why was protection to agriculture so high during the ... · pdf filewhy was protection to...
TRANSCRIPT
1
Why was protection to agriculture so high during the interwar years? The costs of
grain policies in four European countries
Eva Fernández1
PRELIMINARY DRAFT
Abstract
Existing literature on the causes of agricultural protection unsatisfactorily explains why
protection to grain farmers substantially increased during the Great Depression.
Following the Gardner´s (1987) idea that governments tend to assist commodities with
low supply or demand elasticity, this paper calculates the welfare costs of protection to
wheat during the 1920s and the Great Depression. Estimations based on a single-
market, single-product model point out that the costs of protection maintained relatively
low in France during the 1930s (less than 0.2 per cent of the GDP), but sharply
increased in Spain and, especially, in Germany and Italy. In Germany, protection to
wheat farmers caused a loss of 2-3 per cent of GDP and 1.3 and 1.7 per cent in Italy,
while this figures reached to 0.1-1 per cent in Spain. Although further research has to be
done on the indirect effects of these policies, these estimations suggest that governments
protected farmers during the 1930s despite the high costs of this policy.
Introduction
Existing literature on the causes of agricultural protection have unsatisfactorily
explained why protection to grain farmers substantially increased during the Great
Depression. Empirical analysis including both developed and developing countries have
demonstrated that protection to farmers is inversely related to the number of farmers
and the size of agriculture in the GDP (Lindert 1991; Honma and Hayami 1986a;
1986b). During the interwar years, agricultural production value accounted for one
quarter of GDP in Spain and France in 1930-1939, for a third in Italy and for 15 per cent
in Germany.2 Despite the agricultural sector in these countries was still large, high rates
1 Visiting Professor, Department of Economic History and Institutions, Universidad Carlos III de Madrid,
Spain, E-mail: [email protected]. This research has been supported by the Spain’s Ministry of
Education Grant ECO2009-10739. 2 Sources for calculations are the following. Agriculture gross value added was taken from Toutain (1997)
and the Annuaire Statistique for France, Hoffmann (1965) and the Statistisches Jahrbuch for Germany,
2
of protection to farm products were achieved and intervention into the grain markets
was substantial. Protectionism agrarian policies have been fully used by developed
countries since the late nineteenth century and protection to agriculture maintained very
high, especially in the 1930s, despite economic theory has especially emphasized that
free trade promotes economic growth and an efficient use of resources. Policies to
protect farmers were believed to waste resources by encouraging production in higher-
cost lands by marginal farmers. The inefficient use of land, machinery and fertilizers
rise production costs and induce farmers to increase output, causing overproduction.3
Despite the negative economic consequences and the trade distortions arising from these
policies, advanced European countries and the United States were reluctant to reduce
the levels of protection to their farmers.4 Protectionism agricultural policies persisted
over time and intervention into agricultural markets even intensified after World War
II.5
Why have these policies remained? Large-scale intervention in agricultural markets has
been justified by the collective action of lobby groups (Olson 1965, 1985; Tracy 1989;
Andreosso-O’Callaghan 2003; Federico 2005a).6 In the 1930s, however, farmers’
population accounted for 37 per cent of total active population in France, 29 per cent in
Germany, 50 per cent in Italy and 54 per cent in Spain.7 Anderson and Hayami (1986),
on the contrary, suggested that in fact the levels of protection to farmers are directly
determined by the comparative advantage of a country’s agriculture. Some countries
adopted support policies for farmers earlier and reached the highest levels of support in
the second half of the twentieth century because of their disadvantage in agriculture
(e.g.). Increasing protection was justified because farmers are more vulnerable to market
fluctuations, as agricultural production is inelastic and prices fall sharply during an
economic crisis (Hathaway 1963). Indeed, the rising gap between farm and non-farm
Prados (2003) for Spain, and for Italy from Istittuto… (1986). GDP in current prices was taken from
Mitchell (2003) in all cases, except for Spain’s GDP, which is from Prados (2003). 3 Sanderson and Mehra (1990a: 325-326); Sumner and Tangermann (2002: 2004). For the effects of
different agricultural policies, see Andreoso-O’Callaghan (2003) and Alston and James (2002). 4 Agriculture was excluded from the GATT negotiations before the 1980s. While successive rounds have
reduced the nominal rate of protection of manufacturing from 30 percent to 3 percent between 1950 and
2005, the level of protection for agriculture has remained very high, with a rate today of 30 percent.
Sumner and Tangermann (2002: 2002-2005); OECD (2002a: 38-39); McCalla (1969); Houck (1979:
866); Anderson and Martin (2006). 5 Fernández (2009).
6 Olson (1965, 1985) and Becker (1983) pointed out that the declining size of agriculture facilitates the
collective action of farmers as it reduces organization costs and prevents “free-riding.” 7 Calculated from data on Mitchell (2003)
3
incomes resulting from rapid structural change and economic growth is also considered
as a main determinant explaining rising protection.8 Since World War I some
governments sought to protect commodities considered as strategic. Thus, the grain
policies followed during the 1920s by some Italy or Germany were seeking to isolate
domestic markets and to increase domestic production, eliminating foreign dependence
on food.
This paper tries to find an alternative explanation for the agricultural policies in
developed countries looking at the cost of protection. Are the costs of protection
relatively low as compared with the short-term benefits that governments can obtain? In
an empirical study about the U.S. commodity programs, Gardner (1987) found that the
social costs (or welfare effects) are important determinants of agricultural policies.
Policies are more costly whether the elasticity of supply is high and the elasticity of
demand low; on the contrary, an inelastic supply and demand decreases the cost of
protection. Thus, Gardner (1987) ´s empirical results show that low supply elasticity or
low demand elasticity is associated with higher protection in the United States.
