Agriculture played a central role in Uruguay's economy. In 1988 agricultural activity (including fishing) directly generated 13 percent of GDP and provided over half the value of exports. Indirectly, agriculture was responsible for a much higher proportion of both GDP and exports. Many of Uruguay's most dynamic manufacturing enterprises--such as its tanneries and textile mills--depended on agricultural inputs. The close relationship between agriculture and manufacturing had a significant impact on Uruguay's economic development. For example, the sluggish performance of the large livestock sector in the 1980s contributed to slow overall economic growth.
A troubling issue for the agricultural sector was the stagnation of production levels over several decades. Total agricultural production increased at an average rate of less than 1 percent per year from the 1950s to the 1980s. In 1989 the sector continued a 1 percent growth rate. This low growth was usually attributed to a lack of technologically advanced production methods, but that description applied mainly to the large livestock sector. Ranchers continued to rely on extensive production methods. By contrast, many crop and citrus farmers had adopted more advanced technology, using tractors, fertilizers, and pesticides. Similarly, poultry producers relied on advanced techniques, and some dairy farmers fertilized their pastures.
Alternative explanations of the agricultural sector's poor performance take note of the overall characteristics of Uruguay's economy. First, the small size of the internal market had forced most agricultural producers to be exporters. Agricultural products had become an important source of foreign exchange, but fluctuations in world prices and markets buffeted Uruguay's externally oriented agricultural sector. For example, wool prices fell when synthetic fabrics were developed. Additionally, the market for Uruguayan beef contracted when the European Community began subsidizing its beef producers in the 1980s.
A second reason for the lack of agricultural growth may have been the inconsistency of government policy. During the protectionist import-substitution industrialization phase in the 1950s, the government held agricultural prices down in order to lower industrial labor costs. This discouraged both agricultural production and investment. During the 1960s, the government reversed this pricing policy when it encouraged the export of certain agricultural products (poultry, dairy, and citrus products) through subsidies and other incentives. However, this export policy was itself reversed in the 1970s, in keeping with the military government's effort to open the economy to foreign competition. The abrupt withdrawal of subsidies made the production of several products unprofitable. With government policy toward it fluctuating in this manner, agriculture in Uruguay was on uncertain ground, and potential investors remained wary. Aided by a recovery in the livestock sector, however, agricultural output increased by an estimated 3.5 percent in 1990.
Land Use and Tenure
The general characteristics of Uruguay's land area helped determine the pattern of land use. The countryside is devoid of mountains--in contrast to most other Latin American nations--and is only 2 to 3 percent forested. Over 80 percent of the land can be used for some kind of agriculture. The natural grasslands for which Uruguay is famous lend themselves to the predominant agricultural activity: livestock production.
Although the land and temperate climate facilitated livestock production, the limited fertility of the soil hindered the production of crops. Livestock ranches covered three-quarters of the total land, especially in the departments of Artigas, Cerro Largo, Durazno, Flores, Lavalleja, Maldonado, Paysandú, Rivera, Rocha, Salto, and Tacuarembó. The most productive wheat- and cereal-farming area was the southwest (Colonia, Río Negro, and Soriano departments); most of the rice was produced in the east (Treinta y Tres Department); and fruits, vegetables, and wine were produced in the departments of Canelones, Florida, and San José.
Uruguay was no exception to the Latin American pattern of concentrated landownership, but its small population had kept land distribution from becoming a major political issue. Agricultural enterprises could be roughly divided into two types, whose characteristics in the mid-1980s reflected the concentration of landownership and helped explain Uruguay's urban tendencies. The first type, family-operated (owned or rented) farms and ranches, made up 85 percent of agricultural enterprises in the country, employed 68 percent of rural workers, and produced 45 percent of all agricultural output. But this type of enterprise controlled only 25 percent of agricultural land (farming and livestock). The second type, larger commercial enterprises, controlled 75 percent of the land, employed 32 percent of rural labor, and produced 55 percent of output. These statistics indicate that smaller enterprises made more productive use of the land. However, the fact that such family-operated farms and ranches employed mostly family members rather than salaried workers tended to limit the development of the rural economy. The larger enterprises, by contrast, were mostly extensive livestock ranches that had little need of hired labor. As this second type of enterprise became more prevalent throughout the twentieth century, landownership became more concentrated, and the population of the countryside declined.
