The effects of exchange rates and commercial policy on agricultural incentives in Colombia: 1953-1978

Abstract

The report studies the effects on incentives to agriculture of policies to encourage import substitution and export promotion in Colombia from 1953 to 1978. Exchange rates and commercial policy are examined to determine the level and structure of incentives between industry and agriculture and within the latter. A tariff on imports affects exports either by raising prices of imports and domestic goods or by lowering the exchange rate. To measure the effects on prices, the study uses a model incorporating imports, exports, and domestic (nontraded) goods. It is concluded that in Colombia 90% of a tariff on imports falls on exporters. In other words, a 10% tariff on imports will cause export prices to drop 9% relative to nontraded goods. If sales of exports remain the same, an exporter will have to spend 9% more on domestic products, such as food or housing. Because of the restrictions, the quantity of imports was reduced by at least 30%. The excess demand thus created enabled importers to raise prices by about 37-54%. Adding an average of 16% for actual duties paid, the total surcharge reached 53-70% for the period 1956-68; after 1968 restrictions were eased and direct duties gave a more accurate indication of surcharges. These are estimated at about 20%. To determine if incentives to exports balanced the adverse effects of tariffs on imports, the study measures the gross taxes or subsidies on exports. On the whole, in the 1950s and 1960s incentives failed to compensate for trade restrictions. Although incentives generally offset implicit import taxes in the 1970s, agricultural exports, such as coffee, continued to be taxed. In fact, explicit duties on coffee averaged 16% throughout the entire period