By looking at the consequences of these policies, this paper tried to answer to the
question of why these protectionism policies in agriculture persisted. The paper focuses
on the examination of the effects in welfare of policies adopted to protect grain
producers during the interwar years in three highly protectionist countries (Spain, Italy
and Germany) and a moderately protectionist country (France). The reminder of this
paper is arranged as follows. After this introduction, section 2 explores major changes
in the grain international markets during the 1920s and looks at policies adopted by
governments to protect the grain sector in the selected countries. The effect of Great
Depression on the grains markets and policies are explored in section 3. Section 4
presents the methodology to measure the welfare loses of these policies with a
straightforward single-market, single-product model and presents the results. Section 5
presents conclusions and some ideas for further research.
The market of grains during the 1920s: from decline...
Following the methodology of Anderson et al. (2008), the intensity of protection to
wheat producers has been measured by the nominal rate of protection defined as the
8 Economic growth, relatively inelastic demand and rising productivity cause the so-called farm problem,
or the sharp drop in relative incomes received by farmers (Schultz 1945).
4
percentage difference between the market price received by producers and the world
price of a given commodity. Producer prices are used as an indicator of domestic prices
for wheat when available and wholesale prices otherwise. Import prices are used as a
proxy of world wheat prices and have been calculated as the ratio of import values over
the import quantities using information gathered from national trade statistics. Figure 1
presents the results. The nominal rate shows that levels of protection increased during
the 1920s, although only reached levels of 1914 by 1929-1930 (except for the case of
Spain). After 1930 the gap between domestic and foreign prices substantially rose,
although in a lesser extent in France (figure 1).
Important changes had been occurring in the international market for wheat since the
late nineteenth century. Both exports and imports were highly concentrated in a few
countries. The Western settlement countries (United States, Canada, Australia and
Argentina), which had emerged as main producers and exporters of wheat in the last
third of the nineteenth century, were responsible for more than 80 per cent of all exports
by 1900 (table 1). Meanwhile, Western Europe accounting for more than 80 per cent of
world imports, with Great Britain being responsible for 40 per cent of all purchases
(table 2). As shown in figure 2, following the rising trend in the last third of the
nineteenth century, world exports of wheat almost doubled in the period 1900-1929.
World wheat output had also substantially risen in the first decades of the twentieth
century. This increase had been the result of an expansion of the area cultivated, which
rose by 14 per cent between 1909-13 and 1930 and an increase in yields that resulted
from the technological advances and the use of chemical fertilizers.9 Moreover, the use
of tractors in overseas countries, also contributed to this increase because it allowed
reducing the quantity of land devoted to feed grains and fodder expanding the area
under wheat.10
World production capacity was increased even more during the War as a
response of the expanding demand and rising prices.11
As a consequence, the global
wheat sector began to show an imbalance tendency and rising surplus after the mid-
1920s and again after 1929 (figure 3), resulting in a decline in the price of wheat in the
exporting countries (figure 4).12
9 Figures on area planted are calculated from Lamor (1931: 21)
10 Malenbaum (1953: vii); De Hevesy (1934: 1-2); See also Binet (1939: 97)
11 Temin (1994); Federico (2005)
12 Malenbaum (1953: vii)
5
European countries reintroduced tariffs on wheat from the early 1920s, after being
suspended during World War I. First country was France that re-established tariffs in
1919.13
In 1921 Spain approved a restricted commercial policy prohibiting wheat
imports in 1921. In 1922-1930, imports were only authorised when domestic prices
were situated below a maximum.14
Other European countries only reinstated tariffs after
1925. In Germany, the limitations imposed in the tariff policy by the Treaty of
Versailles, which had obliged Germany to establish the more favoured nation clause and
prohibited to raise tariffs above the pre-war years. Until 1925, German wheat prices
maintained at levels similar to those in the international market until 1925, but then they
were raised 25 percent above international prices. In response to the agrarian crisis
caused by the slump in the international price of wheat, the rising burden of debts and
growing production costs, protection of farmers not only focused in this country on
border policies but also on direct support to farmers. Assistance started in 1922 with the
Osthilfe (Relief for the East), a plan that reduced taxes, interest rates and transport costs,
and provided farmers with low rate credits. In addition, in 1928 the government
approved a credit of 100 million marks to convert credits and to reduce interest rates.15
Thus, German producers obtained direct aids from the Government before the Great
Depression. In Italy, deterioration of the balance-of-payments and an inflated lira led
Mussolini to launch the Battaglia del Grano in July 1925 in an attempt to diminish
dependence from foreign supplies, which accounted for over a quarter of total imports.
The pre-war duty was reintroduced and the government launched an intensive
propaganda and financial assistance to producers to increase the use of new machinery,
higher productive seeds and chemical fertilizers.16
In 1927, tariff levels in all countries were lower than in the pre-war years (table 5).
However, only in France domestic prices of wheat and other cereals maintained at levels
close to those in the international market. In the other countries, nominal rates increased
substantially but they never returned to the peak in 1913. Despite this relatively
13
Tracy (1982: 128); for the tariff policy in Continental Europe in the 1920s, see Tracy (1982: 128) and
Liepmann (1938). 14
Montojo (1945: 33, 38); Palafox (1991: 240); Hermida Revillas (1996: 53, 57); in the following years
Spain only imported wheat in 1928, 1929 and 1932. 15
Lorenz (1941: 61-62; 65-84; 87-88). 16
Cohen (1979: 72-73); Schmidt (1936: 646). In order to intensify cultivation a number of subsidies were
granted to producers, including reduction on gasoline price used in farm machinery and on railroad
freight rates for chemical fertilizers, support for farm machinery industry, aids for the distribution of
seeds, construction of silos and machinery and financial assistance to education and research, Schmidt
(1936: 647-648).
