under several
alternatives were based mainly on observation and evalua-
tion of past and future events. The specific comments for
each run are included in the corresponding section of data

used of Chapter VI.

94

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o o o o o o . , a. o o I I . I o o 3.8: .5 no :8

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v~u03 0:» IuIcIu .I .4 In» qulcwo vsIAqu ucIuIIu ququu5< .I .a .: iooocau aucquozuIz >~qu acIlqu IosIuh .xsa Icuucoqu .coqu: :mvuuo

no you: no uIIB III toads: ulaquIn .uquIa

 

~.§P not mwo~ «0 an: dank Baa .HOOD no lunou quucIuh no In»0fl2ac.00> MJQIP

CHAPTER VI

THE RESULTS

Test for 1966

The first trial was to evaluate the predictive
cxapability of the model and of the data being handled.
SjJnce there is no possibility of using statistical tests
tr) make inferences regarding the reliability of the
rxasults, the best test was a trial for a specific year
jlldged to be normal. This meant that neither draughts nor
Exroduction booms occurred, and that there was an absence of
crther phenomena such as wars, outbreak of foot and mouth
(disease, etc. The calendar year 1966 was chosen because it
must these qualifications and at the same time was a rela-

tively recent year.

Data Used

Gross nationalyproduct and prices.--Actual gross
I‘lational product and prices were used for each of regions
1to 9 of the model and multiplied by their correSponding
magression coefficients found in Chapter V, to be added to
time original constant. Since the main purpose of the test
WaS to find out the predictive capability of the model,

under the assumption that the values of these variables

95

96

were correct, actual GNP's and prices for substitute goods
in consumption were used. The GNP estimates for 1975 took
1966 as the base year for the projection.

Estimations of actual consumption in terms of equiv-
alent carcass weight units were also used for the remaining
6 .regions and a similar procedure was followed for actual
sZLaughter for all regions.

The following describes the policy variables used

ens constraints for each of the regions.

 

Orientation prices for cattle.-—Since for the year

 

iII question orientation prices had not been unified through-
CHJt the Community, an individual orientation price was used
fkar each of the member countries according to the actual
syituation. The selected orientation price levels should
laave been those which corresponded to adult cattle at the
Ixroducer level, because these were the prices used for
eustimating demand functions. Since the 1966 market prices
Very closely followed the orientation prices set up by the
Cknnacil of Ministers, the price levels chosen for the level
of (Irientation prices were the actual 1966 prices. In this
way no distortions were introduced into the model by adopt-
iIKJ an erroneous price level. And, since the market price
5“) Closely followed the orientation prices, there was no
danger in choosing market price levels representing orien-

tation prices. Average 1966 market prices for the 5 regions

97

correSponding to the Community were multiplied by 1.861 to

express a price at the producer level in terms of equiva-

lent carcass weight units.

Variable levies.-—The variable levies used in the

 

model were those necessary for market prices to reach the
levels of orientation prices. This mechanism is similar to
the real one because the objective is the same. The actual
calculation and application of variable levies is different
as seen in Chapter II; but for the purpose of the calcula-
tions of the effects of the levies, the procedure adopted

is considered sufficient.

"Ad valorem" duties.--The level of EEC countries

 

for imports from non-member countries was 20 per cent.
Since 1966 was still included in the transition period, "ad
valoren" duties were applied for imports among member coun—
tries also. The percentages that each of them applied dif-
fered, with Benelux countries using a 4.2, and West Germany
Italy and France imposing 4.5, 6.3, and 8 per cent reSpec-

tively.

 

1The process followed to obtain the price levels
adopted as orientation prices in the final solution was that
of gradually approaching it by successive additions on the
right hand sides of the constraints. The level of the lev-
ies was consequently increased to the point where solution
prices matched orientation prices. This trial and error
procedure was very tedious, but alternative procedures
failed. The method suggested by Dr. D. Lee Bawden "A Spa-
tial Price Equilibrium Model of International Trade," JFE,
Vol. 48, No. 4, Part I, Nov. 1966, p. 867, did not give
satisfactory results.

 

98

The duty applied by the United Kingdom to imports
from non—member countries in the Commonwealth was 20 per
cent, while free imports were allowed from Commonwealth

members.

Fixed import duties.—-The United States applied a

 

fixed levy of US$ 66 per Tm and Canada applied the same
amount for British preferential and countries enjoying most
favored nation treatment. The general levy in Canada was

US$ 176.

Export taxes.--The only countries which applied

 

export taxes during 1966 were Argentina and New Zealand.
The former applied a 6 per cent tax from January 1, 1966 to
April 25, 1966 and a 3 per cent tax from April 26, 1966, to
November 7, 1966, at which time they were eliminated. A
weighted average of 3 per cent was used for the year. New
Zealand, on the other hand, applied a fixed export tax of

US$ 1.50 per Tm.

Import taxes.--The only import quotas used were

 

those applied by the United States for beef classified
within the category 011.1 of the Standard International
Trade Classification (SITC), revised 1961.

The quotas used here originate in the agreement
signed during 1964 by the governments of Australia, New
Zealand, the Irish Republic and Mexico to limit their meat

exports to the United States. The quantities determined

99

for exports of 011.1 during 1966, in terms of product
weight, were 260,000, 111,000, 36,000, and 31,800 reSpec-
tively, which when converted into carcass weight equivalent,
respectively became 356,200, 152,070, 49,320, and 43,566
Tm.

Bans on product imports within the 011.1 category r
from regions considered as endemically affected by foot and ‘3
mouth disease was also taken into account.

The transfer cost data used for 1966 is shown in

 

Table 6 in the previous chapter and deserves no additional 3
comments.

The linear constraints considered marketing margins
between the producer and exporter levels of the exporting
countries so equilibrium could be possible in terms of pro-
ducer levels on all regions of the model. Omission of this
factor would have resulted in higher producer prices in the
exporting countries, because marketing margins represent a
cost which must be considered for each shipment. The
effects of eliminating this margin are the same upon equi-
librium prices as in omitting any others such as transfer
costs. The margins calculated were 1.509, 0.986, 1.147,
1.224, 1.180 and 1.509 for Argentina, Australia, New Zea-
land, Ireland, Denmark, and the rest of Latin America,

respectively.l

 

lSome differences may appear in the figures reported
here as actual, mainly for consumption and net imports, due
to the many inconsistencies in the data even in those coun-
tries which have the best statistical information.

100

Finally, account was taken of the price differences
between fresh, chilled, and frozen beef. The values of i
Tm of chilled and frozen beef were established as being
equivalent to 85 and 81 per cent reSpectively of fresh beef.

The reduction is due to the freezing process.

 

Results IPT
Table VI-l shows the actual and predicted prices,

consumption and net imports of fresh, chilled, and frozen

beef for a normal year. The table has been complemented

with figures for Net Imports of Other Beef and Actual in;

Slaughtering for a more complete picture of the balance
between consumption and slaughter.1
Attention should be given to the figures above the
horizontal line and to the left of the vertical line (N.W.
quadrant) to compare the predictive capability of the model.
The remaining data (figures below the horizontal line and
to the right of the vertical one) were given and therefore,
no mistake could be made (if the program functions properly).
The overall performance of the model was very satis-
factory regarding the variables mentioned. The deviations
for the three variables were small in general, and only

relatively unsatisfactory for levels of net imports of 011.1

 

1The calculations were based on f.o.b. export values
obtained from FAO Trade Yearbooks and from domestic prices
all converted into US$ per Tm. of equivalent carcass weight
1966. The percentage obtained for Argentina was adopted for
the rest of Latin America on the grounds that Uruguay, an
important exporter in the latter region, follows similar
practices to Argentina.

11)1

0&030000 No .5

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Hmauo< nanoman uoz H.aHo uuuomEH uwz cowumaancou Ioowum

 

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«nu o» mcauconuouuou «6mm «0 IuMOMEH uoz cad .co«umasucoo .umoaum umuowvoum can Hoauud mo noanImEOUII.HIH> man‘s

102

of the U.K. and the U.S. In the case of the U.K., the level
of imports was overestimated by 53 thousand Tm. and in the
other case there was an underestimation of 76 thousand Tm.
No calculation of percentage deviations was made because
they may induce erroneous assumptions. The most important
evaluation of the difference should be made in absolute
terms for the purposes of this study. The reason for these
two relatively important deviations lies in the distribution
of trade flows between both regions.

This problem originates in the manner in which
exports of a particular region are distributed among vari-
ous importers and can be seen by comparing the predicted
trade distribution and the expected according to actual
data.1 From a comparison of Tables VI-2 and VI-3 it appears
that the most important factor causing the distortion indi-
cated for the U.K. and the U.S. is a shipment from New Zea-
land to the U.S. Table VI-2, depicting the "actual" dis-
tribution, shows that New Zealand shipped 27,058 and 89,917
Tm. to the U.K. and the U.S. reSpectively, while Table VI-3,
which depicts the results of the trial problem, shows no

shipment from New Zealand to the U.S. and an overestimation

 

lConsiderable time was Spent elaborating the matrix
for actual trade distribution for the data inconsistencies
and because of the diversity of conversion coefficients to
transform product weight into carcass weight. These coef-
ficients vary from country to country and in some cases are
not reported. Furthermore, the coefficient differs for
each trade flow because of the quality differences of the
shipments.

103

 

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104

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105

of trade for the route New Zealand-U.K. This overestimation
is approximately equal to the underestimation registered for
the route New Zealand-U.S.

There were problems of distribution for other routes
also, although of smaller importance. They can be observed
in the last two mentioned tables for routes France-Germany,
Denmark-Germany, Netherlands-Germany, Netherlands-Italy,
and Denmark-Italy and other minor ones. The sensitivity of
the model was high considering the quality of some of the
data fed as constraints to the model. Transfer cost esti-
mates in particular, are poor and lack of confidence in
them perpetuates distrust of the predicted distribution.

In some cases it was possible to substantially alter the
flow matrix by simultaneously modifying the matrix of trans-
fer costs for two or three routes by amounts not radically
different from the error.

In summary, the overall results of the model are
satisfactory regarding the level of prices, consumption and
aggregate imports of each region; but considerable care
should be used when evaluating the results insofar as the

origin of the imports.

Basic Run for 1975

 

When the 1966 test was judged acceptable, the next
step was preparation of the data to provide the basis for
satisfying the second objective stated in the Introduction.

An evaluation was made of those variables and their levels.

106

Because all remaining runs would be based on this
1975 run, considerable time will be devoted to the explana-
tion of the data used and the results obtained. It also
deserves special consideration because of the questions it

answe rs .

Data Used

 

GNP Projections.--Three sets of GNP projections were

 

made for regions 2 to 9. Table VI-4 presents the derived
sets of GNP growth rates labeled as Unfavorable, Most Likely,
and Favorable conditions. The titles were a function of the
prOSpects for Argentine exports, in the sense that a high
rate of GNP growth in regions 2-9 represents the possibility
of high rates of beef absorption.1

The GNP levels for each country were plotted against
their corresponding years to observe whether any particular
pattern was present throughout the period 1950-1966. Two
functional forms were suggested by the plotting, linear
and semilogarithmic, the former yielding the best results.
It was observed that although the linear form provided a

good fit, it was possible in some cases to obtain a better

 

1This assumption may be controversial due to the
positive correlation one may assume between rate of GNP
growth and rate of beef growth slaughter, even in countries
which are net importers. But it was appreciated neverthe-
less, in view of past events, that the correlation between
increases in GNP and consumption was stronger than that
between GNP and beef slaughters.

107

TABLE VI-4.-—Alternative Sets of GNP Rates of Growth to Use
for Projections of GNP to 1975.

 

 

Unfavorable Most Likely Favorable

Region ‘ Conditions Conditions Conditions
($5) ($5) (%)
Argentina -- 5.0 --
Belgium - Lux. 2.8 4.0 5.6
France 3.8 4.0 6.1
Germany 4.0 5.0 6.3
Italy 4.8 5.0 6.9
Netherlands 4.5 5.0 6.5
U. Kingdom 3.4 4.0 5.5
U. S. A. 3.0 4.0 5.1
Australia 3.9 5.0 5.8

 

relationship by dividing the period into two. This was
very clear for the EEC countries, for example. The year
1958 for the Netherlands, 1959 for Germany and France,

1960 for Belgium and 1961 for Italy showed turning points
in their rates of GNP growth. The linear relationship
before and after those years was very good, but the rate
of the former was somewhat lower than for the later period,
very probably due to the creation of the Common Market
after 1957. These turning points provided an opportunity
to derive different rates of growth for those countries
during the recent past, considering rates of growth which
occurred after the formation of the Community, as favorable
and the average rates throughout the period as unfavorable.
The countries had recently proven they were able to grow
from 1950 to 1966 at a relatively low average rate of
growth, and from the end of the fifties until 1966 at a

much faster rate. The possibility also existed of using

108

intermediate growth rates as an assumption of "Most Likely
Conditions", in the sense that countries of the Community
are beyond the verge of the preformation rates since the
Common Market gave new life to their economies. On the
other hand caution regarding the possibility of achieving
the high rates observed during the post-formation period
recommended the adoption of a middle rate as "Most Likely
Conditions". Table VI-S presents the functions estimated
to derive the GNP rates of growth to use for projecting GNP
to 1975 under alternative conditions.1

No equations were included for region 1 in the last
two tables because the projections used for Argentina for
all the 1975 runs were those elaborated by INTA.2 The
unique projections used for regions other than those con-
formed by the EEC countries were presented under the Most
Likely Conditions column of Table VI-4. The year 1966 was

taken as the base to project GNP to 1975 under the alterna-

tive assumptions.

Projections of prices of products which are compet-

itive in consumption with beef.--The demand equations esti-

 

mated required price projections of only a very few competi-

tive products: pork for regions 1, 3, and 4, sheep for

 

1The actual projections used are shown in Tables 2-
4 of the Appendix to this chapter.