Agricultural production employed only about 15 percent of Uruguay's labor force in the late 1980s. The agricultural work force declined steadily as the number of small agricultural enterprises diminished. There were 87,000 farms and ranches in 1961, 77,000 in 1970, and only 57,000 in 1986. The importance of family-operated establishments is clearly seen in rural labor statistics. In 1980 two-thirds of the 160,000-person agricultural labor force was made up of landowners or their relatives; only 57,000 workers were wage earners. Not surprisingly, the labor movement had little impact on rural workers, although both the rice workers and the dairy workers were organized into unions.
Uruguay's livestock herds did not expand appreciably after 1930. In 1908 there were 8 million cattle and 26 million sheep in the country. In 1981 the number of cattle peaked at 11 million, while the number of sheep had declined to 20 million. Because the land area dedicated to livestock raising has not changed significantly, these figures illustrated the lack of progress in the sector. The single largest investment in cattle herds was complete by 1930, when Herefords were substituted for the original mixed breeds. Extensive ranching methods facilitated livestock raising because little investment was required. But these methods also limited the carrying capacity of the land and the size of the stock. By the 1970s, it took twenty-six Uruguayan cattle to yield one ton of beef, compared with about eighteen in Argentina and about thirteen in the United States or Western Europe. The production of wool and mutton per head of sheep was also low: 3.5 kilograms of wool per head, compared with over 5 kilograms per head in Australia or Argentina. In addition, both cattle and sheep herds were subject to losses because of limited efforts to prevent disease.
The vulnerability of the range-fed livestock herds was further demonstrated in the late 1980s when Uruguay experienced a severe drought. Millions of animals died or had to be slaughtered prematurely. The drought lasted longest in the center of the country, where most of the largest cattle ranches were located (the departments of Cerro Largo, Durazno, and Tacuarembó). The leading sheep-ranching departments in the northwest (Artigas and Salto) were not as severely affected.
Raising sheep for wool in Uruguay became less profitable during the 1960s. There was increasing worldwide competition from petroleum-based synthetic fibers. After the oil price increase in 1973, however, wool was once again in favor. Production surged from about 61,000 tons per year in the mid-1970s to 87,000 tons in 1986. Wool surpassed beef as Uruguay's most valuable export in the early 1980s. It also supplied the growing woolen textile and apparel industry, which earned additional foreign exchange.
Sheep, whose stock increased to almost 26 million by 1989, were also raised for lamb and mutton. The potential for Uruguay's export of sheep meat in 1989 was about 3 million head, as compared with annual exports of about 2 million head in the early 1980s. However, a severe drought in the first half of 1989 reduced the performance of this subsector by about 10 percent during that period.
Rising world beef prices stimulated the Uruguayan cattle industry in the late 1970s. At first, rising prices increased the profitability of cattle ranching but ultimately led to considerable instability in the sector. When many ranchers expanded their herds after the 1978-79 beef price increases, the price of pastureland grew almost tenfold. Because real interest rates were low or negative, ranchers were willing to borrow heavily to increase their landholdings. But beef prices soon leveled off, and many ranchers were left with large, unpayable debts. Land prices fell sharply; banks could not cover their loans even by foreclosing. As the bank crisis mounted, the Central Bank stepped in to provide refinancing in United States dollar-denominated loans. Most ranchers avoided bankruptcy but had to slaughter record numbers of cattle to service their debts. Many ranchers took the opportunity to switch to sheep ranching because wool appeared to face more stable world demand. Thus, Uruguay's cattle herds declined by 20 percent from 1981 to 1984.
Cattle ranchers rebuilt their herds during the latter half of the 1980s but were hindered by limited credit and severe drought. Damage from the prolonged drought had reached alarming proportions by the end of 1989, when the cattle stock was down to 9.4 million head. The number of cattle fell by 738,000 head between June 1988 and June 1989, the largest annual drop in fifteen years. About 2 percent of the total had died, and the rest had been killed and sold (50 percent more than usual). In the July-November 1989 period, the beef cattle herd was depleted by an additional 622,000 head. The increased slaughter rates allowed meat-packing plants to pay less for beef, decreasing ranchers' profits.
The continuing difficulty in the sector prompted the government to launch Operation Manufacture in March 1989. The program eased the ranchers' financial burden by extending them a special line of credit, lowering their tax rate by 20 percent, and providing for case-by-case assistance. The government also announced the opening of a line of credit with terms of up to eight years for herd replacement. Sheep ranchers, who suffered fewer losses from the drought, were not eligible for these government programs.