6
moderate protection, production of wheat expanded in Italy, Germany and Spain (table
6), following the general movement of the production of wheat in Continental Europe
that showed an upward trend after World War I. However, despite the increased
European output of wheat and increasing barriers to imports, imports from Europe were
maintained in levels similar to those in the prewar period, as shown in table 2.17
... to collapse: Intervention into the grain markets during the 1930s
Stocks of surplus wheat increased substantially in the 1930s. According to Malenbaum
(1953: 5-6), world surplus doubled from an annual average of 19 million tons, or 25 per
cent of world demand, in 1924-29 to almost 33 million tons, nearly 40 per cent of world
consumption, in 1933 and 1934.18
Exporting countries considered that policies to
restricted imports and encouraged national production in Europe had been an important
factor contributing to this imbalance in the world market for wheat, especially after late-
1929 when protection policies intensified.19
In fact, by the late 1930s imports from
Europe had reduced by a third.20
Most of the reduced demand came from Continental
Europe. Italian imports fell by nearly 80 percent between 1923-1928 and 1932-1937 as
a result of the increasing domestic production and yields.21
The drop of German imports
was also substantial. The support of domestic production resulted in a fall of imports
that accounted for 90 percent in 1932-1937. On the contrary, Great Britain, the main
wheat importer, reduced only slightly its imports.22
Beside the expansion of world output and higher barriers to trade, Russian wheat trade
contributed to aggravate the situation of the world market for grains. After having
disappeared from the world market in 1914, exports of wheat from Russia substantially
increased in only a few months.23
In 1930-1931, aiming at financing its machinery
17
De Hevesy (1934: 2). 18
See also figure 2. 19
Foreign Agriculture (1939), no. 1: 12. 20
Net imports from Western Europe declined from 15.8 million tons in the 1920s to 9.8 in the late 1930s,
according to Foreign Agriculture (1939), no. 1: 5. 21
Between 1926 and 1936, Italian wheat area rose by 5 per cent, while increasing yields allowed
production to increase by 25 per cent, in Foreign Agriculture (1939), no. 1: 7-8. 22
British imports remained free of duties until 1932, when a tariff of 6 cents per bushel was established.
Nevertheless, this tariff hardly had any effect on consumption and it was suspended after a commercial
treaty with the United States. According to Foreign Agriculture, difficulties to expand imports from
Britain came from the Wheat Marketing Act of 1932 that established a guaranteed price for a share of
national output, resulting in domestic production increasing from 1.3 million tons in 1927-1931 to 1.7 in
1933-1937. This explains therefore a slight decline of British imports, Foreign Agriculture (1939), no. 1:
6-7. 23
Binet (1939: 97).
7
imports, Russia exported at inferior prices 80 per cent more wheat than in the prewar
period.24
The fall in import demand from Europe and the Russian cheap grains resulted in a
severe fall of the wheat prices in the exporting countries beginning in 1929 (figure 4). In
Continental Europe, governments intensified their policies to isolate domestic market
from international tendencies. World depression encouraged in these countries to follow
policies to reduce dependence on foreign grains (especially wheat).25
Protection was
intensified firstly with the rise of tariffs. Later milling quotas were generalized and
import monopolies were established in some countries, as in Italy since 1935 (see table
5 on different policies adopted by European countries).26
According to Foreign
Agriculture, measures to protect farmers resulted from three main causes. With prices
declining in the international markets, Governments sought to maintained farmers’
incomes in an attempt to retain a large share of rural population engaged in agriculture.
Countries also attempted to cut imports in order to improve their balance of payments
when exports were reducing. Finally, some countries tried to foster national production
following military and strategic motivations.27
As a whole, duty rates were in 1931 about 5-6 times higher than in 1913 in France and
Germany and 2-3 times in Italy and Spain (table 6).28
In France and Germany, the tariff
rise was possible because Governments were authorised to autonomously change duty
rates without consulting to Parliament. These prerogatives were used in Germany to fix
a highly prohibitive tariff on wheat.29
During the 1930s, Spain, Germany and Italy
showed higher rated of protection (figure 1). The Germany’s rate of assistance for wheat
was raised to 85 percent in the 1930s. In Spain, the price gap rose to 106 percent in
1930-1935. The nominal rate of assistance to wheat in Italy reached an average of 100
in the 1930s. In contrast, in France wheat prices were raised 32 percent above the
import price (table 4). Producers in Europe realized very soon that tariffs were
24
In 1913, Russian exports accounted for a quarter of world market (table 1); see also Lorenz (1941: 63). 25
Wheat Studies (1932), no. 4: 265 26
Malenbaum (1953: 12-13) 27
Foreign Agriculture (1939), no. 1: 12. 28
For France, see Lamor (1931: 95); Binet (1939: 108); Ménasseyre (1934: 38); Foreign Agriculture
(1938), no. 1: 32; For Germany, see Wheat Studies (1936), no. 3: 83; In Italy, the increase of the the tariff
on wheat occurred in 1928 (from 7.5 to 11 lire), 1929 (to 14 lire), 1930 (to 16 lire) and 1931 (to 19); see
Hazan (1933: 498); Schmidt (1936: 648). In 1935, Italian wheat imports were restricted under a system of
quota control; Duty on wheat was reduced after 1936, but quota control significantly reduced foreign
supplies, Foreign Agriculture (1939), no. 1: 40; Schmidt (1936: 648). 29
Wheat Studies (1936), no. 3: 83. For France, see Liepmann (1938: 67); Ménasseyre (1934: 37)
8
ineffective to prevent imports not only because increasing stocks in world markets
obliged exporting countries to sell at any price, but also because home production were
unable to substitute some grades of wheat, especially hard Canadian grades, to be used
to produce light breads. In fact, millers preferred overseas hard grains to be used in the
production of light bread, despite they were more expensive. In order to prevent these
imports, import licenses and compulsory milling regulations were introduced in France,
Italy and Germany. 30
A milling quota was established in France in the late-1929 and
initially required that a minimum percentage of 97 per cent of domestic wheat be mixed
with foreign grains in the milling of flour.31
Similar percentages were established in
Germany (97 per cent) and in Italy (95 per cent).32
In addition to milling quotas, the
international financial crisis since the summer of 1931 has given new impetus in the
adoption of import quotas and import licensing systems.33
Milling quotas, and even the import licences of Italy, were very effective in cutting
imports, but unsuccessful to maintain prices above world prices because of large
production (in France and its colonies) and the decreasing consumption.34
Thus,
governments, especially authoritarian regimes like Spain, Germany and Italy, approved
measures to control grains. Spain continued with its prohibition to import wheat.
