EL SALVADOR: Agriculture on the Brink

By IPS Correspondents Reprint | | Print |

Raúl Gutiérrez

SAN SALVADOR, Dec 20 2006 (IPS) - Neoliberal free-market policies implemented since the early 1990s have pushed El Salvador’s agriculture industry into a state of coma, and the free trade agreement with the United States that went into effect in March might just be the final blow.

That pessimistic view is shared by experts on agriculture and by farmers like Mateo Rendón, the head of the Salvadoran Federation of Agrarian Reform Cooperatives (FESACORA), who blames the decline in agricultural activity over the last 15 years on “the privatisation of the banking sector, the opening up of the economy, and policies that have undermined national production.”

“We used to have profitable production, which generated employment,” he said.

Other factors driving agriculture to the verge of collapse were the adoption of the U.S. dollar as El Salvador’s official currency in 2001 and the implementation of the Central America Free Trade Agreement (CAFTA) that the Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua signed with the United States, said Rendón.

He argued that CAFTA and the dollarisation of the economy only benefited a small group of businesses and individuals.

Prior to the 1980-1992 civil war, El Salvador’s agroexport industry brought in abundant revenues and employed hundreds of thousands of rural workers.

The armed conflict, which ended with a peace agreement signed by the government and the insurgent Farabundo Marti National Liberation Front (FMLN), left 75,000 people dead – mainly campesinos (peasant farmers) – and 7,000 “disappeared”, and caused an estimated 1.5 billion dollars in economic losses.

The highest-profile victim was Archbishop of San Salvador Oscar Arnulfo Romero, who was assassinated while performing mass by a sniper commissioned by the far-right on Mar. 24, 1980.

An agrarian reform process distributed land to campesinos under the democratically elected government of the late Napoleón Duarte (1984-1989), in the midst of the civil war. The Christian Democratic government also nationalised the banking sector and aspects of foreign trade, in what according to analysts was an attempt at weakening the FMLN’s social base.

The FMLN went on to become a legal political party, and is now the main opposition force.

But when the right-wing Nationalist Republican Alliance (ARENA) reached the government in 1989, under President Alfredo Cristiani, most of the reforms were rolled back: the banks and foreign trade were privatised again, and a process of liberalisation of the economy began, with the financial sector and services enjoying privileged treatment.

This strategy led to “the dismantling of the agricultural sector,” which now only benefits a handful of agribusiness interests while excluding tens of thousands of farmers, said Rendón.

He explained that the privatisation of state-run banks drove up the cost of credits for agriculture, which carry interest rates of up to 25 percent. In addition, many small farmers find it impossible to get a loan, because they are not considered worthy of credit.

The lion’s share of credit goes to businesses in the trade and services sectors.

And when the dollar was adopted in El Salvador, said Rendón, prices of farm inputs shot up. For example, a 46-kg bag of ammonium sulphate fertiliser climbed from 11 dollars in 2001 to 24 dollars today. Meanwhile, the price of corn, for example, has remained basically frozen.

At the same time, there has been a flood of imports, often at lower prices than those of locally produced goods, due to the government subsidies received by farmers in the United States and Europe.

In a report on the state of the agriculture industry, the Confederation of Agrarian Reform Federations (CONFRAS) estimated that the sector received 22 percent of all loans granted in the country between 1980 and 1989, 15.5 percent by 1990, and only four percent today.

According to its records, the FESACORA cooperatives had a total of 150,000 hectares of land in 1980, worked by 23,700 families, who accounted for 30 percent of the country’s output of coffee, sugar cane, livestock and basic grains.

But today, the cooperatives that emerged from the agrarian reform process represent only 12 percent of total output.

Of the 189 cooperatives that founded FESACORA, 60 percent have broken up and sold off their land, which has tipped many of the former member families into unemployment and poverty. “You can see this in a visit to the countryside. What they have done is destroy the productive apparatus to benefit five or six big importers,” said Rendón.

He cited his own case to illustrate. “I raised livestock. Years ago I had 25 head of cattle, but now I only have 10. I also used to farm three hectares, and today I only farm one.”

“Many people in the cooperatives are selling off their land these days to send their kids north (to the United States),” he added.

Figures from El Salvador’s Central Reserve Bank show that agriculture accounted for 17 percent of contributions to the national economy in 1990, compared to less than 12 percent in 2005.

In the view of William Pleitez, a Salvadoran economist with the United Nations Development Programme (UNDP), the free-market model was adopted in 1989 with the argument that it would bring “sustained high growth rates triggered by the expansion and diversification of exports.”

“The idea was to transform the agroexport economy into a much more diversified economy,” he told IPS.

Among other factors, “the reforms that were implemented, like the aggressive opening up of trade, combined with the appreciation of the colón (the local currency at the time),” caused the country’s foreign debt to balloon, because the interest rates on the international market were lower than the rates at home.

That fuelled high inflation, as locally produced goods became more expensive than imports, which produced a distortion on the local market.

As a result, El Salvador now exports labour power instead of products, in the form of mass emigration, said Pleitez. “Agriculture has been one of the losers as a result of these policies, because in many cases, the effects have been the opposite of what was originally expected,” he added.

UNDP reports show that in 1978, 81 of every 100 dollars in foreign exchange flowing into the country came from traditional agroexport products, eight came from expatriate remittances, and the rest came from exports assembled in the “maquiladora” sector and from non-traditional exports.

But today, 71 of every 100 dollars come from remittances sent home from abroad by Salvadoran emigrants, only six come from traditional agroexport products, 10 from the maquiladora export assembly plants, and 13 percent from non-traditional exports, especially so-called “ethnic” and “nostalgia” products.

CAFTA will have varying effects on the country, depending on the industry, said Pleitez. “Basic grains and traditional products may very well be hurt, as they were in Mexico” as a result of the North American Free Trade Agreement (NAFTA), due to the subsidies that the U.S. government shells out to its farmers and the lack of compensation policies in El Salvador, he argued.

Emigration, mainly to the United States, has been driven by the lack of opportunities and poor wages in El Salvador. Organisations that work with migrants estimate that at least 700 Salvadorans leave the country every day, out of a total population of close to seven million. As many as 2.5 million Salvadorans live in the United States, with or without legal documents.

The UNDP annual development report for 2005 reported that remittances were equivalent to less than two percent of gross domestic product (GDP) in 1981, compared to nearly 17 percent – totalling 2.8 billion dollars – in 2005. And the Central Reserve Bank projects that remittances have climbed to over three billion dollars this year.

Pleitez said the remittances sent home by Salvadorans living abroad “have become the country’s most important macroeconomic variable.”

Farming cooperatives, meanwhile, are worried about the future. “We have no hopes of returning to those times of agricultural production; there is no policy for providing support and subsidies for local farmers. The only way to turn this around would be to change the economic model, or change the government,” said Rendón.