2INSTITUTO NACIONAL DE TECNOLOGIA AGROPECUARIA,
Argentina Supply and Demand Study, in preparation.

1()9

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region 9, and poultry for region 3. The fits obtained were
much poorer than those used for GNP projections. Observa-
tions of the plotted data and of present events showed that
prices would tend to remain at 1966 levels for pork in
region 4 and sheep in region 9.

The final projections can be seen in Table 5 of the

Appendix to this chapter.

Projections of consumption and Slaughterings for

 

regions 10 to lS.--The figures in Table VI-8 listed for

 

regions 10—15 are point projections made for all 1975 runs.
The reasons for including these regions and obtaining point
estimates of their consumption and slaughter are that the
model would be more complete with them, but at the same
time they were not fundamental enough to justify the statis-
tical estimation of their demand functions. It was recog-
nized, nonetheless, that serious mistakes in the point
estimates for regions 10 to 15 also might induce important
mistakes in the results directly related to the objectives.
This recognition led to the evaluation of some of
the studies referring to them. The main studies scrutinized
were those published by FAD and OECD.1 The results obtained

were accepted for some regions and modified for others in

light of outside evidence.

 

1See note of Table VI-7.

111

.mmma mo mm: unnumsoo as Ummmmumxm mmowum mum meanHm> ucwccmmmp mnem "meoz

 

 

Amm.vlv Ahm.oav
Ho.o hm.m~¢- mm.mmma .moHHEmm 5H suuasom mocmum
Avw.¢v Amm.o~v
Hm.o Hm.m mo.omv HMmCHq ma xuom wocmum
Amo.mv Ama.mav
mm.o mm.~ va.mmm Humans 5H xuom mcflucmmua
m A.mu>vaHB Mom m Eucm mummw uoscoum coammm
m ucwfloflmmmou Hmcofluosdm mo
coflmmmummm umnfidz

 

m.mbmH Ou mmoflum HommOHm on meD mnOHumswmll.mlH> mqmde

112

.mmxmse paw :Hmmm .Hmmsuuom .mommnw .ocmaumuua3m
.cmpm3m .mmsuoz .Ucmacfim .wfluum54 .smmmo .mw>mamomsw usonm coHumEuomcH
mmUSHocH maco umEHOM may mmswomn 04m mo umnu ou mabmummsoo manomuwp

on on ma cofimmu Mom cowmeH0mcw nmsosm Hammond uoc mmOU wusum Qumo mzem “mBoz

 

.momH .maumm .mmma was mama How mcofipomflOHm amusuasofluma .oomo

 

 

 

 

 

.hmma
.wamuH .mmmH paw mnma How mcoHuUmHOHm I mmfiquOEEOU amusuasoflum< .Omm "mmousom
whom Memo.m whom.a mmv.a mom.ma vNH.vH pauoz w0 .m
«N nmo.a moo.a HNH I mmm owo.a mpmcmo
.m.s .m.c .m.c mmm amo.m vmm.m .Hmfid .A .m
HHH I mm cam mom I oaa mam xnmficmo
mom I mm mmm man I hm mmm UnmamuH
mom I Hma mav men I vma mow .Hmmw .z
.QEH umz .umESmcou .unmanm .QEH .pmz .umESmcoo .ucmdmam cowmmm
mwsum oomo mwsum 04m

 

.oumo cam osm an omummmum whoa Mom ma ou OH mcowmmm mo mmwm no muuomEH
umz cam macaumucmsmam .cowumESmcoo mo mmumEHumm ucflom mo sOmHHmmEOUII.>IH> mamme

113

It can be seen by comparing Tables VI-7 and VI-8,
that the projections of FAQ for New Zealand and Ireland
were accepted, while those of OECD were more "reasonable"
for Denmark and Canada. It should be noted that the OECD
study took that of FAO as its starting point; it was in
fact an evaluation of the latter in view of more recent
evidence. The most important corrections made by OECD were
those in reference to Denmark and Canada. The projection
of Denmark slaughters was substantially reduced because of
the negative impact she will probably suffer by 1975 because
of the difficulties the EEC is suffering in its dairy policy.
Denmark, as does the Six, has dual purpose animals, and her
incentives to increase beef production will no longer exist
because of the elimination of the benefits the EEC market
provided in the past. The modified projections for Canada
consisted of lower levels of production and higher levels
of consumption.

None of the projections made for Rest of L. America
and Rest of the World were accepted. The evolution of
imports and exports from 1948 to 1966 of the former region
seems to tell a very different story from that presented by
the FAQ projections. The historical record of imports and
exports obtained from FAO Trade Yearbooks, suggested the
convenience of using the same quantity of actual net imports

registered during 1966 for 1975.

 

 

 

 

.aumumoomc c023 poco«u:o& hauwoaamxw on HHfi3 awn» usn mmumEHumm mama» so moms on Haw3 mmmcmco 3mm an

 

114

 

.. wmn o.Hm v.vo~ m.ooa h.vwm .. pauox on» u0 ummm
o.moo.H on v.~m v.m I ~.HH I m.~ nmo.a momcmu
.. mmHI 0.5m I o.~mHI «.mmHI v.HN .. .< .A on» «o .m
o.oH~ HHHI m.oa I n.ooaI b.0oHI .. mm xumficwm
o.mmm mmNI h.o~ I m.hh~I m.nh~I .. hm pcmaouH
o.mov mvNI o.m~ I «.mNNI v.m-I .. «ma panammu 3oz
o.om~.a .. m.vm I .. .. .. .. mwamuumsd
0.2.x...HH .. w.h~H .. .. .. .. .4 .m .D
o.m~o.H .. o.o~H .. .. .. .. Ecumcfix .D
o.mmm .. ~.m . .. .. .. .. mpcmaumnumz
0.0Hb, .. o...“ .. .. .. .. >HQUH
Oommv~H o. mom .- o. .o .- xcmghmo
o.mma.~ .. v.oa I .. .. .. .. wocmum
o.mh~ .. >.~ .. .. .. .. .XDQI.Hmm
o.omb.N . . h.¢NNI . . . . . . .. adducwmud
mvcwumucmsmam muuomEH wwmm H.HHo mo H.HHo wo H.HHo mo sofludEsmcoo amnesz :ofimmm
uwz umnuo wo muuomEH umz muuomxm mmouo muuomEH mmouo

Hmuoe muuomEH uoz

 

.A.u.3.o.m «0 .Ee .suv mmcgm mnma new pom: on on macauomhoum unwomII.wIH> mamas

115

The OECD projections for some of the countries
included in region omitted the Rest of the World were
judged as satisfactory, but some changes were needed due
to the problem explained in the note to Table VI-7. The
FAO projection for this region was completely unacceptable
because it included countries, such as Mainland China, as
buyers of substantial quantities without acknowledging prob—
lems of purchasing power, balance of payments, and political
problems which will very surely preclude them from becom-

ing important traders.

Projections of slaughtering for regions 1 to 9.--As
explained in Chapter V, the efforts to estimate supply func-
tions failed to yield satisfactory results. Rather than use
results in which little confidence could be put, a decision
was made to obtain point estimates. The procedure was to
select a series of important studies and to subject them to
close scrutiny.

The following paragraphs will evaluate the factors
that were used to adopt the quantities presented under study
reference number 14 of Table VI-9 among the projections made
by the studies 1 to 13.

Any projection which could be made for Argentina ran
the serious risk of being highly arbitrary. The arbitrari-
ness of a projection could be a characteristic common to
many others, but this is particularly true for this case

due to the fluctuations in the level of slaughter, the lack

 

1516

 

 

 

.oum .manmwum> unopcwmmpcw ma 05w» means macaw
Iowfioum .uwannflum> unaccomumuuoo on» How msowuomnoum can mcowuocnw >Hdmsm mo «cowumswuum Hmowunwumuu

 

 

 

 

 

 

       

  

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

.aammsm mo ma0>ma unwound can puma ou uuodnmu saws coHumsHm>m .mH on H mmwcsum so comma moumsaunm .va
.uuum unmouoo mmsaoxu amusvwm «we .owbHIucowssz . H I chad Nuwcsssou oweocoom summousm 0:» mm
muosvoum unusuasouumd wow hammsm can panama musuam no soauo mu c .AomHv mcsnomMOumuunouuwz Mam usuuuncm .ma
.mwma .nwumm .mmma can
mhma wow uneauomnoum unusuasowmmw .Anumo. ucoEmoHo>mo can newumummoou commousm unu MOM newuouacmuuo .~H
.mmoa >62 .Emauusuoh .coucoz .m .omma can
mmmaIavcmewo can admmmm Housuasowuw¢ mo uncauomfioum EucaImdoq "mwamuumsd .mumnuo can ..m .m .cmsuw .HH
.mwma mans .coumcasuuz .mew coauuom
mum . 4. . .nuoscoum amusuasuwumé mo muuommn can .xwmmsm .psmemo mo Ho>mq vmuoonoum
"meow sax 000mm: mo osssm .mow>uwm nuuomnmm owsocoom I wusuHDOMum< mo ucosuummoo mwuoumIquMMD .OH
. .mnma one o ma mam unoomuom I uvcoaumnuwz on» ad muuspoum amusuasowumd wouomaom mo muuomxm can
nuuo EH panama can A am .AmusuwumcH noumwmum mowsocoomIHmusuHsowuodv usuwumcH swasosoum I zsonusmq .m
.eoma .couocasmnz .mhma can .opmfl .moma ca cameoa can aammum mo
ucofiuomnoum I musuasowuma cmwauuu .mo«>umm soumammm oflsocoom I musuasomuma mo ucwsuummmo moumum banana .m
.bmmHI.cmnosmEI.NcwEuwu mo oaaammwm kuoomm 0:» ca «unspoum
Housuasowuwc uOHINAmmsm can panama mo unmEQOHo>oo BummImcoq .Aomwy mesmumHOMmuanomuuwxumm usumuncn .5
. .nmoH .Emammsumn .mhma can chad ou acofiuoofloum I mocmum cw muoscoum sump cmuomamm
no mom: can :owuuscoum .Aooommov coaumEEOmcoo on usm newuwucwssooo mm um monouwnomm up ouymmu .o
.homa .mhmauohmfl ssfimawm ea muuspoum amusuasowumc “Om panama
can mammam no usaEQOam>oo sums mcoq .Aommmv meNuopco Hamwoom so nomweocoum uoo> Esuucmomwvsum .m
.ucwucomud nowandmom ma on oHHouummwp mm Hucmmbmz bmmmcou I monumu 0w HmsoHomz mason .v
.mmua .4mquocwncmq umom .mhmH can chma OMImcoauumfimwm suds wwwcseeou owsocoom cmumqusm
on» no acumuumm momma can mEocoom xoouno>waIcwuuo one ..m mama .ho3mnumm can ..A cocuw> .:0m:ouom .m
- .mmumeHuum no“: ..uanH .~
.mouusauum 36a "new” .msom .mmma can mama new acoauomnoum I umwuwoossoo Hausuasoauu< .oam .a “mmoxaom
om~.H >H~.HH a~o.a man oas nme.a mna.~ mhm oom.~ «a
.. .. .. v~n mac mm~.H hmh.a «nu .. ma
o-.A msm.m mam wan mmm mam.a ohm.a vow .. ~H
NQ°~H no on I on no a. o. on no HH
.. .. momImOOH .. .. .. .. .. .. oH
.. .. .. hamImam .. .. .. .. .. m
.. .. .. .. com .. .. .. .. m
.. .. .. .. .. mmvHImvma .. .. .. h
.. , .. .. .. .. .. oom~IomH~ .. .. w
.. .. .. .. .. .. .. mvaqu .. m
0. co o. oo o. o. co co Fm°§N V
.. .. .. man now avn.a mna.~ emu .. m
oom.a omn.oa mmo.a mmn can ovm.a ooH.~ mnw owo.m N
om~.a oov.oa mHo.H o~m own omm.H ovm.a mom uvm.~ H
owauuuns< .< .m .D Eovmsax .a nonnaumnuoz human acmsumu mocmuh .xsq caducomus >osum on»
ssauaum mo gonesz
oocuuuwum

 

...3.o.o mo .EB .nuv m 0» a,nco«mmm mo mhma ou nmcwumunmsmam uo nouoEwuum ucaom mo neonaummEOUII.mIH> wands

117

of reliable past studies, and the failures incurred by the
author and by other studies. The level of slaughter for
Argentina fluctuated between a low of 1,766 and a high of
2,605 thousand Tm. for 1953 and 1963 respectively, during
the period 1950-1966. Since this study is, to a large
extent, evaluating the prospects of EEC markets for 1975
assuming average levels of production for Argentina, the i
projection was made that Argentina would be able to increase

production by at least 10 per cent over the 1963 level

within a period of 12 years. If Argentina were incapable J

 

of producing an increased level of beef, the problem of
future markets was not an important one. The problem
becomes important when considering the possibility of sell-
ing greater amounts than in the past if the projection for
higher production levels is a valid one. Lower supplies
could have been projected in the face of extremely adverse
conditions in world trade and prices for the year 1975.
There was no need, however, to reevaluate the projection
with a downward trend. And, in light of possible favorable
world markets, the projections made by FAO appeared to be
much more reasonable than those made by JUNTA DE CARNES and
CONADE. Although, both FAO estimates seemed somewhat Opti-

l O O O I l
mistic for average production conditions, but one or more

 

1The very large variations of Argentine slaughter do
not preclude those figures as being a reality for a particu-
lar year. 1975 might be a year of peak slaughter and satisfy
the high estimate of FAQ or even surpass it, but the analysis
performed here refers to average conditions.

118

runs could be made using FAO figures (or similar ones) in
case of buoyant world markets and prices at the projected
level of 2,860 thousand Tm. This quantity was chosen as
the basic one together with the remaining "most likely con—
ditions" that might prevail in 1975. In fact, two addi-
tional projections of slaughters higher than the basic one
used for 1975 were made to analyze their effects.