Germany increased protection to farmers through minimum prices and compulsory
storage of surplus wheat by millers.35
Intervention into the wheat market increased with
the German national-socialist government, which aimed at reaching food self-
sufficiency and guaranteeing fair prices to producers.36
In the late 1934, the Battle of
Production (Erzeugungsschlacht) was initiated. Minimum prices were transformed in
fixed prices and the government created import monopolies that controlled both the
quantity and prices and provided importers with foreign exchange and clearing licences
and established import taxes in order to balance foreign and domestic prices. Deliveries
from producers to millers were subject to quotas and producers were guaranteed fixed
30
Binet (1939: 108); Ménasseyre (1934: 53-54). 31
This quota was reduced to 90 and 75 per cent in 1930 and 1931 in response to poor harvests, see Lamor
(1931: 96-99), Binet (1939: 108), Ménasseyre (1934: 40). In addition to the restriction of wheat imports
introduced in 1929, after 1931 France applied a quota system to the imports of livestock, meat, butter,
cheese and sugar; Liepmann (1938: 68). 32
Foreign Agriculture (1938), no. 1: 17; For Italy, see Cohen (1979: 73); Schmidt (1936: 648); Liepmann
(1938: 672) 33
Edminster et al. (1932: 2). 34
Foreign Agriculture (1938), no. 1: 33. 35
Lorenz (1941: 94), Wheat Studies (1936), no. 3: 84-85. 36
Foreign Agriculture (1938), no. 1: 18.
9
prices for a certain quantity. The Government created a monopoly for importing and
established import taxes.37
In an attempt to eliminate excess in production, a
compulsory cartel of millers was created. Each miller was assigned with an annual
quota of production and their sales were controlled by a wheat producers association.38
Attempts to achieve self-sufficiency also intensified in Italy after 1931. The incapacity
of tariffs and import quotas to encourage a rise in production resulted in the government
restricting imports through a system of import licences.39
In France, in an attempt to
reduce the effects of surplus production in prices, government established export
subsidies and a system of public storage of excess production (April 1930).40
More than
three million quintals were storage with public financing. An abundant production in
1930 of over 90 million quintals led to a new decrease in prices and resulted in the
French government’ decision to prohibit milling with foreign grains and purchased part
of the wheat harvest in 1932 in order to prevent a fall in prices.41
That year, the
government started to purchase part of the wheat harvest in 1932 in order to prevent a
fall in prices. At the beginning of 1933, farmers´ demonstrations intensified in Paris.42
Distress among grain producers continued thereafter. The Office National
Interprofessionnel du Blé was created in 1936 to intervene into the grain markets, which
controlled prices and the production and marketing of wheat. This office also had a
monopolistic control of foreign trade and was allowed to restrict imports and subsidize
exports.43
Protection to wheat was extended to feed grains and other products during the
Great Depression. Maize achieved greater protection in Spain, Italy and France.44
Germany increased its tariffs on barley in 1929-1930, which resulted in a rate of
assistance substantially high (152 percent) as compared to that of wheat.
Many contemporaries saw protectionist measures established in European countries,
especially milling quotas and import restrictions through monopolies, as the main
causes of the sharp fall in wheat prices, encouraging exporting countries to increasingly
37
Lorenz (1941: 94, 111); Wheat Studies (1936), no. 3: 86; Foreign Agriculture (1938), no. 1: 18-21. For
the agricultural policy during the Third Reich, see Bertrand (1937). 38
Wheat Studies (1936), no. 3: 85. 39
Foreign Agriculture (1939), no. 1: 42-43. 40
Lamor (1931: 96-99), Foreign Agriculture (1938), no. 1: 33, Binet (1939: 108). 41
Binet (1939: 108; 111). 42
Ménasseyre (1934: 63-69). 43
Tracy (1989: 120-125); McCalla (1969: 334-335); Foreign Agriculture (1939), no. 2: 73; Ménasseyre
(1934: 63-69). 44
Fernández (2009)
10
intervene into domestic markets.45
Shortages in storage capacity and needs to obtain
foreign exchanges obliged to Argentine and Australia to adopt policies to expand
exports. In Argentine, the Government created the Grain Regulating Board to purchase
at a fixed price a share of output to sell it in the international market. Canada and the
United States created agencies to regulate markets through storage of surplus output. As
a consequence of the international falling demand, Canadian stocks doubled in a short
period and amounted to an annual average of 5.8 million bushels in 1933-35. In an
attempt to solve the crisis, the Canadian wheat Pools received credit to storage surplus
wheat beginning in 1929 and the Government purchased stocks in the Winnipeg
markets. This policy was changed in 1935 with the creation of the Canadian Wheat
Board and the introduction of measures to encourage exports. In United States, a policy
of surplus storage was pursued through the Grain Stabilization Corporation. With the
approval of the Agricultural Adjustment Act of 1933, wheat policy aimed at balancing
supply and demand through payments directed to encourage producers to reduce the
area planted. Loans from the Commodity Credit Corporation and marketing operations
of the Surplus Marketing Administration intended to raise domestic prices. Only in
1939 the United States established measures to encourage exports.46
Because of
declining prices and expanding stocks, a number of international conference were
celebrated aiming at taking measures to expand world consumption of wheat and to
diminish output. This international collective action had been initiated during World
War I as a consequence of the problems to supply urban centers with grains and the low
stocks of wheat caused by the war. In 1916 France, Italy and the United Kingdom
established a Wheat Executive. This agency aimed at increasing wheat output,
organizing production and controlling prices. The United States joined this organization
in 1917.47
A total of 20 international conferences were celebrated until 1933, most of
them (16 conferences) between 1930 and early 1931. 48
However, this international
collective action failed in their attempt to regulate the world market for wheat.
