Investments in Brazilian agriculture: alternative estimates from 1980 to 1998

Abstracts

O objetivo específico deste trabalho foi construir séries de investimento no setor agrícola para o período 1980-1998. Informação sobre tal fluxo nas duas últimas décadas existe somente para 1980, 1985 e 1995/96 (anos de Censo Agropecuário). A primeira série toma o valor do investimento no setor agrícola na Matriz de Insumo-Produto de 1980 como valor básico. Os valores para os anos seguintes são obtidos aplicando aos investimentos à mesma variação verificada no estoque de tratores nacionais de rodas. A segunda série tem o mesmo valor básico do caso anterior. Os valores para os anos seguintes são obtidos aplicando-se aos investimentos a mesma variação verificada nas vendas de tratores nacionais de rodas. Finalmente, uma terceira série toma como valores básicos de investimentos aqueles dos censos agropecuários. Variações nas vendas internas de tratores nacionais de rodas são aplicadas para obter os valores de investimentos para os demais anos. A despeito de suas limitações, acredita-se que a segunda e a terceira série são mais próximas da realidade, porque a variação nas vendas de tratores se mostrou a melhor proxy para as variações nos investimentos que as variações nos estoques de tratores e porque o comportamento das mesmas parece estar mais de acordo com o contexto econômico.

setor agrícola; investimentos e Brasil

Investments in Brazilian agriculture: alternative estimates from 1980 to 1998

Alexandre Florindo Alves^I; Paulo Fernando Cidade de Araújo^II

^IAssociate Professor of the Department of Economics - Universidade Estadual de Maringá. Avenida Colombo, 5790. Zip-Code 87020-900 Maringá PR Brazil. E-mail: [e-mail]

^IIVisiting Professor, Faculty of Economic Science - Universidade do Estado do Rio de Janeiro; Professor, Department of Economics, Sociology and Administration - Escola Superior de Agricultura "Luiz de Queiroz" - USP. Ave. Pádua Dias, 11. Zip 13418-900. Piracicaba, SP, Brazil. E-mail: [e-mail]

ABSTRACT

This article establishes an investment series for the Brazilian agriculture sector over the period from 1980 to 1998. Brazilian agriculture investment flow information for the last two decades is found in the Brazilian Agricultural Censuses of 1980, 1985, and 1995/96 only. The basic value for the 1^st series of amounts invested was taken from the 1980 Brazilian Input-Output Matrix. Values for the following years were obtained by applying the variation found in the stock of wheel tractors to agriculture investments. The 2^nd series commences with the same basic value as the 1^st series while values for the following years were obtained by applying the variation found in domestic sales of Brazilian manufactured wheel tractors to investments. The 3^rd series takes as its basic investment values those found in the three Agricultural Censuses while variations in the internal sales of nationally manufactured wheel tractors are again applied to obtain investment values for the other years. In spite of inherent limitations, the 2^nd and 3^rd series are closer to reality than the 1^st series. Variation in tractor sales seems to be a better proxy for agricultural investment variation than variation in tractor stock. Further, the trend of the 2^nd and 3^rd series seems to fit better within the economic context then 1^st series’ trend.

Key words: agricultural sector; investments; Brazil.

1. Introduction

In the 1970s and 1980s, investment by Brazilian farmers was influenced by the availability of government subsidized credit. The end of this process arrived in the final years of the ‘80s, and subsequent credit tightening caused the farmers to make a more rational use of financial resources (Barros, 1999; Ferreira Filho & Costa, 1999). As a possible counterbalance to credit tightening, Liebhardt (1988) mentions an increase in the volume of farmer investments using their own resources over the same period.

In this study, we analyze the evolution of both public and private investment in Brazilian agriculture through the late ‘80s and early ‘90s. The period of analysis was a period of paramount importance for the Brazilian economy as a whole and for the agricultural sector in particular, and several authors have noted this fact. Rodrigues & Guilhoto (1998) state that the late ‘80s and the ‘90s witnessed important changes in the Brazilian economy arising from privatization, the modernization of the economy, trade liberalization, and the start of the "Plano Real."

Estimates of agricultural investment series are appraised since there may be some cases in which investment values, and not mere data on their evolution, are needed. Moreover, the use of variation in internal sales of nationally manufactured wheel tractors to obtain the series may confirm the fitness of this variable as proxy for investment variation in the agricultural sector.

2. Methodology

Total rural credit used for investments could have been chosen as the proxy for total agricultural investments but was rejected for a number of reasons. This type of value accounts for neither direct government investments in the agricultural sector nor those undertaken using the producers’ own resources. With the exception of 1980, 1985 and 1995-1996, there is no information on the relationship between total credit used in agricultural activities and the total value of investment in agricultural activities. In these three years, the Agricultural Censuses reveal a relationship of 8.25%, 4.17% and 12.13% respectively between investment loans and total investments (IBGE, 1983, 1984; IBGE, 1991; IBGE, 1998a): a persistently weak relationship. Also, since the instability of the Brazilian economy during the analyzed period is notorious, any kind of extrapolation or interpolation of credit data from that period would imply highly restrictive presuppositions.

