The Mobilization of Resources from Agriculture: A Policy Analysis for Brazil

Abstract

Brazil, like many other developing countries, has discriminated rather heavily against its agricultural sector. The chronic overvaluation of the Brazilian currency has constituted an implicit export tax on the agricultural sector. ln addition, there have been explicit export taxes, quotas, and embargoes on agricultural products, and complicated export licensing schemes. This discriminatory trade policy has been complemented by various domestic food policies which also attempted to restrain the domestic prices of food. In contrast, the industrial sector has benefited from high levels of protective tariffs and export subsidies. Moreover, the overvalued exchange rate constituted something of a subsidy to the industrial sector since it was dependent on imports of certain raw materials and critical capital goods. This combination of policies is clearly designed to capture and transfer the well-known agricultural surplus as a basis for furthering the development process. The research on which this paper is based was designed to make a partial analysis of the impact of these policies on the agricultural sector (see Lopes for the larger study). The analysis compared an overvalued exchange rate and a tax on land as alternative means of extracting the surplus from agriculture. The analytical model was developed along the lines of a model used by Floyd for an analysis of U.S. agricultural policy. It is based on a one sector model of the agricultural sector consisting of six equations: an aggregate production function, equilibrium conditions for the use of labour and capital (input demand equations), supply functions for those two factors of production, and an equation which describes the demand for farm output.