Welfare cost: a single-market single-product model
This paper tries to quantify the losses that resulted from agrarian policies. In this section
the cost of the policies on wheat is the deadweight loss associated with an increase of
45
Wheat Studies (1932), no. 4: 265; Malenbaum (1953: 12-13); Foreign Agriculture (1939), no. 1: 12. 46
Malenbaum (1953: 13-15). 47
Malenbaum (1953: 197). 48
Five of them were organized by the League of Nations, Wheat Studies (1931: no. 9: 440)
11
domestic prices over the world price. A single-market, single-product model is initially
followed to calculate the cost of protection to wheat producers. Following Corden
(1957), Harberger (1959) and Johnson (1960), the welfare effects of protection can be
measured by the Marshallian triangles representing the change in the consumers’ and
producers’ surplus.
Both triangles can be expressed as,
NSLp= ½ (tp)2εVp [1]
NSLc= ½ (tc)2ηVc [2]
where NSLp and NSLc are the net social loss of producers and consumers, respectively; t
is the proportion of the gap between the domestic and the international price in the
production and consumption price; ε and η are the price elasticity of supply and
demand, respectively; Vp is the value of production at production prices; Vc is the value
of production at consumption prices. These social costs functions imply that losses are
proportional to demand and supply elasticities, ε and η, i.e. protecting goods with lower
ε and η is cheaper; however, the social costs augment in proportion to the square of
protection.49
The net social loss is the sum of NSLp and NSLc.
The demand elasticity has been estimated for the three countries by demand equation
[3]
Qiwheat
= Di (P1wheat
,…, Pnwheat
; Zi), i = 1, n, [3]
where Qi is the quantity, Pn the price and Zi the instrumental variables. Nominal rate of
protection is used as the Z variable for Italy, obtaining a coefficient of 0.53 in the IV
regression, which coincided with price elasticity of wheat supply given by Iñiguez et al.
(1978) for Spain (table 7). No conclusive results have been found for France using the
NRA as the instrument variable, so that the price of barley as the Z variable.
Estimations for France show a negative coefficient for wheat price. Similar problems
have been found for Germany. Thus, for the cases of France and Germany, both the
result for Italy and the figure of 0.42 given by Bale and Lutz (1981) have been used in
the calculations. On the other hand, due to the lack of wholesale prices in all countries,
49
Winters (1987: 11).
12
price elasticity of demand have been taken from Bale and Lutz (1981) for France, Italy
and Germany, and from Prados (1989) for Spain (table 8).
Estimations of the equation [1], measured as percentages of total value of wheat
production, is presented in figure 5.50
Gains of wheat producers from protection policies
substantially increased during the Great Depression in Italy, Germany and Spain,
especially in the early 1930s. During the 1920s, gains accounted an average of 1 per
cent of the value of production in France, and 6-7 per cent in Spain, Italy and Germany.
As accounted by the estimations base on a single-market, single-product model, during
the 1930s, this figure reached to a minimum of 43, 20 and 31 per cent in Spain,
Germany and Italy, respectively.
After estimating the NSLc in equation [2], results of the total cost of protection to wheat
producers were presented in table 9, as a percentage of GDP.51
Estimations suggested
that during the 1920s the cost of protection was relatively low in France and Italy (less
than 0.1 per cent of the GDP, while in Spain and Germany costs accounted for a
maximum of 0.52 and 0.63 in Spain and Germany, respectively. The costs of protection
maintained relatively low in France during the Great Depression (less than 0.2 per cent
of the GDP), but sharply increased in Spain and, especially, in Italy and Germany.
Protection to wheat farmers caused a loss of 2-3 per cent of GDP in Germany and 1.3
and 1.7 per cent in Italy, while this figure reached to 0.1-1 per cent in Spain.
Conclusions
Protection to wheat farmers substantially rose in the 1930s through increased duties and
milling quotas that obliged to use a certain percentage of domestic grains in the
production of flour. Some countries also established import monopolies and guaranteed
minimum prices to producers. This empirical evidence contracts with the hypothesis
that protection is higher in countries with a small agriculture sector because the share of
the rural sector in European economies and the size of agriculture in GDP were still
large during this period. Following the Gardner´s (1987) idea that governments tend to
assist commodities with low supply or demand elasticity, this paper calculates the
welfare costs of protection to wheat producers during the 1920s and the Great
50
Output and GDP in current prices for all the three countries have been obtained in Annuaire
International de la France and Mitchell (2005), respectively. 51
Both tc and Vc have been calculated taken producer prices.
13
Depression, in an attempt to contrast the hypothesis that protection was raised because
costs were relatively low as compared with the short-term benefits that governments
could obtain. The paper focuses on the wheat sector and on three highly protectionist
countries (Spain, Italy and Germany) and a moderately protectionist country (France). A
single-country, single- product model have been used to calculate the gains of wheat
producers from protection and the net loss generated by the agricultural policies in the
1920s and 1930s. Results show that gains of producers substantially increased during
the Great Depression in Italy, Germany and Spain, especially in the early 1930s. During
the 1920s, gains accounted for an average of 1 per cent of the value of production in
France, and 6-7 per cent in Spain, Italy and Germany. During the 1930s, these gains
accounted for a minimum of 43, 20 and 31 per cent in Spain, Germany and Italy,
respectively. Estimations also suggest that the costs of protection maintained relatively
low in France during the Great Depression (less than 0.2 per cent of the GDP), but
sharply increased in Spain and, especially, in Italy and Germany. Thus, protection to
wheat farmers caused a loss of 2-3 per cent of GDP in Germany and 1.3 and 1.7 per cent
in Italy, while this figure reached to 0.1-1 per cent in Spain.