For regions other than Argentina the level of the
projections was influenced by a conservative principle.
After evaluating the studies of the table in light of past
and present levels of supply, the choice was always made
with an upward bias. If two or three projections of quan-
tities supplied seemed reasonable, the one with the highest
value was adOpted to protect the final solution from opti—
mistic conclusions.

Those projections with a level of 250 thousand Tm.
or below for Belgium-Luxemburg were discarded because by
1963, slaughter had reached a figure of 249. The remaining
projections were those of numbers 1 and 2 and the final
selection was determined by the above principle.

Only one of the projected levels for France is
above the selected level of production, the high estimate
of CREDOC. This appeared to be out of line with increases
in previous years. In fact the 2,135 thousand Tm. adopted
seemed possible only when projecting supplies on the basis

of the high production years in France during the period

 

 

119

1950-1966, (that is 1954 and 1964). Also, the production
incentives policy provided by past milk prices does not
seem to be viable in view of the events described in Chap-
ter II.

The highest level of production in Germany reached
in 1962, 1,297 thousand Tm. caused the discarding of those
projections for 1975 which border on the 1,300 figure. The
high projection in the IFO study, 1,453, required only an
increase of 11 per cent above the quantity of 1962.

The constantly increasing production in Italy
reached a maximum of 638 and 625 thousand Tm. in years 1962
and 1966. The evolution of past production indicated that
a linear function would fit the data and the projection to
1975 derived from it suggested the adoption of the highest
estimate of FAQ. This represents approximately an 11 per
cent increase over 1962.

Given that the value of 343 thousand Tm. for the
Netherlands was reached during 1963, the high level of 383
estimated by the study by Hathaway and Sorenson seemed
reasonable. As in other cases this projection implied an
increase of slightly more than 10 per cent over the highest
slaughter year.

Again the projected increase for the United Kingdom
over the year of maximum production was about 10 per cent,
or slightly below. It should be noted, however, that no

effort was made to align the percentage increases around

T‘é— " _‘ " “ ‘ "-'_"_“'—'1

120

this figure. In fact, the implied percentages were calcu-
lated only after the values were selected. The calculation
of study 12 seems to be out of bounds since several years
during the period 1950-1966 reflected quantities slaughtered
above 883. The quantity finally chosen was obtained using
the supply function estimated in Chapter V and the price
level suggested by trial runs for 1975 which used similar
quantities projected.

The highest level of production of the United States
was 9,345 thousand Tm. in 1966 and the projection used could
appear extensive. This is not so if one analyzes the past
evolution of U. S. production. Increases in production dur-
ing the 17 years considered has been tremendous, almost
doubling during the period.

The linear function used to project to 1975 is as

follows:

Qt = 4,742.79 + 249,02 t ; R = 0.85
(17.14) (9.22)

Number of observations: 17

The strong trend toward increasing prices also sug-
gested the likelihood of and important production increase
by 1975.

Finally, the most likely value chosen for the quan-
tity supplied by Australia in 1975 was very close to the

"most likely" figure projected by the study of Grfien and

fish.-. ‘

121

others. It is centered on the low estimate provided by FAO
and represents a 24 per cent increase over the maximum
production figure registered on the agricultural year
1964/65. In a similar fashion to that of the United States,
the increase was very large, although not as large.

Although the production fluctuations have been rather great,
the evolution of past production suggests the possibility

of considerable increases.

Orientation prices for cattle.--Given the fundamen-

 

tal role that orientation prices play upon the determination gm
of the quantities consumed and traded in the model, the need
arises to estimate the most likely levels for them to 1975.
The most reasonable assumption regarding the rate of growth
of orientation prices for 1975 seemed to be that of adopting
past rates. It was unlikely that growth rates would be
higher than those between 1965 and 1969 because of the dif-
ficulties in CAP financing explained in Chapter II, and on
the other hand, the conservative assumptions used in the
study from the point of view of Argentine exports. Although
there is a possibility for increases in prices lower than
those registered by the historical record, a conservative
attitude assumes a constant rate of growth.

-The calculation of past increases is made in Table
VI-lO. The estimations were carried out on the basis of a
calendar year because of the period for which projections

are to be made and the calendar year nature of the data

 

122

 

 

.uosunw Houosou .uuuunwuaum Hawocacwm
. can huouono: MacawuucuwucH eoLu moans pmocnnoxc can «excuse gna>wa no u-oo sud! can .uosuuu

 

 

 

 

 

 

 

 

douw>on .xwu-uuouauou d .¢o«uucseeou coadouam ozu uo moauuo Howaumauaum Beau nocwauno sumo coaua cad) poundsUAou "muxaom
on.” o~.v mv.o h~.o om.m . wo.o vn.v us.o nm.n . onaouucw
I o ooouo><
«a.n mom nv.n one hn.~I com vo.~ owe mo.~I can vo.~ owe Hm.HI mom ah.~ omo No.~I mom vo.~ cow owaa
h~.oI wow on.n moo mn.o nae nn.n vno av.o ago mn.v ~n¢ mo.~ now ow.m moo hH.OI Nae vm.n new coma
vn.o pom sv.~ -¢ w~.o mac w~.n «mo nn.o coo -.n coo mm.~ mam n.v Hno «n.9I new ao.~ omo swag
oa.~ oom ~o.m poo no.v «do ~a.n «me -.~ woo on.m «mm w~.~ ham v.m moo ma.n mac ma.o nnm coma
mum gun can cam com com «hm «hm ~am mam mooa
.0:H o avian .ucH v goaum .ocu c vogue .ucu a cowum .ucu a oOwum .ucm a moans .ucH a wofiua .uc~ ' wowum .oca a ovuum .ocu c ocean ummx
noncoaou
“mom Aacwsoz Hoax ~acwsoz «mom docusoz Hmom aucuaoz doom Handsoz
accouuozuoz aduuu >cchoo uoccuh Eswodom
.mom~ no mm: Homm can “unweoz cw mowuuczoo Own :2 moofium coflumucwwuo we mmmouuucn conuCOULam Auscc<II.o~IH> mqm<e

123

used to estimate the demand functions and the slaughter
point projections. The nominal prices for the calendar
years were obtained by weighting the number of months for
each agricultural year during which a particular price
level was enforced. The nominal prices were deflated by

the cost of living index and the calculation of annual

. n

.,.,.__.. __-_..._- _... ..
I
13.—L;
....

increases for each country of both series was performed.

The average increases in nominal prices ranged
from a low of 3.53 per cent for Belgium to a high of 4.16
per cent for the Netherlands, with an overall average for
all EEC countries of 3.86 per cent for the period 1965-1969.
The average increment of real prices had a low of 0.27 per
cent and a high of 1.3 per cent for Germany and the Nether-
lands, reSpectively. The differences in the rates of
increase are due to the price alignment goals followed dur-
ing the transitional period and the unequal initial price
levels. The overall average increase in annual orientation
prices in real terms for the Six was 0.75 per cent. It iS
possible to assume by rounding the above figures, that
price increases for all the EEC have been 4 and l per cent
in nominal and real terms, respectively, during the period
1965-1969 for adult cattle.

The next step was to project the orientation price
level for 1975 under two alternative assumptions. The
first, previously explained, is that they will continue at

'the same real rate experienced in the past, i.e., an annual

124

1 per cent. The second to be used for an alternative run1
is that the growth rate will double that observed for 1965—
1969, i.e., an annual increase of 2 per cent. Table VI-ll

presents the calculations and both sets of projections.

Variable levies.--The demand and supply conditions

 

were such that no variable levy was necessary to reach the
orientation price level of US$ 699 per liveweight Tm. of

adult cattle.

"Ad Valoren" duties.--Changes in the 1966 trial .

 

consisted of the elimination of intra EEC duties completed
by July 1, 1968. The same "ad valorem" duties enforced
in 1966 are expected to be used during 1975 except for the

elimination mentioned.

Fixed import duties.--No change is expected for

 

1966.

Export taxes.--No export duties are expected to be

 

applied during 1975. The only relatively important level
used was that for Argentina during 1966, but although its

level was increased a few months later on, a gradual decline

 

1This data will be used in the model run where high-
est orientation prices for the EEC are considered.

2It should be noted that the actual price levels to
be used to 1975 under both assumptions are US$ 1,300 and
1,378 since 699 and 741 are projections of liveweight prices
and need to be converted to carcass weight by multiplying
by conversion coefficient 1.86.

125

HmEHcm mo waxy mzu mo mmoflum coflumucmfluo on mauumo pasta wo moflum coaumucmfluo uuw>coo on Madam on

 

.Hmcoflmfl>oud
.zmw mnp as com: HmEch mo mmmu “Ow
.mcofluossw pcmsmp mcu mumEHumm cu com:

p
o

 

 

.mHuumo pasom “cum ”mmeoz
Hen mam mnma
own was «was
man was mama
was who mums
«we saw Haas
one «so Ohms
amo 5mm mass ave Go.H no» moms
Assoc lasso ass was mo.H was moms
mmmmHUCH mmmmHUCH OOH H mmmH UQUH®>COU UCQHUHMWQOU MGUHHQ HMQN
Hmscsm mm cuHB Hmsccm ma nufl3 xmchImcH>Hq o OOHud .O Q soflmum>cou coflumusmfluo
mo umoo HmcHEoz HMCHEOZ

 

mmD Cu mmUHHm COHuwflcmflho Hmmm

 

.mmmwhocH Hmsccd wm paw H mo mammm mcu so

mmma DOw mmoflum coflumucwfluo mo coflumasoHMUII.HHIH> mqmde

126

has been occurring since, and it is expected to diminish
altogether. The tax used in New Zealand was unimportant

during 1966 and was also assumed to disappear.

Import quotas.--It was assumed that only in the

 

U. S. will quotas continue to be imposed. There are no
indications that other countries will be imposing this kind
of restrictions in the near future or that those in use in
the United States are going to disappear. The only change
that may be expected is the relaxation in the level of the
quota adOpted in 1966. The quotas have been modified in
accordance with the needs of higher imports, and the large
increases in domestic prices that have been taking place
lately in region 8 might induce further liberalities. How-
ever, a certain proportion may be continued considering
increases in output as has happened in the past. The pro-
cedure adopted to project the level for 1975 followed the
general lines of that adopted in 1964. Starting from a
quantity of 601,156 Tm., the base year for 1966, and an
expected increase in domestic output of 20 per cent to
1975, the increase in the quota should be 120,231 Tm. (20
per cent over 601,156) plus 72,139 Tm. (an adjustment of
10 per cent over the base quantity plus the 20 per cent
increase above calculated), which makes a total quota in
1975 of 793,526 Tm.

The distribution of these quotas among the partici-

pating countries of the agreement was assumed to be the same,

127

since no changes have been registered in the past, i.e.,

 

60, 25, 8, and 7 per cent for Australia, New Zealand, Ire-
land, and Mexico, reSpectively. This represents a quota
allowed for each one in the order mentioned of 476,116,
198,382, 63,482, and 55,547 Tm.

Lack of information regarding possible changes in 'W
the direction and magnitude of variables other than those
Specifically discussed here led to the assumption of no
change. There are no indications of possible modifications
in such variables as transfer costs, marketing margins J
between producers and exporters, and price differences

between meat qualities with respect to 1966.

Results
Table VI-12 presents the results of consumption,

gross imports of 011.1, gross exports of 011.1, net imports
of 011.1, net imports of other beef, total net imports, and
slaughters forecasted for 1975 under "most likely condi-
tions". It is still useful to have the results concerning
prices and distribution of trade flows, but the discussion
will start with a comparison of aggregate Net Imports of
011.1, Other beef, and Total Beef between 1966 and 1975.
Table VI-l3 shows the corresponding figures. Several
important aSpects can be observed from it:
(a) the total level of Argentine exports is expected to

increase by 106.6 thousand Tm. from 1966 to 1975

reaching an equivalent carcass weight in 1975 of

 

128

.0
Fa .r>>.

{lunar I

ll W I). rig.“

.Iiw

 

 

.. 0.000 0.00 0.000 0.000 0.000 .. 00002 000 00 0000
0.000.0 0.00 0.00 0.0 I 0.00 0.0 0.000.0 000000
.. 0.000. 0.00 4 0.000I 0.000 0.00 .. .0 .0 00 .0
0.000 0.000I 0.00 I 0.000I 0.000 0.0 0.00 0005000
0.000 0.000I 0.00 I 0.000I 0.000 0.0 0.00 0000000
0.000 0.000. 0.00 I 0.000. 0.000 0.0 0.000 0000000 302
0.000.0 0.000I 0.00 I 0.000. 0.000 0.0 0.000 000000000
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129

 

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130

692,600 Tm. The greater exports in 1975 represent a
percentual increase of 16.5 over 1966, or an annual

average increase of 1.36 per cent.

 

(b) Argentina is forecasted to be diSplaced as the largest
world exporter of beef by Australia which is projected
to increase her exports from a total of 425,000 to a
821,500 Tm. from 1966 to 1975. Australia is projected l
to export almost 130,000 Tm. more than Argentina during ‘
1975.

(c) The United States is projected to hold its position as

 

1"

the largest world importer, but Italy and Germany are
projected to diSplace the United Kingdom from second
position. The predicted increases are of 355,000,
375,000, and 180,000 Tm. for the United States, Italy
and Germany, respectively and a decrease of 164,800 for
the United Kingdom.

(d) Substantial changes are expected to take place in
other regions also. Region 15, which designates the
Rest of the World, with an increase in imports of
149,000 and Ireland and New Zealand with export
increases of 208,000 and 91,000 Tm., reSpectively are
the regions which will likely register changes.