The dairy industry, based in the departments near Montevideo, expanded considerably in the 1980s. Milk production increased from 400,000 tons in 1979 to 635,000 tons in 1987. Even though many dairy farmers still relied on natural pastures, limiting the milk output per cow, Uruguay was more than self-sufficient in dairy products and exported to other Latin American countries. Most domestic milk processing and marketing was controlled by the National Dairy Products Cooperative, which distributed dairy products throughout the country.
Crop production in Uruguay has never been as important as livestock raising. Only about 8 percent of the land area was dedicated to growing crops in the mid-1980s, compared with 75 percent dedicated to livestock. The amount of land under cultivation has varied according to the world price of livestock products. When beef prices have declined, for example, ranchers have planted wheat or corn. Rising livestock prices in the 1980s resulted in a considerable decrease in the area dedicated to most crops. Because crop production had gradually become more efficient through mechanization, however, crop yields did not necessarily decline.
Although crop yields per hectare had generally increased, erosion of the thin topsoil layer became a significant problem in Uruguay during the 1980s. It was estimated that 30 percent of all arable areas had been adversely affected. The ill effects were most serious in areas that had been under continuous cultivation for long periods.
Rice surpassed wheat as Uruguay's most significant crop in the 1980s. In contrast to the general downward trend in farmed land area, the land dedicated to rice production increased from 55,000 hectares in 1980 to 81,000 hectares in 1988. Over this same period, production rose from 228,000 tons to 381,000 tons, a 67 percent increase. Only about 40,000 tons were consumed domestically; most of the rice was exported. The preferred farming system for rice production was closely connected to livestock raising. Rice was grown for two years; then the land was sown as pasture for four or five years to renew the fields and provide grazing for cattle. The most common variety produced was the American "Blue Belle" type. The drought that gripped Uruguay in 1988-89 caused rice producers to lose an estimated 6 percent of their crop, worth about US$2.4 million. The hardest hit areas were in the north, in the departments of Artigas, Rivera, and Tacuarembó.
Wheat production and hectarage both declined during most of the 1980s. This decline reflected the increasing land area dedicated to livestock production and the fact that Uruguayan wheat producers could not effectively compete with wheat producers in other countries. International competition became more important after the government discontinued its subsidies for wheat farmers during the economic liberalization of the 1970s. Uruguay was no longer self-sufficient in wheat production by the mid-1980s, when about 80,000 tons per year were imported. Wheat farming was largely mechanized by the 1980s, but advanced tractor equipment acted mainly to reduce the labor requirement on farms, rather than leading to huge production increases. Most farmers made only limited use of pesticides and fertilizers. Thus, wheat production per hectare was below that of most other countries. Nevertheless, the area dedicated to wheat farming rose in 1989, and production was expected to begin increasing again. Indeed, wheat production grew to 414,000 tons in 1988.
Corn production stagnated during the 1980-88 period. Like wheat farmers, corn farmers were adversely affected by the government's freeing of agricultural prices in the late 1970s. Unlike wheat, however, corn was not an important commercial crop; farmers used it primarily to feed their animals. No longer selfsufficient , Uruguay imported almost US$2 million worth of corn in 1988. Some farmers had substituted sorghum cultivation for corn because it provided roughly the same nutrition as corn but better withstood drought conditions.
Other crops produced in Uruguay in the 1980s included barley, soybeans, oats, sunflowers, peanuts, sugarcane, potatoes, flax, and cotton. Barley, soybeans, and sunflowers were produced mainly for export; the other crops were produced on only a small scale for the domestic market. Production of sugar was uneconomical, relying on a large government subsidy. Uruguay imported cotton (US$6.6 million in 1988) for its textile industry.
Citrus farming was a bright spot on the agricultural horizon in the 1980s. Citrus and produce farms were originally established around Montevideo to supply the city with fruits and vegetables. During the 1980s, these farms expanded, allowing Uruguay to become a net exporter of citrus fruit (oranges, lemons, and grapefruit). The exported value increased from US$5 million in 1980 to US$21 million in 1986. One large-scale citrus plantation added packing facilities and a juice-and-oil plant, with at least half of its production intended for export. The government encouraged such diversification of agriculture.
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