During the period of analysis, wheat was still a large sector of the economy in the four
economies under study. The value of production of wheat accounted for 2 per cent of
the GDP in Germany, and between 5 and 7 per cent in France, Italy and Spain. Thus, a
single-market, single-product model dismisses the indirect effects of protection such as
changes in total employment, in factor and other commodity prices or in the balance of
trade. This implies that the cost of protection to farmers during the interwar years
requires further research based in a multi-product model. Although further research has
to be done on the indirect effects of these policies, estimations suggest that governments
protected farmers during the 1930s despite the high costs of this policy.
14
References
Alston, J. M. and J. S. James (2002): “The incidence of agricultural policy.” Pp. 1689-
1749. In Handbook of Agricultural Economics 2, edited by B. Gardner and G.
Rausser. Elsevier, Amsterdam.
Anderson, J. E. (1985): "The relative inefficiency of quotas: the cheese case." American
Economic Review 75: 178-190.
Anderson, K. And R. Tyers (1984): "European Community grain and meat policies and
US retaliation: effects on international prices, trade and welfare." European
Review of Agricultural Economics 11: 367-94.
Andreosso-O’Callaghan, B. (2003): The economics of European agriculture.
Basingstoke: Palgrave.
Bale, M. D. (1979): “Distributional aspects of price intervention.” American Journal of
Agricultural Economics 61 (2): 348-350.
Bale, M. D. and E. Lutz (1981): "Price distortions in agriculture and their effects: an
international comparison." American Journal of Agricultural Economics 63: 8-
22.
Barceló, L. V. (1983): “Coste social y efectos redistributivos de la protección
económica de la agricultura.” Papeles de Economía Española 16: 57-83.
Binet, Pierre (1939): La réglementation du marché du blé en France au XVIIIe siècle et
à l’époque contemporaine. Paris, Librairie sociale et économique.
Blandford, D. (1990): “The cost of agricultural protection and the difference free trade
could make.” Pp. 398-432, en Agricultural protectionism in the industrialized
world, editado por F. H. Sanderson. Washington D.C., Resources for the Future.
Cleary, M. C. (1989): Peasants, politicians and producers: The organisation of
agriculture in France since 1918. Cambridge, Cambridge University Press.
Cohen, Jon S. (1979). Fascism and Agriculture in Italy: Policies and Consequences. The
Economic History Review 32 (1): 70-87.
15
Corden, W. Max, 1957, “The calculation of the cost of protection,” Economic Record
XXXIII (64), May, 29-51.
Dardis, Rachel (1967): “The Welfare Cost of Grain Protection in the United Kingdom”.
Journal of Farm Economics 49 (3): 597-609.
Edminster, Lynn Ramsay et al. (1932). Agricultural price supporting measures in
foreign countries. Washington, USDA, Bureau of Agricultural Economics,
Foreign Agricultural Service.
Effland, B. W. (2000): “U.S. farm policy: the first 2000 years.” Agricultural Outlook,
Economic Research Service. Special Report: 21-24.
Federico, G. (2005a): Feeding the world. An economic history of agriculture, 1800-
2000. Princeton, Princeton University Press.
Federico, G. (2005b): “Not guilty? Agriculture in the 1920s and the Great Depression.”
The Journal of Economic History 65 (4): 949-976.
Fernández, E (2009): “Looking for national food security: Agricultural policies in
advanced Europe, 1920-1980.” Paper presented for the 8th Conference of the
EHES, Geneva
Gardner, B. (1986): "Economic consequences of US agricultural policies." World
Development Report Background Paper, The World Bank, Washington, D.C.
Goldstein, J. (1989): “The impact of ideas on trade policy: The origins of U.S.
agricultural and manufacturing policies.” International Organization 43 (1): 31-
71.
Harberger, Arnold, 1959, “Using the resources at hand more efficiently,” American
Economic Review: Papers and proceedings of the seventy-first annual meetings
of the American Economic Association 49(2), May, 134-146.
Harling, K. F. and R. L. Thompson (1985): "Government interventions in poultry
industries: a cross-country comparison." American Journal of Agricultural
Economics 67: 243-249.
16
Hazan, N. W. (1933). The Agricultural Program of Fascist Italy. Journal of Farm
Economics 15 (3): 489-502.
Hermida Revillas, Carlos (1996): “La política triguera en España y sus repercusiones en
el bloque de poder: 1890-1936”
Hoffman, E. and G. D. Libecap (1991): “Institutional choice and the development of
U.S. agricultural policies in the 1920s.” The Journal of Economic History 51 (2):
397-411.
Hooks, G. (1990): “From an autonomous to a captured state agency: The decline of the
New Deal in agriculture.” American Sociological Review 55 (1): 29-43.
Istituto Centrale di Statistica (1958): Sommario di Statistiche Storiche Italiane, 1861-
1955. Roma
Istituto Centrale di Statistica (1986): Sommario di Statistiche Storich, 1926-1985.
Roma, Istituto Centrale di Statistica
Johnson, Harry, 1960, “The cost of protection and the scientific tariff,” Journal of
Political Economy 68(4), August, 327-345
Johnson, Harry, 1965, “The cost of protection and self-sufficiency,” Quarterly Journal
of Economics 79(3), August, 356-372
Koester, U. (1985): "Agricultural market intervention and international trade."
European Review of Agricultural Economics 12: 87-103.
Lake, D. A. (1989): “Export, die, or subsidize: The international political economy of
American agriculture, 1875-1940.” Comparative Studies in Society and History
31 (1): 81-105.
Lamor, Henry (1931): Le problème national et international du blé. Paris: Les Presses
Modernes.
Libecap, G. (1998): “The Great Depression and the Regulating State: Federal
Government Regulation of Agriculture, 1884-1970.” Pp. 181-224, in The
Defining Moment. The Great Depression and the American economy in the
17
twentieth century, edited by M.D. Bordo, Cl. Goldin y E. N. White. Chicago and
London, University of Chicago Press.