It is possible to see other minor aspects, in ref-
erence to the composition of the flows, but they deserve
less attention. Since the level of beef imports other than

011.1 was determined outside the model, the level of 011.1

131

beef imports was automatically determined when arriving at
the overall solution. Since the forecasted level of Argen—
tina exports is, for example, 692,600 Tm. and the exports
of Other beef were set at 229,700 Tm. it follows that the
residual of 462,900 are exports of 011.1. In other words
the higher or lower levels of total exports affect only

the exports of 011.1 because the other exports were fixed
at a particular level. The consequence is that Argentine
exports of 011.1 increased by an insignificant figure of
5,900 out of the total increase of 106,600 Tm. Had exports

of Other beef been endogenous to the model also, the dis-

tribution of the export increment might have been different.

For this reason the more sensible figure to take into
account is the overall increase of 106,600 Tm.

On the other hand the small increase in the Argen-
tine exports of 011.1 is determined by the fact that Argen-
tina is the main supplier of canned beef and other varie-
ties of beef which have been encompassed here under the
heading of Other beef to the United States and the United
iKingdom. And given that the predicted increase of both
these types of imports is relatively important (approxi-
xnately 40,000 Tm.) in relation to the total increase pre-
dicted.in Argentine exports, both tend to absorb most of
.Argentina's export surplus. If the Argentine surplus had
been higher the additional increases would have been in

exports of 011.1. The remaining change of importance that

 

"a... .

 

 

 

 

132

 

 

 

 

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133

affected the level of Other beef exports was the increase
forecasted for Canada, also coming from Argentina.

Because the other exporters are not important
traders of products other than those falling within the
category 011.1, by far the largest increases were included
in it. Therefore, there is a strong positive correlation
between the change of total beef exports and that of 011.1
beef exports. The same thing takes place on the importing
side: a strong positive correlation between total imports
and 011.1 imports. The only two cases in which this is not
as important are for the United Kingdom and the United States
which, as already noted, are projected to have increments of
approximately 40,000 Tm. of other beef. It is remarkable
that for the former the reduction of 011.1 imports is
greater than the overall imports reduction, but this is due
to the independent projection of the increase in Other beef
imports.

Table VI-l4 contains the distribution of trade flows
within the various regions and the regional prices. It will
be surprising to observe, that the projected distribution is
highly different from the one registered during 1966 or any
other past year. The outstanding changes are the tremendous
increase predicted for Italy, with almost 260,000 coming
from Argentina, and the considerable decrease for the United
Kingdom, Argentina's traditionally main market, with a

level somewhat above 50,000 Tm. Increases are registered

£1

'5.

134

for exports to the U. S., Canada, and the Rest of the World,
while an important decrease is forecasted for Germany.

Table 15 shows the changes of destination which the
model forecasts for 1975 with reSpect to actual 1966 quanti-
ties. The moSt radical changes in terms of market shares
are those corresponding for Italy which increased it from
12.46 to 37.47 per cent, the United Kingdom from 29.25 to
7.31 per cent, and West Germany from 7.71 to 0.84 per cent.
TABLE 15.--Changes in the Destination of Argentine Exports

Between 1966 and Basic Run Results to 1975.
(th. Tm. of e.c.w.t. and percentages)

 

 

 

Region of % of the Basic Run % of the
Destination 1966 Total 1975 Total
Belg.-Lux. 12,271 2.18 2,725 0.39
France 8,908 1.59 9,375 1.36
Germany 43,307 7.71 5,844 0.84
Italy 69,982 12.46 259,518 37.47
Netherlands 18,210 3.24 19,892 2.88
U. Kingdom 164,366 29.25 50,618 7.31
U. S. A. 59,713 10.63 88,160 12.73
Rest of L. A. 21,400 3.80 21,400 3.09
Canada 0,0 0,0 20,000 2.89
Rest of World 163,695 29.14 215,000 31.04
Total 561,852 100 692,594 100

 

SOURCES: Table VI-l, estimates of Other beef exports, and
Table VI-14.

It can be seen from Table VI-l4 that a tendency
exists towards a concentration of exports in a few main
flows: Argentina shipping to Italy, France to Italy,
Netherlands to Germany, Australia to Italy and the United
States, New Zealand to the United States, Ireland to Ger-

many and the United Kingdom, and Rest of L. America to the

135

 

United States and Rest of the World. This is probably one
of the most important deficiencies of the model: its ten-
dency to oversimplify deSpite the considerable capacity it
has for utilizing variables important in the real world and
that no other model can handle. An unescapable conclusion
is that reality is much more complex than the mathematical F 1
models that can be used to represent it. The prosPect
exists, nonetheless, for incorporating new formulations

which will allow the researcher to get closer to the real

 

world. ; i
If the overall EEC market is considered, the level
of Argentine exports is predicted to increase from 152,678
during 1966 to 297,354 Tm., an increase of 94.76 per cent.
And if the United Kingdom is added, the change is from
317,044 to 347,972 Tm., a positive change of 11 per cent.
The EEC represented an overall share of 27.17 and 42.93
per cent of the total beef exports in 1966 and predicted
for 1975 reSpectively. The addition of the United Kingdom
changes the percentage of the total Argentine outlets from
56.5 during 1966 to 50.2 to projected 1975. This way of
portraying the future EEC market on one hand and the Six
plus the United Kingdom on the other hand is much more
reasonable than considering the predicted distribution on
a one—by-one basis because of the possibility of committing
mistakes due to the inadequacy of the model to reflect the

trade flows. This is increased because of a higher degree

136

of confidence in the aggregate rather than in individual
projections.

Viewing the projected quantities for 1975 in this
way, some reflections can be made for the whole EEC. In
the first place the Six are expected to increase the total
level of their net imports from 385,000 to 820,343 and
those coming from Argentina from 152,678 to 297,354 Tm.
circumstance which indicates a change in the share of EEC
net imports coming from Argentina from 39.7 per cent to
36.3 per cent. The pressure of demand upon domestic supply,
(which leads to increased imports) also has the effect of
substantially raising the price level and eliminating the
variable levies. In fact, the considerable increases of
market prices projected for the EEC countries are the most
important elements which make them better markets for other
exporters. They produce, as a consequence, a trade diver—
sion from the United Kingdom towards the EEC. This in turn
leads to an increase in the United Kingdom domestic prices
which inversely affects the level of consumption and moti-
vates a considerable decrease in the level of imports.

It is finally of interest to analyze the price pro-
jections for 1975 and compare them with the actual values

of 1966. Table VI-16 presents both:

 

 

137

TABLE VI-l6.-—Basic Run Projections of Regional Prices to
1975 and Its Comparison with ReSpect to Those of 1966.

 

Actual 1966 Predicted Percentage
Region Prices 1975 Prices Inc. of Prices

 

(real US$ of 1965 per Tm. of e.c.w.t.)

 

1 370 522 41
2 1,177 1,320 12

3 1,040 1,293 24

4 1,258 1,342 7 3
5 1,284 1,331 11 |
6 1,145 1,304 14 *
7 867 1,114 28

8 879 1,193 38

9 553 763 38
10 470 685 46

SOURCES: Tables VI-l and VI-l4.

 

1L5-

Estimated Impact of Model Run with
Argentine Supply of 2,903,000 Tm.

Data Used

 

The data was the same as that for the Basic Run for
1975, except for the level of Argentine supply which was
increased by 43,000 (1.5 per cent over the quantity used for
the basic run).

Given that under the previous formulation the level
of market prices for the EEC countries were above the orien-
tation prices, judged as likely for that year, and that no
variable levies were needed to support such a price, it was
interesting to note the limiting quantity of Argentine
slaughters for 1975 consistent with the remaining data
under the assumptions of "most likely conditions". The

question was to see if Argentine production could push

138

further than the 2,860,000 Tm. judged as likely for 1975,

without EEC imposition of variable levies.

Results

The model suggests that it is possible for Argen-
tina to increase production by the mentioned quantity with-
out market prices falling below the orientation prices.
Expanding production beyond this level would imply that EEC
countries would require the application of variable levies.
It is evident that, in fact, already at this increased level
of 43,000 Tm. the market price of France is US$ 17 below
the orientation price level (see Table 6 of the Appendix to
this chapter).

The results obtained in this run do not significantly
differ from those of the Basic Run except for the increase
in Argentine exports. The increase of 43,000 Tm. in Argen-
tine slaughters would result in an additional 34,742 Tm.,
80 per cent of the total.

It is possible to obtain a coefficient which
resembles the elasticity of world demand for Argentine
exports with the data obtained in the previous and present
runs. Given the percentage increase of exports of 5.02
(34,742\x 100 / 692,574) in reSponse to the percentage
decrease of prices of 0.76 (4 x 100 / 522) the "elasticity
of the world demand for Argentine exports of beef" is equal
to 6.60 within the range where the changes occurred. This

information is of limited validity, however, not only

 

139

because of perfectly inelastic supply functions for all
regions and of the demand functions for regions 10 to 15,
but because the variable levies of the EEC were not enforced
within this range. DeSpite these limitations, on the other
hand, it is surprising to find such a high elasticity for

an agricultural product.

Because of the higher reliability placed on overall
figures, as already explained, comments here will refer to
aggregate changes, rather than to the composition of them.
The net total increase of the BBC is 455.3 with Italy and
Germany as the importers and the remaining members the
exporters. The change from 385,000 in 1966 to 840,300 Tm.
in 1975 implies more than duplicating the initial level.
Adding the United Kingdom, the increase is from 816,000 to
1,118,400 Tm., a net positive change of 302,400 Tm.

The same warnings made for the Basic Run, with
respect to the composition of exports and the distribution
of trade flows hold for this run but some additional com-
ments can be made regarding the market share changes
expected to take place for Argentina between 1966 and 1975.
The data are presented in Table VI-18.

It is also possible to evaluate the changes from
1966 to 1975 in the importance of the EEC market, on one
hand, and the EEC together with the United Kingdom, on the
Other. Table VI-l9 provides the basic data for such an

evaluation.

140

TABLE VI—l7.-—Comparison of Net Total Imports of Beef in 1966
and Model Run with Argentine Supply of 2,903,000 Tm. in 1975.

(in thousand Tm. of equivalent carcass weight)

 

Net Total Imports of Beef

 

 

 

Region In 1966 In 1975 Change
Argentina - 586 - 727.3 - 141.3
Belgium-Lux. 10 - 0.5 - 10.5
France — 39 - 79.4 - 40.4
Germany 136 323.3 187.3
Italy 299 678.6 379.6
Netherlands - 21 - 81.7 - 60.7
E.E.C. 385 840.3 455.3
U. Kingdom 431 278.1 - 152.9
E.E.C. + U.K. 816 1,118.4 302.4
U. S. A. 539 894.5 355.5
Australia - 425 - 818.6 - 393.6
New Zealand - 158 - 249.0 - 91.0
Ireland — 90 - 298.0 - 208.0
Denmark - 97 — 111.0 - 14.0
.R. of L. A. - 189 - 189.0 0.0
Canada - 17 24.0 41.0
Rest of the World 207 356.0 149.0
SOURCES: Tables VI-l and 6 of the Appendix to this chapter.

141

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142

Estimated Impact of Model Run with
Argentine Supply of 3,000,000 Tm.

 

 

Data Used

 

The previous run considered an increase of 43,000
Tm. of the Argentine supply over the point estimate used in
the Basic Run. It indicated the possibility of increasing #3
Argentine exports by 34.7 thousand Tm., (when production 1
rises by 43,000 Tm.) without market prices in the EEC fall-

ing below orientation prices. The purpose of this run is

3 ‘7'}..‘L h" " u.

 

to observe a higher level of slaughters in Argentina, deter-
mine the possible increase of Argentine exports under more
Optimistic conditions and to observe whether the decline
provoked in world prices, and particularly EEC prices, is a

violent one or not.

Results

Table VI-20 shows the results with approximate
exports for Argentina at 808,000 Tm. It can also be
observed that market prices would drOp below orientation
prices, mainly in France and the Netherlands. The differ-
ences between orientation and market prices would be impor-
tant enough to apply variable levies throughout the Six,
tending to reduce imports to lower levels than those
reflected here.

The comparison in Table VI-21 reveals that exports
to the EEC and the United Kingdom would increase by 115.6

thousand Tm. if Argentine slaughter were increased by

 

143

 

 

 

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144

TABLE VI-21.--Comparison of Argentine Exports to the Six,

the United Kingdom, and the Six Plus the United Kingdom,

and Total Exports Assuming Argentine Supplies of 2,860,000
and 3,000,000 Th.

2

 

 

(Th. Tm. in e.c.w.t.)

With Argentine Supply of

 

 

Argentine

Exports 2,860 3,000 Change

EEC - 297.3 412.9 115.6 5'"
United Kingdom 50.6 50.6 0.0 E
BBC + U. K. 347.9 463.5 115.6

Total 692.6 808.1 115.6

 

SOURCES: Tables VI-l4 and VI-20.

 

143,000 Tm. The decline of Argentine prices as a conse-
quence of the increased slaughters, with reSpect to the
Basic Run (See Tables VI-14 and VI-20), is not important:
only US$ 14. And Argentine prices under the present assump—
tions are much higher than those of 1966: US$ 370 (See
Tables VI-l and VI-20).

Trade diversion from the EEC towards the United
Kingdom could take place in reSponse to the application of
variable levies as will be seen.

Estimated Impact of Model Run with Higher
Orientation Prices for the EEC

 

 

Data Used

 

Modifications in the data, with reSpect to the
basic run, refer to the level of orientation prices. The
rate of increase in orientation prices assumed for this run
doubles that of the basic run. The calculation was shown

in Table VI-ll.

145

Since the study is using point estimates for slaugh-
ters to 1975, the assumption of higher orientation prices

requires some corrections. Table VI-22 shows them.

Results

Table VI-23 shows very important changes with
reSpect to actual 1966 results and the basic run. Argen-
tina's exports suffer a considerable decline as a conse-
quence of the application of higher orientation prices and
the need to use variable levies in the BBC to raise domestic
price levels.1 The exports that reached the level of
692,574 Tm. in the basic run drop here to 506,293 Tm., a
level below that of the base year: 586,000 Tm.

