The liberation of exports, decreed by the de facto Government at the request of the agroindustry of Santa Cruz will cause inflation and shortages.
On January 28, 2020, a presidential decree on the liberalisation of exports was signed by the de facto Government in Bolivia. It is one of the first measures in the economic sphere that looks to reinforce Bolivian neoliberalism, revealing just what the major interests were behind the institutional collapse that led to the ouster of former President Evo Morales in a parliamentary-military coup in November.
It appears to be a return of favours for the support the Eastern agro-industrial sector gave to the coup. The Government must foot the bill for this supposed political and economic support that liberalises the commodities exports that produce the Santa Cruz agro-industry.
In the more than 60 days that have passed since “interim President” Jeanine Áñez came to power, the Government has already made four successive announcements the implementation of export liberalisation, but no measure has been carried out. After three postponements, the responsible minister made a decree on January 28, 2020.
Here, we review what is at stake and why deregulation of exports is the first big goal to restore the country’s old economic powers.
Food: The Centrality of the Political Economy of Evo Morales
One of the central axes of Evo Morales’ economic policy was the control of inflation, particularly food inflation. Low inflation met two major objectives: ensuring macroeconomic stability and ensuring redistribution of national income through increases in the real income of the poorest population, which historically had been excluded from state benefits.
In turn, the stability of food prices was linked to a central objective of Morales’ economic policy, which was to match the importance of “food security with sovereignty.” This complied with the “Political Constitution of the State,” enacted in 2009, which in Article 16 dictates that the State guarantees the right to food of the entire Bolivian population.
It is thus understood that this is not only a question of the population having access to food, but that this access does not become a mechanism of dependence that subjects the population to the designs of external economies. It seeks to ensure that the people can be guaranteed their right to food without directly relying, insofar as possible, on what other governments in the world decide.
Achieving sovereignty as a central component of food security became the centrality of economic policy. This was especially important given the history of submission that the Andean country had suffered through the destruction of its productive capacity – a product of the “aid” for development given by the United States through the donation of wheat since the 1950s.
These donations created a great food dependence on the so-called “battle bread,” made mostly from U.S. wheat flour. So much so that it lead María Luisa Ramos Urzagaste, an agronomist and Bolivian politician who held a number of senior positions under Morales, to suggest that “Bolivia then became a wheat-addicted country.”
When in October 1982 the “Popular and Democratic Union” (UDP) began to govern Bolivia, made up of leftwing parties that installed a progressive government, Ronald Reagan suspended the donation of wheat flour, and as a result, caused the near absolute shortage of battle bread, collapsed the popular economy and made it difficult for the UDP to continue to govern.
This shows that the impact of food price inflation on the popular economy was, for the government of Evo Morales, as or more important than its economic impact on stability. One of the mechanisms that were implemented to achieve control of food price inflation was export regulation.
This effort to ensure food sovereignty was recognised globally by the “Food and Agriculture Organisation” of the U.N. with its 2015 award for hunger reduction.
Regulation of Exports
The implementation of an export regulation mechanism was not part of the government plan that began in 2006 with the arrival of the Movement Towards Socialism (MAS, party of Evo Morales) in power. It initially emerged as an emergency measure in 2008 due to the threat of rising food prices. Until that time, Bolivia’s agroindustrial sector, mainly located in Santa Cruz, sold 70 percent of its production in the domestic market.
However, agro-industrialists decided at that time that most of their food products would be exported, consequently causing the domestic market to become undersupplied almost to the point of bringing the popular economy to the brink of collapse. Bolivia thus revived the 1982 crisis when Reagan suspended wheat donations.
Products such as edible oil, sugar, rice, corn (the main food of poultry) and others such as red meat and chicken, began to disappear from markets, mainly from the west of the country, while agro-industrialists exported the most part of these.
Thus, the actions of Santa Cruz’s agroindustrial businesses, with a clear political intention, was the basis for the government’s decision on export regulation. Preceded by a very short stage of food export prohibition, it was a measure that sought to put pressure on the business economy and break the internal alliances of the then oligopoly.
In practice, Bolivia was a country enslaved by the business class, as maximising private gains in exports directly affected the domestic market’s ability to provide goods and services. The population was prey to pure capitalist rationality, in which profit was guaranteed at any cost, including shortages of the domestic market.