Liepmann, Heinrich (1938). Tariff levels and the economic unity of Europe; an
examination of tariff policy. London, G. Allen & Unwin ltd.
Lizzi, Renata (2002). La politica agricola. Bologna: Il mulino.
Lorenz, Robert (1941): The essential features of Germany’s agricultural policy from
1870 to 1937. New York City.
Malenbaum, Wilfred (1953). The world wheat economy, 1885-1939. Cambridge:
Harvard University Press.
McCalla, A. F. (1969): “Protectionism in international agricultural trade, 1850-1968.”
Agricultural History 43 (3): 329-344.
Ménasseyre, Robert (1934): Politique du Blé: La Loi du 10 Juillet 1933 et son
Application. Toul, Imprimerie Touloise.
Montojo Sureda, Jorge (1945): La política española sobre trigo y harinas: años 1900-
1945. Madrid
Otsuka, K. and Y. Hayami (1985): "Goals and consequences of rice policy in Japan,
1965-80." American Journal of Agricultural Economics 67: 529-538.
Prados, L. (1989), "La estimación indirecta de la producción agraria en el siglo XIX:
réplica a Simpson", Revista de Historia Económica VII, (3), 703-718.
Paarlberg, R. and D. Paarlberg (2000): “Agricultural Policy in the Twentieth Century.”
Agricultural History 74 (2): 136-161.
Palafox, Jordi (1991): Atraso económico y democracia. La Segunda Republica y la
economía, 1892-1936. Barcelona, Crítica.
Sanderson, F. H. and R. Mehra (1990a): “Lessons for domestic policy.” Pp. 319-352, en
Agricultural protectionism in the industrialized world, editado por F.H.
Sanderson. Washington D.C., Resources for the Future.
18
Schmidt, Carl T. (1936). The Italian "Battle of Wheat". Journal of Farm Economics 18
(4): 645-656.
Statistique Générale de la France (vvaa): Annuaire Statistique.
Sumner, D. A. and Tangermann, S. (2002): “International trade policy and
negotiations.” Pp. 1999-2055, en Handbook of Agricultural Economics 2,
editado por B. Gardner y G. Rausser. Elsevier, Amsterdam.
Surface, Frank M. (1928): The grain trade during the World War. New York.
Tracy, M. (1982): Agriculture in Western Europe: Crisis and Adaptation since 1880.
London : Granada.
Tracy, M. (1989): Government and agriculture in Western Europe, 1880-1988. New
York, New York University Press.
Wallace, T. D. (1962): “Measures of Social Costs of Agricultural Programs”. Journal of
Farm Economics 44 (2): 580-594.
Winters, L. A. (1987): “The Economic Consequences of Agricultural Support: A
Survey.” OECD Economic Studies 9.
19
Appendix 1: Data sources
a) Nominal rate of assistance
Producer prices are used as an indicator of domestic prices when available and
wholesale prices otherwise. Import prices are used as a proxy of world prices and have
been calculated as the ratio of import values over the import using information gathered
from national trade statistics.
- France: Domestic prices and foreign trade data were compiled from Annuaire
statistique de la France.
- Germany: Import data are from Statistisches Jahrbuch für das Deutsche Reich and
Statistisches Jahrbuch für die Bundesrepublik Deutschland. Domestic prices prior to
1958 were collected from Hoffmann (1965) when available and from the national
statistics otherwise.
- Italy: Domestic prices and import values were taken from Istituto Centrale di Statistica
(1958; 1986)
- Spain: Producer prices are taken from Anuario estadístico de España. Import statistics
were obtained in Estadística del Comercio exterior de España.
20
Table 1
Argentina Australia Canada United
States
URSS
1900-4 11 3 5 31 23
1905-9 17 5 8 19 20
1910-4 11 8 13 19 20
1915-9 16 4 28 37 1
1920-4 14 9 25 27 1
1925-9 19 11 33 23 1
1930-4 20 18 31 9 3
1935-8 17 18 29 10 3
Source: Own calculations from USDA´s Yearbook
Table 2
Total world wheat imports and by major importing countries (million tons)
1900 1905 1910 1915 1920 1925 1930 1935 1938
UK 4.95 5.77 6.01 5.20 6.37 6.40 6.29 5.74 6.12
Belgium 1.14 1.77 2.04 0.93 1.22 1.31 1.12 1.17
Germany 1.33 2.31 2.37 0.68 2.07 0.84 0.11 1.01
Netherlands 1.20 1.91 2.20 0.79 0.54 0.84 1.01 0.57 0.79
France 0.16 0.19 0.65 2.10 2.40 1.20 1.82 0.82 0.52
Italy 0.73 1.17 1.22 2.26 2.18 2.78 2.34 0.49
Total 11.95 17.31 18.13 13.91 17.36 20.38 19.62 12.71 14.67
Source: Own calculations from USDA´s Yearbook
Table 3
Wheat production in major importing countries (1900-4=100).
Great
Britain Germany France Spain Italy
Major
exporting
countries
1905-09 116 106 106 105 109 120
1910-14 117 119 93 110 113 135
1915-19 142 79 60 123 106 161
1920-24 121 71 84 122 112 175
1925-29 102 93 83 129 144 193
1930-34 101 132 94 139 155 175
1935-39 123 133 88 101 175 169
Source: Own calculations from Statistique Générale de la France (various years).