Because of the distortion produced in the matrix
flow, probably due to the high prices in Italy and to the
fact that the route to Italy is the cheapest one, the fall
of Argentine exports above mentioned is registered in the
quantity exported to Italy.

It is more illustrative to comment on the overall

changes in the imports of each member of the EEC and of the

 

1It will be noticed that the price solutions are
not uniform throughout the Community. This is an impossible
achievement with the handled model, (at least without dis-
torting the results with the use of some gimmick); but on
the other hand, it reflects tolerable differences that
reSpect the approximate ranking of production costs within
the EEC. It may also reflect the approximate ordering of
prices within them and given the relatively small differ-
ences the domestic agencies might tend not to intervene.

 

146

F E ll, ‘. . m

 

.m:oflu00uuoo 0: :0:0 000000 00:000 00:00030
000: 00:0H00mm000 0:0 mo 00: 0:0 0:9 0Hn0um0000 0::0m no: 003 0:0wu0efium0 0:0

mo MHHHHQ0AH0H mo 000m00 0:9 .> u0um0so :H 0:0fl00::m mammnm mo :owu0EHum0 0:0 :uwz
m:wa00© :0:3 00:H0me0 ma0wuu 0:0 :0 00003 ma:w0a 003 :ow000a0m 0:6 .mumax0 00:0

00:00H>0 m:fiuowam:ou 0:» no 0090003 0:0 000: 0 003 m0wuwowum0a0 00000 mo 00H0£0 0:9b

. .mhma 00
mmma 800m :0: 0000m 0:» now 0085000 00:0 u0>o 0:00 000 m :0:0 0H 000000:fi 00000

H0000 0:9 .0085000 003 0000» 0>wm >H:o mo 000mm0 0:0 000» 0800 0:0 00 m0wammdm

mo H0>0H 0:0 :008 000mm0 00 00000mx0 00: 0H mhma mo 00wum 0:0 00:00 050 Am x way
0:00 000 m 0» H0500 0n panes 000000:w H0000 0:9 .mhma 00 onma Scum 0000H50H00

0H Amy :EDHOU on 000mm0u nuwz 0:00 00m H mo H0:ofluwpp0 H05::0 :0 mo 000000:fl 0:90

 

 

mmm.mav mmm.~m h.H ooo.mmm m
oom.mvh oom.mm o.H ooo.oah m
mom.mnm.a mom.mma >.H ooo.mm¢.a 6
omo.mma.~ omo.vw 0.0 ooo.mma.m m
mnm.nm~ mnm.~m >.H ooo.m>m N
A.u.3.0.0 mo .89 0:0msonav A.u.3.0.0 mo .59 .:BV
000000:H wm :ufi3 o0fiammsm .u:050 900E500¢ 000000:H wa :0H3 :OHm0m
Umwamdsm muflu:0so :H 000000:H muwowum0am 00am: 00wammsm mufiu:0so

 

0.0:00 000 A no 00000:H haw::EEoo 0:» mo 000000 :ow00u:0fluo 0:» mo 0:00 00m N
mo 000000:H H0s::¢ :0 m:aE:mmd mhma ou pmflammsm mmwuwu:0so mo 0:0fl000noumul.mmaH> mqmda

147

TABLE VI-23.--Comparison of Net Total Imports of Beef of
1966 and Basic Run, with Those of Model Run with Annual
Increases of 2 Per Cent for EEC Orientation Prices.

 

(Th. Tm. in e.c.w.t.)
Net Total Imports of Beef

Region In 1966 Basic Run 2% Increase
of Orientation

 

 

 

1 - 586 - 692.6 - 506.3
2 10 - 1.5 - 27.0 E—
3 - 39 - 84.6 - 184.9 5
4 136 316.6 160.3 g
5 299 674.3 609.0 3
6 - 21 - 84.4 - 162.8 E
:4
2-6 385 820.4 394.6 ‘
7 431 266.2 440.8
2-7 816 1.086.6 835.4
8 539 894.5 894.5
9 - 425 - 821.5 - 756.6

 

SOURCES: Table VI-l, VI-l4, and 7 of the Appendix to this
Chapter.
total EEC as well as the changes which supposedly could take
place in the United Kingdom rather than discuss the distri-
bution of trade flows. The preceding table portrays the
important changes with reSpect to 1966 and the basic run.
The negative influence upon Argentina is exaggerated
here because of the assumption of a completely inelastic
supply of exports in New Zealand, Ireland, Denmark, and the
Rest of Latin America, which, in the face of unfavorable
circumstances, are supposed in the model to continue with
the same level of exports. Otherwise that part of the
effect would be felt by them and the reduction in the

exports of Argentina would not be so large. The negative

148

consequences for Argentina are also stressed because
Australia has the United States as its primary, a country
outlet not affected by the application of higher variable
levies as in the Six.

The incentive that higher orientation prices pro-
vide for domestic production in the EEC, combined with the .0
consumption disincentive brings down the overall level of
imports of the Community to approximately that of 1966. It

is possible to observe, nonetheless, that although the

 

overall quantum of imports is the same, the importance of

{T.
.1

France and the Netherlands as net exporters and of Italy
and Germany as net importers grows, and Belguim changes its
status from net importer to exporter. As seen in the last
column of Table VI-23 the reduction in the level of imports
with reSpect to the basic run is greater for Germany than
for Italy due to the higher increment of quantity supplied
assumed for Germany.

It is interesting to notice that the imposition of
variable levies in the Community motivates a trade diversion
of exports towards the United Kingdom which reaches, as a
result, a quantity of imports commensurable to that of 1966.
The possibility of trade diversion that the higher EEC
prices offered to the exporters in the basic run and the
model run with Argentine supply of 2,903,000 Tm., producing
a considerable decline of United Kingdom imports with reSpect
to 1966, inverted now with the application of the "preleve-

ments" under higher EEC orientation prices.

149

The conclusion of this run is that an increment of
an annual 2 per cent in orientation prices for adult cattle
in real terms to 1975 would frustrate the possibilities of
higher exports for Argentina that the EEC otherwise might
offer as a consequence of considerably higher income levels.
It could be said, leaving aside the negative effect exag-
gerated by the distortion of the completely inelastic supply

of exports recently mentioned, that the orientation price

-_._...-m.":-_l._....mw. my

level of US$ 741 per liveweight Tm. (in real 1965 dollars)

would bring Argentina back to the export levels of 1966.

 

Estimated Impact of Model Run with No
EEC "Ad Valorem" Duties for Argentina

 

 

Data Used

 

The changes made here consist in the elimination of
the 20 per cent "duties" that the EEC countries impose upon
Argentine imports. This assumption was made for Specula—
tive purposes to find out whether the magnitude of the
change might be important or not. The feasibility of the
Community accepting such unilateral reductions is very
small, but it was "a priori" assumed that a general elimina-

tion would be even less likely.

Results
The results indirectly provide a partial verifica-
tion of the hypothesis that a significant decline of EEC

prices would take place with the elimination of all "ad

150

valorem" duties no matter the origin of imports. The
assertion is made in view of the results obtained from the
assumption of eliminating them only for Argentina. Even
with this unique change, the level of market prices fell
below the common target price of US$ 1,300. They were
1,276, 1,249, 1,299, 1,287 and 1,260 for regions Belguim-
Luxemburg, France, Germany and the Netherlands.

The comparison of the results obtained with those
of the basic run clearly point to the substantial increase
of 153.1 thousand Tm. (845.7 - 692.6) that could take place
in Argentine exports under the change. The most important
factor would be the increase in the EEC imports, but due

to the Community's lower prices, exporters other than

Argentina would send an increased volume to the United King-

dom (See Tables VI-l4, VI-24, and 8 of the Appendix to this
chapter). Finally, the third factor working in favor of
Argentina would be a lower quantity exported by Australia
to the EEC due to the preferential treatment granted to
Argentina. Argentina's increase would be even greater than
the one postulated by this model under an alternative
assumption of an elasticity greater than zero of the supply
of exports of regions 10 to 13 for the same reason as for
the Australian decline. In other words, the additional
increases from Argentina would tend to be matched by com-

parable reduction in imports from other regions.

'mumrw .

 

151

TABLE VI-24.--Comparison of Net Total Imports of the Basic
Run with Those Verified Under the Assumption of No "Ad
Valorem" EEC Duties for Argentina.

 

(in thousand Tm. of equivalent carcass weight)

Net Total Imports of Beef

 

 

1
"I

With Basic Run With No "Ad Valorem" Duties
Region for 1975 for Argentina in EEC
l - 692.6 - 845.7
2 - 105 302
3 - 84.6 - 61.6
4 316.6 346.1
'5 674.3 693.2
6 - 84.4 - 77.4
2-6 820.4 903.5
7 266.2 323.5
2-7 1,086.6 1,227.0
8 894.5 894.5
9 - 821.5 - 808.8

 

SOURCES: Tables VI-14 and 8 of the Appendix to this chap-
ter.

In summary, Argentina would be able to substan-
tially increase her exports to the Community if a unilat-
eral elimination of the "ad valorem" duties in her favor
were adopted. This would be at the expense of other sup-
pliers, since market prices have to be close to orientation
prices according to the CAP, and this discrimination would
be hardly acceptable to EEC officials. There have been
instances in which a preferential treatment has been granted
to a supplier, namely Denmark, and a trade agreement with

'Yugoslavia which presently is being negotiated1 would offer

 

1Not to mention the preferences granted to African
countries because of Specific cultural, political and economic
relations with them.

152

special arrangements. Despite these, such an agreement
would put the BBC on the Spot for practicing discrimination

in its trade relations.

Estimated Impact of Model Run with the U. K.
“Ad Valorem" Duty Reduced to 5 Per Cent

 

Data Used

 

The modifications refer to the reduction of the "ad

. ' ‘z- 43'42 ‘Mj
- 'v‘.

valorem" duty applied by the United Kingdom upon imports

from regions Argentina and the Rest of Latin America. The

 

I: 7.14: I” n t
\
”a

duty, which was 20 per cent in the Basic Run, was reduced
to 5 per cent for this run.

The reason for this change was the possibility of
a favorable outcome from the negotiations Argentina is hold-
ing with the United Kingdom to mitigate the ban on imports
enforced by the U. K. during the first quarter of 1968. It
was argued at that time that the foot and mouth disease
which affected the importing country originated in Argentina
although the evidence inadequately supported this claim.
The negotiations deal with the possibility of opening imports
for certain types of beef generally applied to beef classi-

fied under the 011.1 SITC (revised) group.

Results
The results indicate that Argentine exports to the
United Kingdom would tend to increase by approximately

38,500 Tm. but that most of it would be at the expense of

153

exports to the Common Market.1 The level of BBC imports
from Argentina would tend to decline from 297,354 to
263,539 Tm.

Argentina's exports would increase by only approxi-
mately 5,000 Tm. in response to the reduction of the duty
according to the comparison prepared in Table VI-25. It
can also be seen that the total increase in the importing
markets represented by the addition of regions 2 to 7
amounts to only 6,500 Tm. supplied by Argentina and Austra-
lia.

The reader should be reminded that the information
in the basic run for the United Kingdom did not assume the
continuation of the ban on imports from Argentina and Rest
of Latin America. Consequently, the increase of Argentine
exports to the U. K. of about 38,500 Tm. would be due
exclusively to the reduction of the "ad valorem" duty and
not from a joint elimination of the ban and a lower import
duty.

Estimated Impact of Model Run with a
25 Per Cent Argentine Export Tax

Data Used

 

The unique alteration made in this run is the

application of an "ad valorem" export tax in Argentina.

 

1The discussion on the distribution of exports
should be remembered here. The exports to the U. K. would
increase in this run to 89,076 Tm. in comparison with the
50,618 Tm. of the Basic Run, but more importance should be
given to the overall results.

 

154

TABLE VI-25.--Comparison of Net Total Imports of Basic Run
with Those Verified Under the Assumption of a Reduction of
the "Ad Valorem" Import Duty of the U. K. to 5 Per Cent.

 

(Th. Tm. in e.c.w.t.)
Net Total Imports of Beef

 

 

 

With Basic Run With Reduced "Ad Valorem"
Region for 1975 Duty of U. K. to 5 Per Cent
1 - 692.6 - 697.2 F“
2 - 1.5 - 1.9 ‘
3 - 84.6 - 87.5
4 316.6 320.4 1
5 674.3 671.9
6 - 84.4 - 82.8
I
2-6 820.4 820.1
7 266.2 273.0 g;
2—7 1,086.6 1,093.1
8 894.5 894.5
9 - 821.5 - 823.3

 

SOURCES: Tables VI-l4 and 9 of the Appendix to this chap-
ter.

Since the Argentine government levied such a heavy tax dur-

ing some months of 1967 and, although reduced, some taxes

are still in use, it is important to learn what effects

such a tax may have on exports.

It is a clear case of goals in Opposition. While
Argentine officials tried to avoid the possibility of
income transfers which could occur as a result of the deval-
uation accomplished in 1967, they were discouraging exports
by means of the tax. Export taxes are still being enforced
today, although mainly for revenue purposes. DeSpite the
strong efforts being made to achieve higher exports to the

EEC and the usual complaints concerning the application of

155

"prelevements", the Argentine government has persisted.
The purpose of this run is the evaluation of the effects
it might have upon the exports to the Community, and of the

overall exports.

Results
The application of the levy reduced Argentina's
equilibrium price from US$ 522 to 462, and produced a

decline in total exports of 113,355 Tm. The decrease from

 

692.6 registered in the Basic Run, to 579.2 obtained in

("mi RZ'“ “-A—— a... _
4

this one, is reflected mainly in the exports to the Six due
to the remaining assumptions. As one might expect the
vacuum left by Argentina produces a lower level of imports
in net importer regions 2 to 8, and an increase of exports
in Australia, Argentina's most important competitor.
Special care should be taken in evaluating the
results of this run due to the assumptions of perfectly
inelastic supplies for the 15 regions. Export supplies in
Argentina become more inelastic and the effect is stronger
than if a supply with an elasticity higher than zero had
been used. This is because of the greater adjustment in
quantities in response to price increases along the "demand
for imports" function of the Argentine customers. The
possibility of increasing the exports in regions 10 to 13
(because of the point estimates used for both consumption
and slaughters) and in Australia (which can only increase

exports at the expense of domestic consumption) in reSponse

156

[TABLE VI-26.--Comparison of Net Total Imports of Basic Run
with Those Verified Under the Assumption of an Export Tax
Applied in Argentina of 25 Per Cent.

