Economic impacts of agricultural policy responses to the outbreak of COVID-19/Repercusiones econ
| Autor | Jiménez, Dora Elena |
| Cargo | Research article |
-
Introduction
The COVID-19 pandemic is one of the most serious challenges humankind is facing, not only due to its effects on health, but also to the economic and social breakdown that comes with it. This pandemic caused an economic shutdown in many countries. Initially and mostly, it affected the agriculture and food sectors--closed restaurants and schools--thus leading to a rise in unemployment and reductions in the demand of certain commodities (Laure, 2020). Nevertheless, global food consumption has not been considerably affected due to the demand inelasticity of most agricultural products and the short duration of the strongest part of the shock (Elleby, Pérez, Adenauer, and Genovese, 2020) despite income losses and local supply chain disruptions associated with the pandemic (Arellana, Márquez and Cantillo, 2020).
In Latin America, production and investment shrank 7% and 20% in 2020, respectively (CEPAL, 2021), and the unemployment rate is expected to increase to 13.5% (Bárcena and Cimoli, 2020). This would lead to an increase of 28 million people living in poverty (CEPAL, 2020), thus reversing global poverty reduction efforts (The Economist, 2020). However, this contrasts with the stable or increasing demand for labor in some essential emergency response sectors such as health, agriculture, food supply chain, pharmaceuticals, and energy supply (CEPAL-OIT, 2020).
In Colombia, the economic activity dropped 6.8% in 2020, monetary poverty grew 6.8 percentage points to 42.5%, and income inequality increased as well. Nevertheless, rural poverty decreased 4.6 percentage points to 42.9%. Provided the lockdown restrictions, Bonet, Ricciulli-Marín, Pérez-Valbuena, Galvis-Aponte, Haddad, Araújo, and Perobelli (2020) estimate that the economic losses would have ranged between USD $1.2 billion and USD $16 billion per month (1) with differentiated regional impacts since some regions are more vulnerable than others.
By sectors--although the short-term decline was evident, e.g., in services and mining--the initial expectation for the agricultural sector was less clear. ANIF (2020) forecasted a growth of 2.5% in this sector due to the household prioritization of these goods during the crisis, while Botero and Montañez (2020) foresaw a decrease of 5% during 2020. The agricultural sector in Colombia grew 2.8% during 2020. However, several farmers, particularly small ones, were severely hit by the lockdown. The closure of commercial establishments, hotels, and educational institutions, and the drop in household income caused a decrease in the domestic demand for some agricultural products. For example, according to FEDEPAPA,(2) the closure of hotels and restaurants caused a 30% drop in the demand for potatoes. Therefore, there was a decrease in prices and production of some agricultural products because of excess supply in local markets.
The medium and long-term effects of the COVID-19 pandemic are still not clear, and much less is known about the post-pandemic economic and social recovery options. Among them, some authors see agriculture as a promising sector, considering not only its demand for labor but also because of food security (IDN, 2020; LOOP, 2020; Okonji, 2020). To tackle the economic effects of the pandemic in countries' food production and distribution chain, governments worldwide have implemented different policies. These include more cooperation between customs and border control authorities, suspension of tariff payments, and other protectionist policies; support for small farmers in financial, technical, and sanitary issues; as well as logistical challenges such as the use of non-invasive monitoring mechanisms to speed up the clearance of goods (Aday and Aday, 2020; Bochtis, Benos, Lampridi, Marinoudi, Pearson, and Sørensen, 2020; Giordano and Ortiz, 2020; Escobar, Penagos, Albacete and Garcia, 2020).
In Colombia, within the framework of the declaration of the State of Economic, Social, and Ecological Emergency (SESEE), the national government arranged several incentives to support households and provide incentives to employers to prevent layoffs and encourage production. In general, almost half of the 112 measures introduced by the Colombian government to deal with this pandemic were economic policies (Marriner and Becerra, 2020). For instance, unconditional cash transfer for emergency assistance to poor households had a positive effect on their well-being (Londono-Velez and Querubín, 2021). Some of these incentives were aimed at the agricultural sector. In regard to this set of policies, Marrine and Becerra (2020) highlight that access to credit benefited large companies the most, i.e., 94% of the loans were granted to large agricultural firms.