Thus, the government of Evo Morales decided to allow the partial export of agroindustrial products in order to take care of the adequate supply of the domestic market, provided that the export price of foodstuffs was higher than the price in the domestic market.
Over the past 10 years, the mechanism has been improved to ensure supply to the domestic market whilst allowing for the rapid export of surpluses. The “fair price certificate of domestic supply” that the industry received, enabled it to export only once the State verified that it met the supply to the domestic market of a portion of its production at the price previously agreed between the government and agro-industrialists, called the “fair price”.
In addition, the Government monitored the number of hectares planted in the country in each agricultural production cycle to calculate the weighted yield per hectare for each type of animal production or yield according to the technology used.
The so-called “fair price,” which added to production costs, was usually 15 percent for agribusiness profits. The bid between the Government and producers created profits that moved away from an oligopolistic structure whilst ensuring the smooth functioning of private initiative.
The process of calculating the fair price of each food meant that the State had to verify and adjust the prices of all the necessary supplies for production, from seeds for agriculture, livestock feed, fuel and more, to other production costs.
In doing so, the Government gained knowledge of how prices are formed in the economy for a significant part of Bolivian production. In this way, export regulation became a space for the price-fixing of most of the basic stocks in the entire agroindustrial production chain.
For example, in order to agree on the final price of a kilo of chicken, the price of a quintal of corn had to be agreed upon, considering the reasonable profits of the producers. This, in turn, assumed that the price of seeds had been agreed through the operator of the government food market, known as the “Food Production Support Company” (EMAPA).
This procedure ensured that the fair price on the domestic market for this food was not unilaterally established by the Government – which would lead to the emergence of black markets for products, something that never happened in the 14 years of MAS Government – and that the production costs of agro-industrialists and small producers were taken into account.
Building consensus on technical parameters was so difficult to achieve, that once agreed – and so as to consolidate agreements and not go back in the progress that had been made – they were reflected in laws passed by the Plurinational Legislative Assembly. Examples include the Sugar Production Complex Act and the Milk Production Complex Act.
Results of Export Regulation
Criticism of the export regulation by Santa Cruz’s agribusiness sector did not take long. From the outset, their criticism was aimed at pointing out that it would mean the “grave” of Bolivia’s export agribusiness because the sale of products on the domestic market at regulated prices, even if based on previous agreement, was not an “incentive” for agro-industrial production and that a large decline in the production of soybean oil, sugar, rice, corn and other products was looming.
Contrary to the predictions of Santa Cruz’s agro-industrial exporters, the production of these foods and their exports greatly improved, as the graph below shows.
This graphic, the source of which is a private institute financed by the agro-industrial business community, proves that in the ten years indicated (in which export regulation was in force) soybean exports increased.
However, despite the results achieved during the 10 years of export regulation, the Santa Cruz agribusiness has demanded from the new de facto Government the total and full liberalisation of exports, in order to be able to take advantage of the good prices that commodities enjoy on the international market for itself.
When exports of these foods are released, the first reaction of the business sector will be to take advantage of any good external price to export all their production, leaving the domestic market undersupplied and making Bolivians’ food dependent on their import capacity, which will be done at international market prices.
But, on the other hand, if the price-fixing mechanism – that was a method for jointly setting fair prices in the domestic market – does not work, the prices of all inputs will be deregulated. Coupled with scarcity, this will bring total lack of control over the prices of many basic foodstuffs and consequently of inflation.
The announcement alone of the Government’s decision to suspend export control and implement the full liberalisation of exports of agroindustrial products has already had adverse reactions in the most diverse sectors of society, largely because it is known that the control of exports in these last 12 years prevented shortages and rising food prices.
Export control functioned as an effective mechanism for wealth transfer from exporting-elites to the food-consuming population in the domestic market.
It is also clear that for the Santa Cruz agro-industrialists to truly benefit from the liberalisation of exports that it must be accompanied by exchange rate adjustment measures, resulting in additional negative impacts on the functioning of the Santa Cruz economic model that had settled in the country.
The potential impact will be food shortages in the domestic market and consequent price rise, which will constitute an attack on the popular economy and on the food security and sovereignty that had been in construction since 2006.