 

(Th. Tm. of e.c.w.t.)

 

 

With Basic Run ‘With 25 Per Cent Argen-
Region for 1975 tine Export Tax

1 - 692.6 I - 579.2 3”“
2 - 1.5 - 2.1 i

3 - 84.6 - 105.8

4 316.6 301.1

5 674.3 656.9

6 - 84.4 - 90.7
2-6 820.4 759.4 7
7 266.2 238.6 .64
2-7 1,086.6 998.0

8 894.5 881.4

9 -

821.5 - 833.2

 

SOURCES: Tables VI-l4 and 10 of the Appendix to this chap-
ter
to higher prices in the importing regions also affects the
outcome in the same way. But the Opposite occurs in the
foreign importing markets since the demand for imports
becomes more inelastic when assuming a perfectly inelastic
domestic supply. However, the evidence that the Argentine
supply is highly inelastic implies that the assumption is
not far removed from reality.

Summarizing, the overall impact of an export tax
seems to be sizable. Some qualifications of the results
are needed because of the restrictive assumptions used in
the model, but evidence of a low supply elasticity for

Argentina suggests that there is a strong negative effect

157

in reSponse to the application of an export tax. An addi-
tional run might show supply elasticities greater than zero

to evaluate the sensitivity of the solution to these fac-

 

 

 

 

tors.
Estimated Impact of Mgdel Run with the :
U. K., Ireland, and Denmark Also in - .
EEC and High Rates of CNP Growth
' of Regions 2 - 7
,3
Data Used :

 

 

1
Several changes were made to the data assumed for i a
the basic run as follows: GNP growth rates, orientation
prices, point estimates of supply, and import restrictions.

Comments will be made about each.

GNngrojections.--The observation of GNP growth

 

rates of the Six before and after the formation of the Com-
munityl suggests that the rates of growth in regions 2 to 7
might also be favorably affected by the effects of an
enlarged EEC. The main effects would be consequences of
greater competition and of the possibilities of taking
advantage of economies of scale.

Two alternatives were considered in that context:
(a) that the rates of growth of GNP would be those pre-
sented below the column entitled "Favorable Conditions" of

Table VI-4; (b) that the effects upon rates of growth of

 

1See the discussion about GNP projections made for
the basic run.

158

regions 2-7 would be favorable but not as strong as those
assumed in (a). The selection for this second alternative
arbitrarily fell upon rates of growth halfway between those
assumed for the basic run and those Of alternative (a). The
assumption name in (a) is to be used for this run while that

of (b) will be adopted in the next run.

Orientation prices for cattle.--It was assumed that
if the United Kingdom would become a member of the EEC, her
traditionally low protective policy would be reflected in
Community decisions in increases of orientation prices that
would favor the lower alternative chosen for the basic run
rather than that adopted in the model run with higher EEC
orientation prices. For this reason the orientation price
of US$ 699 per liveweight Tm. of adult cattle (US$ 1,300 in
terms of the model) adOpted to 1975 for the Six was extended

(for this run) to the United Kingdom, Ireland, and Denmark.

Projections of Slaughterings for the United Kingdom.--
The change of production conditions that producers would
expect to occur by the entrance of the United Kingdom into
the EEC gives rise to the need for modifying the level of
slaughters within the United Kingdom. Instead of deveIOp-
ing Specific projections for this trial, data were derived

from the study of Colin Clarkl which analyzed, as a policy

 

1Clark, Op. cit.

 

159

alternative, the incorporation of the country to the Common
Market.

Clark states that the assumption of the United King-
dom entrance into the EEC tends to change significantly the
pattern of production, consumption and trade with overall
import requirements to 1975 projected to be further reduced
from levels projected under the continuation of present
policies. Beef is included among the products that are
projected to show a decrease in imports.

The named study attributes the decline of imports
from a projected level of 463 thousand Tm., with present
policies continued, to 356 thousand Tm. under the assumption
of entrance into the EEC. This despite the projected reduc-
tion of quantity supplied to 1975 from 1,009,000 to 982,000
Tm. According to this research the factor promoting the
decline of the United Kingdom slaughters is the diversion
of resources from beef and milk to grain production as a
consequence of higher price increases in the latter group
than in the former as the country adjusts relative prices
to become a member of the Community.

The point projection adOpted for slaughters of the
United Kingdom is that used in the study of Colin Clark,

982,000 Tm.

Projections of supply, demand, and exports of Ire-

land and Denmark.--The alignment of prices at both the con-

 

sumption and production levels in Ireland and Denmark as a

 

]‘ _fi(g .

160

consequence of their entrance into the Community would bring
about changes in the quantities supplied, demanded, and
exported. Table VI-27 shows estimates for them.

Starting from point estimates of supply, demand, and
exports outside the EEC, calculations of the corre8ponding
quantity changes were made with the use of estimated price ‘7:
increases and price elasticities. The expected quantity J]
changes were then added to the initial projections. Because

of the close economic connections between Ireland and the ;

 

United Kingdom and particularly by the Anglo-Irish Free 1:}
Trade Agreement, price levels in both countries are very

much alike. The structure of production and beef consump-

tion between both does not differ much either, and there-

fore, the same price increases and elasticities were assumed

for Ireland as for the United Kingdom.

Variable levies and "Ad Valorem" duties.--The "ad
valorem" duties used between the present EEC members and the
candidates of the enlarged Community for the basic run were
eliminated for this run. The common "ad Valorem" duty
imposed by the Six to imports from nonmember countries was
extended to the three newcomers as well as the application

of variable levies if the need arose.

Results
Table 11 of the Appendix to this chapter, which

shOws the results of this run allows for the elaboration of

161

 

 

 

0,1, 1,
omm.maa omm.66 ooo.000 60uomxm N0
om0.6m om6.60- om.o 0.6m ooo.mm 66686o m0
oom.~6m oom.~m om.o o.om ooo.o0~ 800066 «0
oom.66m oom.66 ooo.mm~ 6000080 00
mmo.~m mom.6 u mm.o o.m~ ooo.>m 66686: 00
mam.mam mam.68 ma.o n.60 ooo.mmm 800066 00

.88 .89 w w .89

0mm :Hsuwz 0m:0:o .um0am .00:H 0mm 0000090 "mo 00008 :me0m

000moum >0H0:0so 00am: 0008: 0:0H000houm Iflumm u:flom

 

.Omm ou:H 00:000:m mo :Oaum8smmd 000:9 x008:0o 0:0
0:0H00H mo muuomxm 0:0 .0:080o .zammsm mo 00008apmm 0:womln.hmuH> mqmde

162

Table VI-28 that compares them with those obtained for the
basic run. Argentina's exports increase by over 60 thousand
tons.

Australia, Ireland and Denmark also benefit from
the increase in imports that takes place in the CommOn Mar-
ket as a consequence of the entrance of the United Kingdom,
Ireland and Denmark. The tremendous increase in the Common
Market more than offsets the decrease in the United Kingdom.
The former change owes its origin to the outward shift of
the demand function produced in turn by the increase in
income. The latter in turn is due to the orientation price
extended from the Six to the United Kingdom. The higher
domestic price discourages consumption and imports decline
by 149.2 thousand Tm. The overall level of imports in the
Six plus the United Kingdom shows, nevertheless, a very sub-
stantial increase of 285.6 thousand Tm.

An upward bias of these results will be assumed by
anyone who remembers the use of a completely inelastic sup-
ply function for the Six. The higher the elasticity (in the
actual world) the higher will be the bias. On the other
hand, a downward bias should be recognized for Argentina,
Australia, New Zealand and Rest of Latin America, which are
not exporters but where the model allowed no adjustment of
their supplies in reSponse to higher prices for their for-

eign outlets.

 

163

TABLE VI—28.--Comparison of Net Total Imports of Basic Run
with Those Obtained with the U. K., Ireland, and Denmark
Also in EEC.

 

(Th. Tm. in e.c.w.t.)

With U. K., Ireland
and Denmark in the
EEC and High Rates

 

With Basic Run of Growth of Regions Change of
Region for 1975 2 - 7 Imports
1 - 692.6 - 755.2 - 62.6
2 - 1.5 12.8 14.3
3 - 84.6 103.9 188.5
4 316.6 400.0 83.4
5 674.3 807.9 133.6
6 - 84.4 - 69.4 15.0
2—6 820.4 1,255.2 434.8
7 266.2 117.0 -l49.2
2-7 1,086.6 1,372.2 285.6
8 894.5 808.8 - 85.7
9 - 821.5 - 843.3 - 21.8

 

SOURCES: Tables VI-l4 and 11 of the Appendix to this
chapter.

Estimated Impact of Model Run with the U. K.,
Ireland and Denmark, Also in EEC and Low
Rates of Growth of Regions 2-6

Data Used

 

All the information used was identical to that of
the previous trial except for the gross national prOduct
projections included in regions 2 to 6. The alternative
(b) eXplained in the previous run when dealing with GNP
Projections was chosen for this run. GNP rates of growth
achieved by the regions above mentioned might not be as
high as those experimented by the initial members of the

Community. It might be possible that most of the positive

164

impacts to be derived from integration have already been
obtained by joining the economies of the three largest mem-
bers of the present Community: France, Germany, and Italy.
These arguments do not imply that these lower rates of
growth are more likely to occur than the ones selected for
the previous run, but do point out the possibility of their
taking place and their possible effects. Tfii
The GNP growth rates were assumed to increase by
0.80, 1.05, 0.65, 0.95 and 0.75 in Belgium-Luxemburg,

France, Germany, Italy and Netherlands, respectively.

 

11' ‘§.'~ . ‘
”Ew‘i

Results

Table 12 of the Appendix to this chapter condenses
the results that are partially shown in Table VI-29 to pro-
vide a comparison with the figures of the Basic Run.

Table VI-29 shows that, although a substantial
increase of 278.7 thousand Tm. takes place in the EEC
imports, the benefit for Argentina is slim. There are
three reasons for such a circumstance. The first is that a
considerable decline of imports occurs in the United Kingdom
when higher market prices are enforced in reSponse to her
entrance into the EEC. The second is that most of the bene-
fit is collected by Ireland and Denmark where an adjustment
was used to recognize higher domestic prices. The estimated
higher slaughters and lower consumption leading to sizable
increases in exports were forced into the solution. Finally,

the third factor is determined by the perfectly inelastic

 

165

TABLE VI-29.--Comparison of Net Total Imports of Basic Run
with Those Obtained Assuming the Enlargements of the EEC
and Low Rates of GNP Growth of Regions 2-6.

 

(Th. Tm. in e.c.w.t.)

With U. K., Ireland

 

With Basic Run and Denmark in the Change of
Region to 1975 EEC Imports
1 - 692.6 - 702.9 - 10.3
2 - 1.5 8.3 9.8
3 - 84.6 25.8 110.4
4 316.6 380.7 64.1
5 674.3 752.1 77.8
6 - 84.4 - 67.8 16.6
2-6 820.4 1,099.1 278.7
7 266.2 117.0 -l49.2
2-7 1,086.6 1,216.1 129.5
8 894.5 894.5 0.0
9 - 821.5 - 825.1 3.6

 

SOURCES: Tables VI-l4 and 12 of the Appendix to this
chapter.

supply function assumed for Argentina that allows only for
reductions in domestic consumption to satisfy the possibil-
ity of improved foreign outlets.

The contrast between the last columns of Tables
VI-28 and VI—29 is caused by the difference of the GNP
growth rates. In Spite of the substantial differences
between both regarding the increased imports in regions 2
to 6, the conclusions for both trials is that the income
effect is much stronger than the price effect. Obviously
the importance of the effects depends upon the magnitudes

of the assumed changes of domestic prices and GNP growth

rates.

 

166

It might be interesting to find out the rates of
growth that would allow the income effect to match the
effect of higher domestic prices within the United Kingdom,
in other words the growth rate that would allow for no
changes in the level of imports to regions 2-6 from Argen-
tina. It seems from the results obtained in the previous
and present run that a slightly lower GNP growth than those
adopted for the latter would provide the referred balance.
An average annual increase of the GNP growth rates of 0.75
in regions 2-6 would probably produce no changes in the
level of Argentine exports to an enlarged EEC.

Estimatedempact of Model Run withtUnfavorable
GNP Grow H Rates for the EEC

 

 

Data Used

 

The modifications here concern the rate of growth
of the gross national product for the members of the Com-
mon Market. A lower rate of growth is assumed now for
regions 2-6 to evaluate the differences that might emerge
in the allocation of production, consumption, trade and
prices of the BBC and Argentina.

The method used for calculating the GNP levels to
1975, as well as the rates implied and the actual values
were discussed when analyzing the GNP projections (under

the heading of Data Used) for the Basic Run to 1975.

‘. _ . I

 

167

Results

The lower income level tended to depress the market
prices in the Six which were kept close to the orientation
price level through the application of variable levies.
They discouraged imports which resulted in lower prices in
the exporting regions. The Argentine price declined from
US$ 522 registered in the Basic Run to 479 and reductions
also occurred in Australia, which saw greater difficulties
in her export outlets, and in the United Kingdom due to the
diversion of beef to the UK occasioned by the higher barri-
ers to entry into the Community.

