Current problems of Agriculture in Ecuador and the Effects of lack of Public Policies

Author: Marcelo Cedeño

BUSINESS MODEL VISION

Wará Guayusa

8/26/2021 6 min read

“Ecuadorian agriculture should be aimed globally and not only locally”

First, I would like to state that I’m not an expert in the field, nevertheless having worked for some years; exactly 5 for the Agricultural industry in Ecuador; in the public and in the private sector, has given me enough experience and tools to make my own conclusions in the current problems of the Agricultural field in Ecuador and of course I will detail some of my personal recommendations to try to solve some of this urgent need the country in matter of Public Policy should approach.

1) Poor supportive approach and vision of the Associative Models of the Popular and Solidarity Economy

The lack of support and vision of the Associative Models of the Popular and Solidarity Economy has been an issue for which the productive base of the Ecuadorian rural sector has not been able to emerge as one of the fundamental pillars within the expected economic growth. Although it is necessary to recognize that several governments have tried to focus efforts over time to promote and encourage the development of these sectors, it is worth mentioning that the tools used to undermine this end; such as, for example, wage policies, the establishment of minimum support prices, human development bonuses, among others, have not turned out as expected. The wishes for progress and social transformation, being inspired by a paternalistic position, have resulted in a total transfer of responsibilities towards the State. The functions of the modern State in the economic and social field should be to promote the essential conditions for citizens to use their resources efficiently and achieve high standards of living. Finally, an efficient use of resources; that by nature are scarce, must be used in activities that have great potential.

The supportive approach and vision of the Associative Models should be framed within the participation design of various groups that interact in the production system that transfers the power from the top to the productive base and that empowers primary producers to success or failure. The development of formalized associative groups allows the power structure to be disseminated, moving to the associated producers. This will delimit so that everyone works under the same goal and with the joint objective of development for the common good.

2) Paternalistic State:

The Paternalistic State refers to the line of state interventionism with which the state intends to solve the crisis of a country’s growth. As one of the main characteristics is to create a wide power within the fiscal and autonomous institutions that allows them to infer in economic activities without discretion and with absolute control over them. This almost autonomous power of a Government and without being limited by other public bodies has given various mechanisms and especially resources to the State for the creation of policies that have gone against the economic growth that a country should aim for. It should be mentioned that within this a certain starting point has been established for different social or pressure groups to organize themselves more and more and use the consolidated state power for their own benefit.

* These statist tendencies manifest themselves in the following ways:

* Direct state intervention for manipulation of various economic and social variables of the country.

* The development of a broad state bureaucracy that depends directly on it and slows down any type of process.

* Propensity for state activities parallel to private activity in productive and service sectors.

* The development of inefficient planning systems that seek direct control of various activities and that do not allow freedom in making any decision at the private business level.

* Increase in state investment in areas of low social and productive profitability.

* The politicization of public entities.

* Many of these actions frame a state power that limits the possibilities of development that are not protected under the state regime.

The growing state intervention related to the manipulation of economic variables such as control of minimum support prices in the agricultural field have produced serious distortions in the economic system that have made national products less competitive resulting as price is regulated in an artificial way. On the other hand, comparing the price regulation previously stated to products from other countries, these last ones had been governed by free market natural law that is, under supply and demand.

Planning should not be considered as an increase in undue controls without taking into account clear growth goals and that indirect mechanisms and incentives may be used in its execution in order to direct the use of productive resources. In parallel, the increase in public investments in low-productivity activities is another phenomenon that has rejected economic growth since these levels of investment must be financed with taxes or taxes that do not allow the development of the private sector, which due to lack of savings does not. It has been able to invest in investment capital that achieves an improvement in productivity levels.