Previous literature has extensively discussed the economic effects of the Covid-19 lockdown on agricultural markets (e.g., Elleby et al., 2020), and described different policies proposed to mitigate these effects (e.g., Adeeth Cariapa, Kumar Acharya, Ashok Adhav, Sendhil and Ramasundaram, 2021; Pan, Yang, Zhou, and Kong, 2020). However, the analysis of their social and economic impacts has received less attention. Only one study that examined the impact of assistance measures on India's farming was found (Varshney, Kumar, Mishra, Rashid, and Joshie, 2021). In this paper, we aim to evaluate the general economic impact of the government's economic policies in the framework of the SESEE, focusing on the agricultural sector. This will allow us to know whether and how government policies can mitigate the negative impact of the pandemic on it.
We are interested in measuring the impact of economic policies aimed at the agricultural sector's recovery on the Colombian economy and the distributional effects between rural and urban areas. Among these policies there are economic incentives for agricultural sector workers and aid for social benefit payments, a program to support the transport of perishable agricultural and livestock products, and a zero tariff for corn imports. We analyze the effects of this set of policies considering some options for financing them. The objective of this analysis is to contrast the impacts of the different financing sources on the economy to identify the one with less negative effects on the economic performance and on the distribution of income between rural and urban households.
The remainder of the paper is organized as follows: Sections 2 and 3 present some background and the methodology, respectively. Then, in Section 4, we present the main results and in Section 5 the discussion and policy implications of these results. Section 6 provides the conclusions.
-
Background
To control the pandemic, restaurants, hotels, educational institutions, and commerce in general have been closed. More than a year after the first strict confinement was decreed, several restrictions remain. Therefore, the total GDP fell by 6.8% in 2020. The most affected economic sectors were construction; mining and quarrying; trade; and artistic, entertainment, and recreational activities with decreases in production of 27.7%, 15.7%, 15.1%, and 11.7%, respectively. In contrast, the financial sector grew 2.1% and the agricultural sector grew 2.8% (see Figure 1).
Financial entities had profits of USD $3,9 billion in 2020 (Superintendencia Financiera de Colombia, 2020). The financial sector's huge profits during the pandemic can be partly explained by some of the benefits obtained by companies in 2020. Despite an income tax surcharge on the financial sector of 4% in 2020 and 3% for 2021 and 2022, they also benefited with an income tax reduction that went from 33% in 2019 to 30% in 2022 (Congreso de la República, 2019). Likewise, the Central Bank of Colombia reduced banks' reserve requirements by USD $2.5 million, and the government requested those financial entities to invest that money in Internal Public Debt Securities, which would give them a profit of USD $135 million (Gomez, 2020).
In the agricultural sector in 2020, fishing and aquaculture, crops, cattle, and forestry presented grow th rates of 22.1%, 4.8%, 1.7%, and 1.6%, respectively, while coffee production fell 10.5%. Regarding other representative crops in Colombia, there was a decrease in corn production of 7.8% (Fenalce, 2021), and potatoes of 5.1% (Fedepapa, 2021). Finally, rice (Fedearroz, 2021) and cassava (Ministerio de Agricultura, 2021) production grew 14.7% and 1.5%, respectively.
On the other hand, because of the pandemic, there has been a significant decrease in the internal demand of agricultural commodities. For example, the hospitality and food service sector--one of the main consumers of agricultural commodities--decreased its output by 36.8%. Additionally, although the demand for food is inelastic, the loss of household income has also caused a significant reduction in their demand for food. It is estimated that between March and October 2020, the household income fell by USD $7.6 million (ANDI, 2020). Consequently, by March 2021, only 68.8% of households consumed three meals per day, compared to 90.4% of households in the same month in 2020 (DANE, 2021a).
Consequently, there was an excess supply of some crops such as cassava, rice, corn, and potatoes, which are consumed domestically, causing a drop in their price. In the case of coffee, despite a drop in its production, exports grew by 5.5%, and coffee growers obtained significant returns because of the rise in the price of coffee on the world market and the devaluation of the Colombian peso. Overall, 352,000 jobs were lost in rural areas (DANE, 2020); therefore, a drastic decrease in rural household income and an increase in poverty could be expected. However, in rural areas, the percentage of people living in monetary poverty decreased, going from 47.5% in 2019 to 42.9% in 2020 (DANE, 2021b). (3) According to DANE, this is attributed to the mitigation effects of social programs and monetary aid implemented due...
Para continuar leyendo
Solicita tu pruebaCOPYRIGHT GALE, Cengage Learning. All rights reserved.