The net negative impact upon Argentine exports was
of 81,997 Tm. produced by a decline from 692,574 Tm. in the
Basic Run to the 610,577 of this trial. The comparison
between them shows a total decline of EEC imports of 228.9
thousand Tm. while those of the United Kingdom increased
from 266.2 to 384.5 thousand Tm. Due to the offset pro-
duced by the United Kingdom, the net decline of the import-
ing regions 2 to 7 amounts to 110,600 Tm.

Argentina's eXports under the unfavorable rates
assumed for 1975 are only slightly higher than those of
1966, the former being 610.6 while the latter was 586.0
thousand Tm., a net increase of 24,600 Tm.

The negative effects of lower GNP growth rates in
the Community would be very strong regarding her demand for

imports. Argentina would be affected unfavorably, being

 

168

TABLE VI-30.--Comparison of Net Total Imports of Basic Run
with those Verified Under the Assumption of Unfavorable GNP
Growth Rates for the EEC Countries.

 

(in th. Tm. of e.c.w.)

 

With Basic Run With Lower GNP Growth
Region for 1975 Rates in the EEC
l - 692.6 - 610.6
2 - 1.5 - 15.5
3 - 84.6 - 137.3
4 316.6 . 211.4
5 674.3 615.9
6 — 84.4 - 83.0
2-6 820.4 591.5
7 266.2 384.5
2-7 1,086.6 976.0
8 894.5 894.5
9 - 821.5 - 792.9

 

SOURCES: Tables VI-l4 and 13 of the Appendix to this chap-
ter.

able to increase her total exports only 24,600 Tm. in nine

years. The possibilities of diverting exports to the United

Kingdom, where additional quantities could be absorbed when

the EEC market becomes less favorable, does not represent a

feasible solution since Ireland is located nearby and the

U. K. needs other markets when being pushed out by EEC

restrictions.

Estimated Impact of Model Run with Favor-
able GNP Growth Rates for the EEC

Data Used
The third alternative regarding rates of growth of

gross national product is used here. The basic run and the

 

 

169

previous run reSpectively assumed "most likely" and "unfa-
vorable" rates while this run will consider "favorable"
ones. The procedures and actual values used for regions 2
to 6 were presented at the beginning of the discussion deal-

ing with the basic run.

 

Results f;
A pronounced increase in Argentine exports of 87,805 1

Tm., with reSpect to the basic run is projected to take

place under the assumed higher rates of growth for the Six. 5

The forecasted change goes from 692.6 under basic run con- L

ditions to 780.4 thousand Tm. under the named circumstances.

Table VI—31 reflects considerable increases in EEC
imports influenced mainly by France's change from net
exporter to net importer and by increasing Italian imports.
The decline of the United Kingdom as an importer, due to
better prOSpects the EEC could offer to exporters, tends to
offset to some extent the rise in the Common Market, but the
balance between them results in a net increment of 374,000
Tm. The prices, as might be expected, tend to skyrocket in
response to the strong stimulus provided by the shift of the
demand function. In Argentina they climb from US$ 522 to
569 and are above 1,400 in the EEC members, with the excep-
tion of the Netherlands (1,392).

The results should be qualified for the same reasons
as those explained for other trials. On one hand, the ine-

lastic supply functions of the net importers do not allow

 

170

TABLE VI-3l.--Comparison of Net Total Imports of Basic Run
with Those Verified Under the Assumptions of Unfavorable
and Favorable GNP Growth Rates of the EEC Countries.

 

(in th. Tm. of e.c.w.)

With Lower GNP With Higher GNP

 

With Basic Run Growth Rates Growth Rates of

Region for 1975 of the EEC the EEC
l - 692.6 — 610.6 - 780.4
2 - 1.5 - 15.5 9.6
3 - 84.6 — 137.3 88.0
4 316.6 211.4 379.6
5 674.3 615.9 794.8
6 - 84.4 - 83.0 - 77.6
2-6 820.4 591.5 1,194.4
7 266.2 384.5 159.0
2-7 1,086.6 976.0 1,353.4
8 894.5 894.5 746.0
9 - 821.5 - 792.9 - 852.1

 

SOURCES: Tables VI-l4, 13 and 14 of the Appendix to this
chapter.

for a positive domestic reaction in quantities supplied to
higher prices tending to make the level of additional
imports required lower than forecasted. On the other hand,
the inelasticity of supply also assumed for the exporters
does not allow them to react in a similar fashion in reSponse
to higher prices, although the possibility of the low elas-
ticity of the Argentine supply function should not be for-
gotten.

The results are strongly influenced by the increases
predicted for France and Italy, as previously mentioned. In
comparing the differences in the rates of growth assumed for

the basic run and this trial it is evident that the greatest

 

171

jump lies precisely in these two regions.. It might be

argued that the rates adOpted for the basic run were too

low or that the ones assumed for this run were too high. A

reevaluation suggests that the former hypothesis might be
correct in light of past rates and of the rate recently

experienced by France (in view of the events during May and

June, 1968). Despite these highly unfavorable events France

grew at a rate slightly lower than 4%. A similar conclusion

might be reached for Italy which even in a year of relative
recession, such as 1968, grew at about 5%.

An interesting comparison of the effect of alterna-
tive rates of growth is provided in Table VI-31. The dif-
ference in Argentine exports between the third and fourth
column is 169.8 thousand Tm., substantial quantity. It
should be noted that the upward biases of the income effect
are added in this calculation because of the overestimation
of dropping imports and rising exports in response to lower
and higher GNP growth rates reSpectively. The importance
of the gap between the results of the trials nevertheless
leads to deposit some confidence in the substantial effects
in response to changes in the assumed GNP growth rates.

Estimated Impact of Model Run withgigh

Orientation Prices and Favorable GNP
‘Growth Rates in the EEC

 

 

Data Used
This trial combines the data of the run which

assumed higher orientation prices than those used in the

 

 

172

Basic Run, with that of the previous run, which assumed

higher GNP growth rates in the Six. The purpose of this
run is to provide an indication of the possible combined
effects of high orientation prices with favorable growth
rates of GNP, the former bringing about declining imports

and the latter tending to increase them.

Results
The outcome of the combination of the Opposite

effects above named is a net increase in Argentine exports.

 

The positive (from Argentina's point of view) influence of :1!
income is stronger than that of higher orientation prices.
The change from the results obtained in the Basic Run is a
net increment of 48.3 thousand Tm. calculated by subtracting
the figure of 692.6 of the second column from the 740.9 thou-
sand Tm. of the last column. (See figures in Table VI-32).
The same table presents an increment of total
imports of the Community equal to 164,300 Tm. (984.7 minus
820.4 thousand Tm.) and a net increase, after taking into
account the opposite change for the United Kingdom, of
115,300 Tm. (1,201.9 minus 1,086.6 thousand Tm.) for the
aggregate of regions 2 to 7. The decrease in the level of
United Kingdom imports as well as that for the United States
is motivated by the better market the EEC offers to exporters.
It is important to notice that the qualifications
made in previous runs regarding the assumption of perfectly

inelastic supply schedules do not apply here for the most

173

 

 

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174

important regions in question (2-6). An allowance was made
for increases in quantities supplied that might take place
in reSponse to higher prices producers would receive when
higher orientation prices are enforced.

It would appear from the direct comparison of Argen-

tine exports reflected in columns two and three, and in col- 1 I

' .‘lll’ - 1.

umns two and four, that the price effect upon discouraging
beef exports is stronger (186,300 = 692,600 minus 506,300 g

Tm.) than the income effect (87,800 = 780,400 - 692,600)

 

upon encouraging them. However, the net effect (48,300

Tm.) leads one to the opposite conclusion. It is also inter-
esting to note that the direction of the net effect was the
same between the formation of the Community and 1967, the
importance of the rising GNP and population levels was

greater than that of the high degree of protectionism.

APPENDIX OF CHAPTER VI

.175

‘J-“J'r

176

TABLE l.--Estimation of Total Net Imports for 1966, According
to Spatial Equilibrium Model.

 

 

Net Imports Net Imports Net Total
Region of 011.1 of Other Beef Imports

Argentina - 458,623 - 129,000 - 587,623
Belgium-Lux. — 4,589 2,000 - 2,589
France ~ 14,787 — 7,000 - 21,787
Germany 140,138 4,000 144,138
Italy 273,944 1 273,945
Netherlands - 7,032 4,000 - 3,032
U. Kingdom 403,169 81,000 484,169
U. S. A. 375,791 87,000 462,691
Australia - 383,011 - 24,000 - 407,011
New Zealand - 142,000 - 16,000 - 158,000
Ireland - 76,000 — 14,000 - 90,000
Denmark - 90,000 - 7,000 - 97,000
R. of L. A. - 150,000 - 39,000 - 189,000
Canada 0 - 25,000 9,000 - 16,000

Rest of the World 158,000 50,000 208,000

 

 

177

 

 

 

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CHAPTER VII

CONCLUSIONS, EVALUATION, POLICY IMPLICATIONS,

AND RECOMMENDATIONS

Conclusions

 

This section will include two types of conclusions:

those that have been obtained from the use of the spatial

 

equilibrium model and those obtained on the basis of the E
analysis performed to satisfy data requirements of the

model. Each one will be separately analyzed.

Summary of Conclusions from the Model

 

The following is the summary of the conclusions
obtained from the alternative runs obtained with the use
of the SEM:

1. Argentina would find a market of 347,972 Tm. for
her beef exports in the BBC and the United Kingdom1 under
”most likely conditions" assumptions to 1975. Total Argen-

tine exports would be 693,000 Tm. of equivalent carcass

 

1The conclusions will refer to the BBC and the United
Kingdom markets considered together in almost all cases
without implying the entrance of the U.K. into the EEC.
This presentation tries to avoid distortions that might
arise from the distribution of trade flows already discussed
in Chapter VI. Point 12 is the only case in which the U.K.
is referred to as belonging to an enlarged community.

191

192

weight1 under the named assumptions. (One of them is that
Argentina would slaughter animals representing 2,860,000
Tm.)

2. The possibility exists, however, for Argentina to
expand her exports to the Community and to the United
'Kingdom to 380,000 Tm. if she could increase slaughter to F5
approximately 2,900,000 Tm. The total eXport under this 4}
supposition would be 730,000 Tm.

3. The approximate price Argentine producers could

expect to receive under the assumptions of the second con- i B
h !

 

clusion is US$ 275 per liveweight Tm., expressed in real
dollars of 1965.

4. Argentina would be displaced.to a second position
as a world exporter by Australia no matter what alternative
assumptions are made. The level of exports estimated for
Australia for most of the trials was over the 800,000 Tm.

5. The United States would consolidate its first
position as a world importer followed by Italy, Germany,
and the United Kingdom. The level of exports estimated
for most of the trials was of approximately 900,000 Tm.
for the United States.

6. The world demand for Argentine beef seems to have
a fairly high price elasticity within the range of Argentine

capabilities of increasing production in the near future.

 

1Trade and slaughter figures are expressed in equivalent
carcass weight terms in the rest of the conclusions.

193

7. Argentina could enlarge her exports to the Six
and the United Kingdom to approximately 464,000 if she were
able to increase slaughters to 3,000,000. The global ex-
ports under this circumstance would be approximately 810,000
Tm.

8. A doubling of the rate of increase of orientation
prices that the EEC enforced between 1964 and 1969 would
mean a decline in exports to the Community and the United
Kingdom relative to 1966 levels. Exports would reach 1966
levels only because of the increase taking place in other
markets.

9. Unfavorable growth rates in the Six up to 1975
would also bring unfavorable prospects for Argentine ex-
ports to the EEC and the United Kingdom. Both markets
taken together would import only 266,017 Tm. in comparison
to the 338,223 and the 347,972 Tm. exported to them in
1966 and forecasted in conclusion 1.

10. The prospects for expanding beef exports to the
Community and the United Kingdom are highly favorable under
the assumption of a unilateral elimination of EEC "ad
valorem" duties in favor of Argentina. Such a reduction
would bring the level of exports to both markets to 500,000
Tm. and those of total exports to 846,000 Tm. This, how-
ever, is highly unlikely.

11. A reduction of the United Kingdom "ad valorem"

duty to 5% would tend to increase Argentine exports to the

 

194

United Kingdom by approximately 40,000 Tm. But the increase
would be at the expense of exports to the Community to a
large extent. The overall increase of exports to the Com—
munity and the United Kingdom would be of approximately
7,000 Tm. with respect to conclusion 1.

12. The results obtained by assuming that the United
Kingdom, Ireland, and Denmark will enter into the EEC are
highly dependent upon the orientation price and the increase
in growth rates that might occur in response to such a move.
Two alternatives were examined in terms of a high and a low
rate of growth of EEC countries (both rates being higher,
however, than those used under the set of "most likely con-
ditions"). The two alternatives, on the other hand, used
the same supposition of common orientation prices of US$
699 (of 1965) per liveweight Tm. for adult cattle.

The results were favorable for Argentina under the
alternative of an increase of growth rates for the EEC
countries, which Would raise rates to the level experienced
since the formation of the Community to 1966. The calcu-
lated increase of Argentine exports to the Six and the
United Kingdom would be approximately 63,000 Tm. with
respect to the result presented at point 1. In other words,
exports are forecasted to reach a level of 411,000 Tm.

Total exports would be approximately 755,000 Tm.
The low estimate of the EEC growth rates still brings

a favorable net impact for Argentina that would benefit

 

 

195

from an increase of the exports to the Six and the United
Kingdom of approximately 20,000 Tm.

It was calculated that an even average annual increase
of the GNP growth rates (with respect to the rates assumed
under "most likely conditions") of 0.75 of regions 2-6
would probably be the "equilibrium" differential increase
of rates that would tend to compensate the negative effect
of lower imports of the United Kingdom with higher imports
of the Six. In such a case, the effects of the EEC enlarge-
ment would be neutral with respect to the level of Argentine
eXports to the block.

13. The application of a 25% export tax by the
Argentine government shows very unfavorable effects upon
exports and prices. The estimated decline of exports to
the Community and the United Kingdom is of approximately
100,000 Tm. with respect to the Basic Run.