In our study, three alternative total agriculture sector investment estimates were developed derived from the evolution of capital stock in Brazilian agriculture. This diversity of options follows the procedure adopted by Barros (1999), who also discusses the lack of agreement on the validity Brazilian tractor stock estimates. A description of the three total investment estimate options follows.

2.1. Series based on tractor stock variation and investment, data from the Brazilian Input-Output Matrix for 1980 (Ia1)

Studies by Barros (1999) and Bonelli & Fonseca (1998) assume mechanization values as proxies for the evolution of agricultural capital stock. Bonelli & Fonseca (1998) use variation in the stock of machines and agricultural implements as a proxy for the variation in capital stock. Barros chose investment in tractors as the proxy. His research

"aims at investigating the process of capital formation and evolution of the productivity in Brazilian agriculture .... Assessment starts from the construction of alternative ways of measuring the stock of agricultural tractors in Brazil. Investments in tractors will serve as proxy of capital formation trend in the sector. It has already been shown that such procedure is an imprecise evaluation of aggregate capital stock. Tractor market allows a deeper empirical inference within total items of the physical capital stock, due to its reliability and periodicity of available data" (Barros, 1999, p.1).

Barros constructed series of the monetary value of stock each year, the number of tractors in use each year, and total horsepower in use each year. The three series showed similar trends. For the present study, the number of tractors series was chosen. Since the series published in Barros’ (1999) study only ran through 1997, the 1998 value was provided by Barros from later, as yet unpublished research.

If variation in tractor stock is used as a proxy for the variation in agriculture capital stock and if a correlation value exists, it is possible to build a series approximating total investment in the agriculture sector in spite of limitations mentioned above. The 1980 Input-Output Matrix value of Brazilian agriculture investments was chosen as the base value of this series, series Ia1.

Two other series have also been built for investments in the agriculture sector (Ia) due to an interesting coincidence: there exists an approximate relationship between variations of total agriculture capital investment derived from the Agricultural Censuses and variations of internal sales of domestically manufactured wheel tractors. This relationship is shown in Table 2 and Figure 1. Investments recorded by the 1995-96 Census are considered to have been made in 1995.

Table 1
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Table 2
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Figure 1
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Ferreira Filho & Costa (1999) reported a decrease in the sales of wheel tractors beginning in the early 80s; however, no defined trend for the ‘90s can be observed in Table 1. Table 2 shows a greater relationship between sales of tractors and investments than between variations in the stock of tractors and investments. From these data, two series based on the variation of tractors sales were built. They will be described below.

Another important fact Ferreira Filho & Costa (1999) stress is that the number of tractors sold may give the wrong impression about the effective expenditure on tractors because the numerical sales data does not consider individual tractor value, which is affected by change in tractor horsepower among other factors.¹ The authors verified an increase in sales of tractors with a higher hp (from 50 to 199 hp) between 1970 and 1996. Further analysis of data from the '90s shows that this trend appears to be reversing. In the 1995-96 period, the share of sales of tractors ranging from 50 to 99 hp increased from the 1990-94 period while the share of share of sales of tractors ranging from 100 to 199 hp decreased. This is the opposite of what occurred between the ‘80s and the 1990-94. It may be surmised that the number of tractors sold in the 1995-96 period may represent a relatively lower expenditure that the same number sold in the earlier periods.

2.2. Series (Ia2) based on the variation of tractor sales and investment from Input-Output Matrix for 1980

This series compares a series based on variation in the value of tractor stock (investment Ia1) and another based on the variation in the value of tractor sales (investment Ia2) with both series are based on the 1980 Input-Output Matrix investment value. Investments values from 1985 onwards have the same relationship with investment value in 1980, as do tractor sales from 1985 onward with 1980 tractor sales.

2.3. Series (Ia3) based on the variation of tractor sales and investment shown in the Agricultural Censuses

Since a relationship exists between the variation of investments found in the Censuses and that of tractor sales,² a third series for investments was built. In this case, the 1980, 1985, and 1995 values of Ia3 correspond to total agriculture capital goods investment from the last three Agricultural Censuses. The value of total investments from the 1990 to 1994 period and from the 1996 to 1998 period maintain the same relationship with the 1995 investments as tractor sales in the same periods have with 1995 tractor sales.

3. Results and Discussion

Results from the three series of investments in the agriculture sector, shown. Table 3 and Figure 2, give a picture of the evolution of the different investment series.

Table 3
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Figure 2
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In the ‘80s, investment Ia3 was much larger than Ia1 or Ia2. A greater convergence occurred during the ‘90s, especially between investments Ia3 and Ia1. Estimates of Ia2 and Ia3 show a similar trend, although, the values of Ia3 for 1980, 1985, and 1995 are from official Census data and the values of Ia2 for 1985 and 1995 are estimates.

Even when Ferreira Filho & Costa's (1999) opinion that changes in tractor sales may be associated with more efficient tractor use, depreciation, and retirement, tractor sale is still confirmed as a good proxy for the evolution of investments in the agricultural sector, because the authors’ caveat may also be applied to the other items of agricultural sector capital stock. Factors that influence the efficiency of tractor use exert the same influence on other agricultural inputs.