21
Table 4
Nominal rate of protection to wheat by countries, 1920-1980 (in percent)
France Germany Italy Spain
1920-24 2 -39 -23 35
1925-29 -2 24 17 64
1930-39 32 85 100 50
Source: See appendix
Table 5
Main measures to protect wheat producers in importing and exporting countries
Measures France Spain Italy Germany
Higher tariffs
Inte
rnat
ional
Tra
de
Flexibility in tariff policy
Subsidies to exports and
Dumping
Import
restrictions
Quotas
Import
Monopolies
Import prohibitions
Currency Devaluation and
clearing
Dom
esti
c
mar
ket
Mill regulations
Minimum Prices
Fixed Prices
Output restrictions
Output and Marketing Control
Dir
ect
assi
stan
ce Debt Moratorium or
reconversion
Tax, Interest rate reductions;
cheap credit and subsidies to
transportation
Assistance to co-operatives
Source: Own elaboration; see text
22
Table 6
Duties on Wheat (in percentage of prices)
1913 1927 1931
Germany 38 29 212
France 35 23 180
Italy 42 27 144
Sweden 9 10 26
Spain 29 20 71
Source: Liepmann (1938)
Table 7
Estimation of price-elasticity of supply:
Instrumental variables (2SLS) regression
Dependent variable in logarithms: output of wheat (3
year-lagged)
Italy
(1884-1940)
France A
(1890-1928)
France B
(1890-1928)
Wheat price
(in logs)
.5279***
(.1262)
-.3355**
(.09839)
-.1655***
(.03776)
Constant 1.8763 (.4734) 5.5884
(.3684)
4.9552
(.1467)
R-squared 0.4064 . 0.3107
Observations 57 39 39
Probability >
F
0,0000 0,0000 0,0000
Italy = Instrumented: Ln (Pwheat
); Instruments: Ln (NRAwheat
) lagged 3 years
France A = Instrumented: Ln (Pwheat
); Instruments: Ln (NRAbarley
) lagged 3 years
France B = Instrumented: Ln (Pwheat
); Instruments: Ln (Pbarley
) lagged 3 years
Notes: Standard errors are in parentheses. ***, **, and * denote statistical significance
at the 1, 5, and 10 percent levels.
23
Table 8
Supply and demand price-elasticities for wheat in three countries
Supply Demand
France 0.53 / 0.42
(see text; Bale
& Lutz, 1981:
12)
-0.10 /-0.30
(Bale & Lutz,
1981: 12)
Spain 0.53
(Iñiguez et al.,
1978)
-0.3 /-0.5
(Prados, 1989)
Germany 0.53 / 0.42
(see text; Bale
& Lutz, 1981:
12)
-0.10 /-0.30
(Bale & Lutz,
1981: 12)
Italy .5279
(estimated)
-0.10 /-0.30
(Bale & Lutz,
1981: 12)
Sources are provided in parenthesis
Table 9
Cost of protection to wheat producers as a percentage of GDP, 1901-1939
France Spain Germany Italy
Min. Max. Min. Max. Min. Max. Min. Max.
1901-1909 0.03 0.06 0.01 0.05 0.14 0.28 0.18 0.23
1910-1919 0.02 0.04 0.09 0.70 0.12 0.24 0.13 0.17
1920-1929 0.02 0.04 0.07 0.52 0.32 0.63 0.06 0.08
1930-1939 0.08 0.16 0.13 0.99 1.69 3.30 1.32 1.72
Source: see text.
24
Figure 1
Nominal rate of protection to wheat In France, Italy, Germany, Spain and the United
States, 1870-1939 (7-year moving average)
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
18
70
18
72
18
74
18
76
18
78
18
80
18
82
18
84
18
86
18
88
18
90
18
92
18
94
18
96
18
98
19
00
19
02
19
04
19
06
19
08
19
10
19
12
19
14
19
16
19
18
19
20
19
22
19
24
19
26
19
28
19
30
19
32
19
34
19
36
Italy France
Germany U.S.
Spain
Source: see Appendix 1.
Figure 2
World output and exports of wheat, 1900-1938
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
18
90
-1
18
92
-3
18
94
-5
18
96
-7
18
98
-9
19
00
-1
19
02
-3
19
04
-5
19
06
-7
19
08
-9
19
10
-1
19
12
-3
19
14
-5
19
16
-7
19
18
-9
19
20
-1
19
22
-3
19
24
-5
19
26
-7
19
28
-9
19
30
-1
19
32
-3
19
34
-5
19
36
19
38
Mill
ion
to
ns
Output
Exports
Sources: Own calculations from USDA (various years): Agricultural Statistics and
USDA (various years): Yearbook
25
Figure 3
World end-year carry-over of wheat, 1922-1939
-
5.000
10.000
15.000
20.000
25.000
19
22
/3
19
23
/4
19
24
/5
19
25
/6
19
26
/7
19
27
/8
19
28
/9
19
29
/0
19
30
/1
19
31
/2
19
32
/3
19
33
/4
19
34
/5
19
35
/6
19
36
/7
19
37
/8
19
38
/9
Mill
ion
to
ns
Figure 4
Price of wheat in the United States in constant dollars (1870 = 100)
0
20
40
60
80
100
120
140
160
180
18
62
18
64
18
66
18
68
18
70
18
72
18
74
18
76
18
78
18
80
18
82
18
84
18
86
18
88
18
90
18
92
18
94
18
96
18
98
19
00
19
02
19
04
19
06
19
08
19
10
19
12
19
14
19
16
19
18
19
20
19
22
19
24
19
26
19
28
19
30
19
32
19
34
19
36
19
38
Co
nst
ant
pri
ce o
f w
he
at (
19
80
= 1
00
)
Source: Calculated from wheat prices and index of farm prices in Strauss and Bean
(1940)
26
Figure 5
Welfare gains of wheat producers from protection policies, as percentage of total value
of production, 1901-1939 (5-year moving average)
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
19
01
19
02
19
03
19
04
19
05
19
06
19
07
19
08
19
09
19
10
19
11
19
12
19
13
19
14
19
15
19
16
19
17
19
18
19
19
19
20
19
21
19
22
19
23
19
24
19
25
19
26
19
27
19
28
19
29
19
30
19
31
19
32
19
33
19
34
19
35
19
36
19
37
19
38
19
39
Italy
Spain
Germany
France
Source: see text