14. Favorable GNP rates of growth of the Six rep-
resent a very good feature for Argentine exports. 'She
would increase her shipments to the Six and the United
Kingdom to 435,000 Tm.

15. The combination of a highly protectionistic EEC
policy with high rates of GNP growth for the Six would
have a net positive effect on Argentine exports. Exports
to that region and the United Kingdom would be of 396,000
Tm. with a total of 741,000 Tm. This implies slaughter of

2,860,000 Tm.

1 ; ,. -.
T}
.....J’

a I»! 5'0 'IL.‘ ‘

 

1'1—
“1
3.9.170.-.

196

Table VII-l shows the summary of Argentine exports
to the EEC and to the United Kingdom and the total exports
under the several runs carried out to 1975. The EEC and
the United Kingdom have been combined to avoid erroneous
conclusions in those cases where trade diversion between

both regions takes place. It seems, considering the basic

- 5.10”

run, that the most favorable effects upon Argentine exports

‘1Tffu ‘ f3

are produced by an EEC elimination of "ad valorem" duties

in favor of Argentina, a high level of Argentine slaughters,

and favorable rates of growth in the EEC. The first of the

 

i-r.

alternatives is unlikely because of the discrimination it
implies. It can be seen, with respect to the last of the
three that the influence of the growth rates is so important
that they more than offset the negative effect of high'
orientation prices. Comments will be made later about

the second factor.

The enlargement of the Community under high rates of
growth also shows favorable effects over those achieved
under the basic run conditions.

High orientation prices in the EEC not compensated
by high rates of growth, an Argentine "ad valorem" export
tax of 25 per cent, and unfavorable growth rates in the
EEC economy proved to be the most unfavorable factors
affecting Argentine exports.

The reduction of the United Kingdom "ad valorem"

duties in favor of Argentina, although favorable to Argentine

197

exports to that country, produced a trade diversion away
from the EEC so that the overall level of Argentine eXports
increased by only a small margin. The enlargement of the
Community under low rates of growth for EEC countries also

proved to have a small effect upon Argentine eXports.

 

Summary of Secondary Conclusions rfifi
The analysis developed to satisfy the data require-
ments of the SEM provided some conclusions that seem worth

mentioning. They were mainly obtained as by-products of

 

'4'- nur « -
{‘J—‘z".

the analysis carried out to estimate domestic demand and
supply functions. Some of these conclusions were:

1. The "income" elasticity for Argentina calculated
on the basis of per capita gross domestic product was 0.24.
Although this elasticity is considerably higher than that
assumed by FAQ for consumption projections to 1975 (zero
income elasticity) its importance is approximately 50 per
cent of the impact of population growth.

2. The price elasticity at the producer level was
0.27. Previous studies for Argentina at the retailer level
indicated a price elasticity of about 0.45. The comparison
of both figures shows a lower elasticity at the producer
than at the retailer level and provides an indication of
the application of constant absolute margins rather than
constant percentage markups between both marketing stages.

3. It appears that most importance should be given
to cattle prices lagged 2, 3, and even 4 years when esti-

mating supply relationships for slaughters or production.

198

4. Exporting countries suffer more seriously from
price variability than importers. It might be hypothesized
that the reason for this lies in the fact that importers
are better able to cover variability of production and con-
sumption by means of adjustments in their imports. The

impact of the adjustment is then passed on to the exports

'5." .‘n
4

which do not have similar weapons with which to react. ‘fil

',a‘

I’Lg ..

Evaluation of Conclusions Obtained
From the Model '

 

1 J.L'9¢I' -29.A'_':"ff:

This section will evaluate the results obtained with

 

'1... ~“

the help of the spatial equilibrium model. Table VII-1
that included the actual destination of Argentine eXports
to the EEC and the United Kingdom, and total exports during
1969, as well as the results of the various runs, will
facilitate the evaluation.

The main limitation to increasing Argentine exports
lies in her production sector. The three different levels
of slaughter projected to 1975 of 2,860,000, 2,903,000,
and 3,000,000 appeared to be insufficient to satisfy the
future needs of the Argentine customers. The results of
the Basic Run and of the run with slaughter of 2,903,000
Tm. showed that domestic and foreign demand were strong
enough to absorb (at prices relatively high to 1966) the
2,860,000 and 2,903,000 Tm. of slaughters. The third run
presented some evidence that a level of slaughters of 3,000

thousand Tm. would produce some decrease in domestic EEC

199

prices below orientation prices, although not much. But on
the other hand, the model run with reduced duties for the
United Kingdom provides evidence that the United Kingdom
could absorb higher imports from Argentina than those
reflected in runs 1, 2, and 3 of Table VII-l. Run 6 of
Table VII-1 points out also that trade diversion might take _
place by a level of almost 40,000 Tm. with the decline of gd]
the United Kingdom "ad valorem" duty. : A
These results lead to the conclusion that Argentina 5

might be able to export approximately 810,000 Tm. in 1975 J.

 

if she were able to slaughter 3,000,000 Tm. The number of
slaughtered animals required to satisfy such a level is
approximately 15 million, considering an average dressing
weight of 203 kilograms per animal (calculated on the basis
of data for 1966-1969).

The slaughter and export figures reached during 1969
might lead one to believe that the proposed goal of 3,000,000
Tm. of slaughter with exports of 810,000 Tm is not very
ambitious. The year 1969 saw slaughter of 2,835,000 and
eXports of 760,000 Tm. A proposed goal of increasing these
quantities by 165,000 and 50,000 respectively between 1969
and 1975 may seem very small. However, Figure 1 shows that
slaughter reached a peak during 1969. It was a record year
for Argentina. Figure 1 also shows important slaughter
variations and more violent declines than recessive. There-

fore, forecasting under average conditions to a particular

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202

year, 1975 for this study, is not the same as taking into
"account the specific circumstances that might prevail
during 1975. Given the practical impossibility of predict-
ing the specific conditions during that year, it appears
better to formulate a goal feasible under average condi-
tions. The prOposed target of 3,000,000 Tm. to 1975 is not it
so low if allowance is made for price declines that might 2

take place during 1971 and 1972, a consequent drOp of

 

.a-Inn “v-"

Slaughterings and the classical slow process of recovery
between 1972 and 1975. Biological features of beef produc-
tion do not allow for fast increases and 1975 is not that
distant in the future.

On the other hand, targets of slaughters and exports
lower than those proposed would tend to reduce the share of
Argentine exports in world trade, even with respect to 1966.
The 810,000 Tm. would represent 28.5 per cent of the total
world trade forecasted to 1975 under model run (3) of Table
VII-l, 2,851,000 Tm. Since the Argentine participation
during 1966 was 27.3 per cent, the proposed target repre-
sents only a slight improvement, but it would keep Argentina
below pre-war levels.

Two other factors also come out in defense of keeping
the prOposed levels as minimum goals. The first is that
most of the assumptions made contained a conservative bias
from the Argentine point of View because it was thought that

a mistake of this nature was less important than running the

 

203

risk of forecasting excellent conditions that might not be
fulfilled. The second element is that most of the major
studies forecasted higher levels of EEC and United Kingdom
imports than those of model run (3) of Table VII-l.

The forecast of United States imports also deserves
special mention because of its influence upon the price
and trade levels of the remaining regions of the model.

As previously mentioned, this region tends to consolidate

its privileged position as the number one world importer

L'".

of beef according to the results obtained under the several

.1.

 

alternatives analyzed. The projected level for most of them
was 911 thousand Tm. that is intermediate to some of the
projections elaborated by other studies. The OECD study1
presents the highest estimate with 1,342,000 while Gruén's2
is 850,000 Tm.

The favorable prospects for increasing beef imports
in the United States are not good enough, however, to
attract all the exporting capability of Australia and New
Zealand in 1975. Both show considerable possibilities of
increasing their slaughters and exports and the analysis

throughout revealed that they will become important com-

petitors of Argentina in the EEC market.

 

1OECD, op. cit.

2 u .
Gruen, op. Cit.

204

Policy Implications and Recommendations
One of the final conclusions of the study is that
Argentina faces favorable prospects for increasing her beef
exports to 1975 and that the main limitation for increasing
them may rely upon the capability of increasing slaughter
in 1975 in a relatively stable fashion. The implication _
is that Argentina should take important steps to shift her ”3
domestic supply function (and consequently supply of exports) '
to the right and to make it more elastic. }

It does not seem enough, however, that the long-run

 

“i- l""
:1
S—sz

prospects appear favorable. The past has demonstrated that
foreign markets may be relatively good for Argentina but

that short-run price fluctuations are a negative factor of
sufficient importance to frustrate the good long-run pros-
pects. It was analyzed before that the increase of Argentine

exports did not increase pari passu with the increase of

 

foreign demand. It was also observed that increased slaugh-
ters take a longer time than reductions and that exporting
countries tend to eXperience greater slaughtering variability.
A theoretical analysis of price fluctuations would show1 its
negative effects upon beef production. A comparative analysis
of price variability for Argentina and other countries showed
one of the highest coefficients of variation for Argentine

cattle prices during the period 1939-1966. The surveyed

 

lErnesto S. Liboreiro, The Possible Effects of Price

Uncertainty on Argentine Beef Production (Unpublished
Research Paper, East Lansing, 1968f.

205

prices were for cattle in Australia, the United Kingdom,
the United States, and Argentina, and hogs, sheep, wool,
wheat, maize, barley, oats, linseed, cotton fiber, pears,
and apples in Argentina. A coefficient of variation was
also calculated for relative prices between cattle and
crops in Argentina. The two highest coefficients belonged
to Argentine apples and cattle, with values of 0.99 and
0.80 respectively, while the corresponding values for the
remaining prices were far smaller than those of cattle.

It is true that the highly diversified composition
of destinations of Argentine beef exports acquired during
the last years tends to make Argentine exports less depend—
ent upon foreign demand variations. The higher degree of
industrialization achieved by the composition of the Argen-
tine beef exporters also adds greater stability to the over-
all exports.l

It is suggested in view of past experience and of the
possibility of a market unification between the presently
separate BBC and United Kingdom markets that short-run.
price variability may still be a major negative factor upon
regular flows of Argentine slaughters and exports in the
future. The theoretical analysis mentioned shows that
policies to ameliorate price variability would be helpful
to achieve a rightward shift of the supply function and to

make it more elastic.

 

1The researcher was alerted of the importance of these

two factors by Ingeniero de 1as Carreras.

 

206

It is suggested also that the solutions to increase
slaughters and exports may very well rely on factors outside
the livestock production sector of the Argentine economy.
Increasing agricultural production in developed as well as
less developed countries depends to a large extent upon the
development of the industrial, marketing, and services
sector of the economies. The development of suitable in- {#3
puts, the knowledge about their properties and application, ‘ii
the possibility of their reaching the producer at acceptable

prices, the knowledge about management practices concerning a

 

small investments, access to credit, relatively stable
prices, etc., depend upon the sectors of the economy other
than those in the livestock producing sector. The reason
for this suggestion is that very often the reSPODSibilitY
for the lack of increased Argentine cattle production has
been placed upon the livestock producers alone. The analysis
of each one of the mentioned factors would also reveal that
those related sectors have not fared very well during the
stagnation of livestock production. It might be suitable
to analyze more the efficiency of the goods and services
provided by the nonform sectors of Argentina and their
relationship to agriculture.

Since the United States will probably consolidate its
position as first world importer it would be necessary for
Argentina to devote considerable efforts to the penetration

of that market for chilled and frozen beef. Control of

207

hoof and mouth disease is one of the main ways to obtain
access. Although the United States does not presently
recognize the existence of certain regions within a country
that may be free from the disease, it would be worthwhile
to explore the possibility of arriving at future trade
agreements with Argentina upon that basis. F;
Argentina should continue exerting serious efforts ii]
to keep orientation prices and application of variable 1 I
levies of the Common Market from increasing at higher rates 1

than 1 per cent per year in real terms. 4g

 

It would be highly desirable for Argentina to obtain
a preferential trade agreement with the EEC similar to a
reduction of import duties. But it would be of as much
importance to obtain trade agreements that would allow for
regular exports.

It may be interesting to mention, although perhaps
difficult to implement, that the enlargement of the United
States quota imports that favor Australia, New Zealand,
Ireland, and Mexico is in the interest of Argentina. It
should be remembered, in this context, that trade diversion
is not only theoretically possible but also empirically
verified in the past, and there is no reason to believe
that it may not happen again if Australia and New Zealand
do not find satisfactory outlets in the United States. It
was previously mentioned that it is expected that even under
the size of the quota enlargement assumed by the latter

country, the countries from Oceania will direct substantial

208

quantities to the EEC countries. At least it is a matter of
not surpassing the expected level of trade diversion.

The following topics are suggested for further research:

1. Composition of future Argentine beef exports. The
study carried out deals with total beef exports but it would
be useful for exporting firms to know about the different
types of products that may compose the total beef exports
in Argentina's future.

2. Analysis of the possibility of an agreement with
the United States under which Argentina guarantees a zone
free of hoof and mouth disease and the USA allows imports
of beef from animals from this region.1

3. Same for the United Kingdom and Japan as (2).

4. Stabilization scheme for short-run fluctuations
of beef prices.

5. Improving the specification of the model. The
feasibility of using a recursive model for obtaining better
estimates of beef slaughterings for the first 9 regions of
the model would be a useful contribution. This would also
give rise to a need for reestimating the demand functions,
which might be more prOperly considered as price equations.
The model regarding trade flows could be improved by elabo—
rating more reliable data on transfer costs.

6. Analyze the possible impact of structural reform
policies of the EEC upon agricultural production and con-

sumption to approximately 1985.

 

1This possibility was suggested to the researcher by
Ing. Agr. Norberto Frigerio.

 

 

BIBLIOGRAPHY

209

"-‘...."_:m‘ ._'M»‘_- :-

 

BIBLIOGRAPHY

 

 

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r- ..
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13'. ..:- "...:

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