Monday, May 29, 2023

Petro’s Aguacate Economy: the myth of agriculture as Colombia’s economic savior

Petro's plan to revive the Colombian economy with agriculture is unrealistic at best

In response to charges that Petro is too closely aligned with the Chavista dictatorship in Venezuela, Petro has a clever argument, which he employs to rave reviews on the campaign trail: he claims that it is the eight years of Alvaro Uribe and a further eight under current president Juan Manuel Santos that has led Colombia down the path to Venezuela.That Colombia’s ills stem from its supposed dependence on oil.

Gustavo Petro talking up his agriculture reforms at a campagin rally (Twitter)

And yet Venezuela has been far more dependent upon oil than Colombia has ever even dreamed of.

Petroleum has consistently accounted for near 50% of Venezuela’s GDP and an utterly astounding 95% of its exports. Since 1990, the petroleum industry in Colombia has typically accounted for between 2% and 4% of GDP, and between 20% to 30% of exports. That hardly places it in the same realm as Venezuela, which under years of Chavista economic demise, has become the world’s economic laughingstock, despite the perennial promises of Chavez and Maduro to “diversify” the Venezuelan economy away from oil.

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Petro, who has dropped to second in the polls behind center-right Ivan Duque, has captured the imagination of both the Colombian left, and students, with his call for economic reform through an agriculturally-based “avocado economy.” Petro proposes to resurrect Colombian agriculture with a series of price controls, government loans through a state agricultural bank, and investments in technology and fertilizers. Reforms that are rooted in a fantasy, ludicrously suggesting that agriculture should be the foundation for resurrecting the Colombian economy.

A Facebook user writes ” How many avocado trees are required to equal the price of a barrel of oil that is $ 185,856 pesos per barrel?”

Petro is just the latest in a long line of strongmen, populist-type leaders, of both the left and the right, who appeal to patriotism and nationalism in the context of agriculture. In Mexico, left-wing presidential candidate Andrés Manuel López Obrador, recently released a new YouTube video, directly appealing to the nation’s rural farmers, in which he pledged that their days of suffering were over and that Mexico would prioritize national agricultural production, over agricultural imports.

Their populism sounds good. It has a broadly non-partisan, non-ideological appeal. What could be less controversial than aiding your local farmer, who cultivates the food that feeds you and your family?

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But populism involves erroneous economic thinking, as with Petro’s agricultural policy.

As wonderful as it might make one feel to purchase fruits, vegetables, grains, dairy products, meat, and poultry locally; would people still be as enthusiastic and patriotic about it if it meant that they could not properly feed their family? Slightly more than half of Colombians currently earn the monthly minimum wage of roughly US$275. Food is expensive in Colombia, and if consumers are obligated to subsidize local farmers by paying more for locally grown food, that is hardly beneficial for the working class people that Petro claims to champion.

These are fundamental contradictions that the Gustavo Petros of the world cannot explain away.

At a recent campaign stop in Duitama in the agriculturally rich state of Boyaca, Petro peppered his speech with accolades for the small Colombian farmer, repeatedly praising the Colombian potato farmer as the foundation of the country. He has a relatable talking point when it comes to their utilitarian function: farmers provide a critical role in society, feeding their families with their production, and then selling their excess to pay for other economic necessities.

However, the sad reality is that many Colombian farmers would be better off doing something else with their time. Currently, 17% of Colombia’s population works in agriculture. Colombians don’t want that percentage to increase. Contrast that figure with Pakistan’s, where 45% of the population works in agriculture. Now contrast it with the United States, where less than 2% of the population works in agriculture. Does Colombia want to look more like Pakistan or more like the United States?

The trend is simple. The poorer and less developed the country, the higher percentage of its economy works in agriculture, much of it backbreaking, subsistence agriculture.

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Talk to today’s Colombian youth at a local middle school, high school, or university. Or for that matter in any country. How many of them are going to tell you that they want to work in agriculture? I am quite confident that the answer is very few.

Agriculture is poorly paid and extremely hard work. It requires living in remote places far from population centers. In the case of Colombia, it involves cultivating mountainous and inhospitable terrain.

It makes little sense to prop up the small, inefficient Colombian potato farmer, out of a misguided sense of patriotism, if that farmer simply can not compete with a potato farmer in the United States or Canada. But it is not merely propping-up uncompetitive industries: it is actually incentivizing artificial growth in an industry that would otherwise be shrinking without state subsidies.

Colombian society would be better off with a higher percentage of the workforce in the service or technology sectors.

A candidate like Petro, who constantly talks about economic inequality and social justice, should envision a Colombia that did not have the income that oil and mining sectors provide. How would the lost revenue, in any way shape or form, aid his attempts to address problems of economic inequality? There is no question that even a moderate boost in agricultural productivity could hardly compensate for the lost revenue from the oil and mining sectors.

Adam Smith explained this nearly 250 years ago with what he called the nature of comparative advantage in trade between nations. But subsequent generations of politicians still fail to heed his advice, especially when it suits them.

Admitedly, it is difficult to pinpoint a pithy path to economic greatness for Colombia. What is certain, however, is that agriculture is not the answer.

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