3) Stagnation of the agricultural sector:

The stagnation of agricultural production and the lack of productive development with an industrial vision for the future have resulted in producers not focusing their production on the needs of the industry and having problems with the marketing of their products. In this context, agricultural marketing policies currently aim to artificially promote production, intervening in the market by setting minimum support prices on high production costs and guaranteeing markets through the execution of absorption and purchase programs by the State. As a consequence of what has been previously described, in most cases, agricultural producers rationally make the decision to produce what they already have previous experience in and in the same way according to their availability of human and financial capital. In other words, the producer does not plan a sowing with a demand approach since his production, or a large part of it, has the State as an entity that buys its crop many times with heterogeneous quality and at moderately high prices. Thus, the current farmer does not consider the market as the guiding element for productive decision-making and since prices are already stipulated and set by the state, they are not governed by the law of supply and demand, losing competitiveness in markets outside the country.

This has led to an increasing dependence on foreign countries that supply raw materials (a large part of it) and, consequently, an effect on the country’s balance of payments. This in turn limits the possibilities of investment in the importation of capital goods and technology with which the investment that becomes the true engine that would generate economic development in the country increases.

4) Lack of conjunction between State Research Entities and the changing needs of Industries

The lack of conjunction and misalignment between the State Agricultural Research Entities and the changing needs of the Industries have been one of the variables that has not allowed the development of new strategies based on a progressive approach with a market vision. Although one of the causes has been the non-existent link or rapprochement between these two units, also the lack of state incentive through investments focused on research with guidelines aimed at improving crop productivity, developing value-added products, product lines with technological innovation, new technologies that encourage large-scale production to occupy the total installed capacity in the industries, reducing costs and increasing competitiveness; among others, it has not allowed the efficient development of progressive lines that generate economic growth in the country.

These problems generate:

a) Misallocation of productive resources
b) Limited development of the external sector
c) Low growth rate of productive resources
d) Productive approach misaligned with the needs of the national industry.

Within this problem, the importation of raw materials has increased, which due to extremely lower costs in other countries, generate greater profitability for industries than having domestic production at high costs and lower quality, they opt for the previously mentioned import option. On the part of the Ecuadorian State, the ease of importation of these, determined that the national producers, unable to compete with international prices, dedicate their activities to other crops that generated the current problems of overproduction and decrease in their prices, submerging farmers in extremely difficult economic situations and causing migration from the countryside to the city. Likewise, it should be noted that the synergy between the private industry and the state entities dedicated to research has been minimal or nil over time and the objective of promoting national production with all its promising potential with focus on the needs of the industry.

Research entities in the country are well called to take a direct link with private industries, which are those that require raw materials with uniform quality, unique industrialization parameters to obtain their final products at affordable costs, and that promote the same industries to prefer the national product over the imported product. Although these investigations have been carried out in a timely manner, many times they have the State as their main investor. It is well known that in times of crisis like the one Ecuador is currently facing, resources are allocated to other areas; how to maintain the peace and social order of the masses when in reality said resources should be destined to macroeconomic activities that generate economic growth in industries that not only generate employment and that feed the state coffers on a tax basis, but in the same way they are the ones that sustain the economy of a country and that could even generate foreign exchange income if the products obtained are well targeted.

Within this singular aspect, the State must facilitate, without so many bureaucratic procedures, Public-Private Alliances that based on monetary stimuli and financial-economic support in conjunction with private industry, research directed at the common good can be generated based on its needs. The investment contributions can be equitable and that in the medium and long term they can benefit not only the industries but the country’s economy.

Finally, it is good to state that Ecuador is an Agricultural country by nature. We insist that the unique agroecological situation, all year long weather and conditions make it as one of the most desirable countries where Agriculture is more than possible and is exclusively easy to produce almost anything at a fairly low price. So, after this World Economic Crisis, all the Ecuadorians that have the privilege of making their living out of Agriculture, should start thinking globally and not locally. There are many worldwide markets craving this offer of products which some of them locally are not even appreciated or even known.

Address

Warsaw, Poland

Contacts

marcelo.cedeno@waraguayusa.com

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