Estimates of investments Ia2 and Ia3 are appropriate within the economic context of the period under analysis (as may be expected from data in Table 2 and Figure 1). High value of investment Ia3 in 1980 agrees with data from Rezende (1989), which shows that rural credit, and its implicit interest rate subsidy, was maintained at its highest levels from 1979 to 1982. Pinheiro (1995) reported an abrupt decrease in investment taxes from 1980 to 1992 and a recovery in 1993 and 1994, coinciding with a fall in the country’s inflation rate’s fall in the second semester of 1994 as the Brazilian economy improved. According to the author, in 1994 there was also a recovery in external direct investment. Likewise Rodrigues & Guilhoto (1998) records an investment tax decrease during the 1990-1992 period and an increase in 1994 to 1995 period. Moreover, Brazilian monetary policies in early 1992 were characterized by high interest rates, which decreased from 1993 onward (IBGE, 1997). Post-1994 exchange rate devaluation coupled with trade liberalization caused a Brazilian trade balance deficit that led to an increase in real interest rates, a contraction of the monetary base, and a reduction in credit availability in the second quarter of 1995.

The year 1996 is considered unique in the entire study period. In 1996, the general performance of the economy and estimates of investment in the agriculture sector show divergence as Brazil’s credit and monetary policies changed (IBGE, 1997). It should be taken into account that these investment estimates were obtained from variations in tractor sales. Between 1995 and 1996, there was a decrease in the availability and use of government subsidized rural credit for the acquisition of tractors. In 1996, 10.3% of the credit provided by the government for agriculture investment was used to buy tractors (ANFAVEA, 1999), the lowest percentage during the study period. Despite increases in the farmers’ use of their own capital for investment, the restriction in the availability of formal credit certainly influenced the decrease in tractor sales, and consequently, total agriculture capital investment values for that year.

Although, the tight credit policy of 1996 was continued in 1997, Brazil’s GDP managed to grow 3.8% in 1997 (IBGE, 1998b). Early 1998 presented signs of Brazilian economic recovery in relation to late 1997. Interest rates abruptly increased in the first semester of 1998 then decreased from November onwards with practically no GDP variation (IBGE, 1999). It was found that analysis of monetary policy data does not correctly predict 1998 agricultural sector investment.

4. Concluding remarks

It may be concluded that during the period under analysis there is coherence between Brazil’s economic context and the two tractor sales value series presented in this paper. Results show that tractor investments decreased in the early ‘90s, then increased rapidly in 1993 and, especially, 1994, mirroring Brazil’s macroeconomic investment trends.

Variations in the domestic sales of nationally manufactured wheel tractors were found to be a good proxy for total Brazilian agriculture sector capital investments over the period studied. It is important to emphasize that this study’s goal was to provide alternative ways to obtain series of agricultural sector investment values and not merely with estimates of investment variations. In fact, many studies, such as those by Alves (2000) and Alves (2001), depend on these values.

The series we have developed is liable to imperfections and need not preclude the use of other indicator series. The farm mechanization index may be mentioned as another series that can be used to estimate total agriculture sector investment. This index would correlate change in hectares worked per tractor over a period to total agricultural investment in that period (99, 90, 92, 104 and 116 ha/wheel tractor respectively in 1980, 1985, 1990, 1995 and 1998, according to ANFAVEA). Coupled with alterations in average tractor selling prices, change in the hectare worked may reflect different percentages of tractor investments within the context of total agriculture capital investments. This is even truer when one takes into account that the participation of the sub-sectors as a whole may also alter during this period

The availability and quality of basic investment data for the Brazilian agriculture sector constrained the current research. An attempt has been made to partially minimize the problem of data constraints by creating series using different investment data sources: the 1980 Brazilian Input-Output Matrix and the Brazilian Agricultural Censuses. It is difficult to determine which series better represents the largest investments. Nevertheless, series based on nationally manufactured wheel tractor sales variations seem to mirror the larger economy.

Future integration of the Input-Output Matrix with the New System of National Accounts will surely overcome research difficulties that arise when correlating Social Accounting Matrices with agricultural sector components. It is expected that the results obtained in this study would be confirmed by other studies, for example one analyzing the relationships between other macroeconomic variables. Hopefully, our study will further the effort to estimate Brazilian agricultural investment values as accurately as possible as this information is of paramount importance to both policy makers and to future analyses of the country’s agriculture sector’s performance.

Acknowledgements

The authors would like to thank Joaquim B. S. Ferreira Filho, Joaquim J. M. Guilhoto, Mirian R. P. Bacchi, and Alexandre L. Mendonça of Barros for their collaboration and the scientific advisers of the Brazilian Review of Agricultural Rural Economics and Sociology for their comments and suggestions.

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1

Griliches (1960) have already demonstrated the way qualitative aspects affect prices of goods.

2

A correlation of 99.85%, according to Hoffmann & Vieira (1987).

Publication Dates

• Publication in this collection
  13 Dec 2004
• Date of issue
  Dec 2002