The growing tendency of food prices in the domestic market is sensitively manifest in the retail market, with economic, social and political implications. This tendency is based on an insufficient national production of agricultural and livestock products, which do not meet the demand.
Faced by this situation, questions arise: why is it that more is not produced? Which are the causes or the cause-effect relation? What does the expression of expensive or cheap mean with respect to the population’s levels of income? In the agricultural and livestock sector where the most transformations have been made and announced, is this consistent or not with the results obtained until now? Are the measures implemented or to be implemented in the agricultural and livestock sector conceived under a systemic focus?
Studies and research have dealt with some of these questions and in this respect attempts have been made to give explanations, suggestions, possible solutions. However, it is necessary to make an in-depth study of several of the causes that come together in the unchaining of the hike in retail prices.
Among them are those that are at the start of the productive cycle (chain) and condition since the start the good productive performance, together with others that are manifest throughout the chain, in its different links. One of them is the lack of a systemic focus, which starts at the beginning and its effect is manifest throughout the cycle and can even generate antagonistic contradictions if they are not considered.
As an example it can be cited that in the final link of the chain the decentralisation of the process of marketing of agricultural products (wholesale-retail) has begun through Law 318; however, at the starting point of the cycle (production), the decentralisation has not been consistent; that is, a wholesale market of inputs, equipment and services has not been created, a situation already pointed out in previous works and studies.
It is important that producers can buy in a timely manner, at prices consistent with the needs of the productive cycle, since agriculture works with biologically live beings which are part of nature. It should be taken into account that the prices make up a system, that one has an influence on the other throughout the cycle and that, within this cycle and as part of the price system, they also have an influence on those of other distributing and marketing shops of products, among them foodstuffs (understood as hard currency collecting shops, which are popularly called shopping and become points of reference for the prices).
The application of the systemic system is undoubtedly a complex aspect, but it definitively has to be dealt with and applied. The aforementioned calls for taking into account and identifying the variables that in one way or another have an influence on the productive performance, up to the close of the cycle.
It is appropriate to specify that the action of the market does not resolve the disproportions nor achieves the balance on its own. An additional relationship between planning and market is advocated. The latter makes it possible for the problems to come to the surface and be perceived and identified to make the readjustments, modifications and necessary changes in addition to the planning.
In his book The Wealth of Nations (1776), Adams Smith proclaimed the doctrine of the “invisible hand” in the market. However, after more than two centuries of experience, renowned economist Paul Samuelson (1915-2009) in his work Modern Economy Course(1983, chapter 3, “The markets and the State in a modern economy”) said that today we recognise the limitations and the scope of that doctrine and that we know that the market at times abandons us, that there are flaws in the market, the two most important…being the absence of perfect competition and the presence of external factors.
In his cited work, Samuelson points out that Smith himself recognised that the virtues attributed to the market mechanism only exist when the weights and counterweights of the perfect competition are present, and added that when there are few sellers, there exist inappropriate weights and counterweights to guarantee that the price is determined by the costs; and, in that case, the truth of the doctrine of the “invisible hand” can fade away. When referring to the external factors, Samuelson underlined that the invisible hand can also create problems for the economy when the economic activities are made known outside the market, and he gives examples like air pollution, to which can be added the soil, water, originated by enterprises, among other aspects.
Undoubtedly, it is the responsibility of the State to rectify the market flaws (planning additionally to the market); to avoid the monopolies and the oligopolies; to develop social programmes to reach the maximum level possible of equity; to redistribute, in its diverse forms, the incomes derived from taxes; to promote economic development based on efficiency; to watch out for the profit margins in each link and throughout the cycle of the chain of value, among other aspects.
Samuelson himself pointed out that we must not fall too much in love with the beauty of the market mechanism, considering it as the very perfection, the essence of providential harmony and outside the reach of human hands.
The current existence in Cuba of currency and exchange duality undoubtedly makes it complex for prices to be determined by real costs; however, that does not prevent carrying out studies and assessments in the chain of value and for each one of the links that comprise it. Different alternatives can be drawn out based on diverse types of exchange rates for the business sphere, even based on the current rate in force for the business system as a point of reference. This would help identify inconsistencies and problems.
The study of the chain of value and its different links must be accompanied by the assessment and analysis of the costs incurred and the determination – for each link and for the total chain of value – of the profit margin or percentage that corresponds to each link (the part of the new value created for each economic subject, be it producers, transport, intermediary, provider of some service, among others) and, finally, throughout the chain of value.
It is appropriate to point out that this percentage of profit could have a certain maximum limit and be officially set by the State, according to the results of the studies carried out and applied to the costs incurred in each link, not considering the accumulated costs or expenditures of the links that preceded it.
In general, the agricultural and livestock sector is characterised by many farmers producing the same product or products in non-determined amounts. In fact, it is usually the closest to a perfect competition market, as long as the producers participate throughout the productive chain and monopolistic or oligopolistic forms are not manifest. A diversity of productive forms is observed in the Cuban agricultural and livestock sector;achieving its participation throughout the cycle (chain), be it directly or through its representative in the market, would allow for the expected effect: that no producer have dominion over the market and impose prices.
Taking into account the aforementioned, it is the responsibility of that State to observe, act and bring about that this agricultural market manifest or express itself as a market as close as possible to the perfect competition.
In State Agricultural Markets (MAE), the prices of the products could be set at a top ceiling and as part of the price system this would have an influence on the rest of the prices of the other identified marketing forms. This would imply an option for the population in general, especially for the low-income strata, based on the similarity of quality in relation to the rest of the marketing forms and a systematic supply.
These set ceiling prices must cover the costs incurred in their production and throughout the cycle (production-distribution-exchange-consumption), as well as providing an appropriate margin profit, if not they would become a State subsidy, would not encourage producers or those links that make up the chain and make possible that the merchandise is sold and the cycle is reinitiated.
The decentralising measures have achieved a diversification especially in the marketing (it did not coincide with the start of the productive chain, as previously pointed out), but this has made it possible for the sales commitments with the State to be reduced from 75-80 per cent to an average level of 51 per cent approximately. If the measures on the setting of prices or ceiling prices applied to the MAEimplicitly include in the contracts the establishment commitments of high sales and delivery to the State, for all productive forms, that would mean returning to a point of departurealready unsuccessfully gone through.
Production is one of them and, if the sales-deliveries to the state marketing forms are prioritised, the non-state ones would have fewer products. Then the limitation of supply through non-state forms would lead to a price increase in these non-state forms, to the prejudice of the population. This could also lead to the diversion of products from the state to the non-state forms, encouraged by higher incomes-profits.
Returning to high levels or close to 75-80 per cent to channel the retail sales through state forms, as had been mentioned, is a path already travelled without suitable results. These high levels of centralisation and monopoly have given rise to unfavourable situations, like the lack of incentives for producers, the loss of harvests due to not collecting the crops on time, the loss of products in collecting centres, levels of subsidies assumed by the State, prices not consistent with quality, chain of non-payments to producers, diversion of products to the underground market, among others.
The previous results, together with other causes, have contributed to a halt in the development of the productive forces, especially in the Cuban agricultural and livestock sector.
Humanity’s history of the economy has confirmed that agriculture has been manifested as a strategic point and of the start of a series of important transformations in humanity’s economic-social development. It is through agriculture that humanity’smost significant changes have started; from two moments or stages, identified as Palaeolithic and Neolithic (more than 2,500 years ago). It is precisely in the Neolithic era when the most important economic and technological revolution takes place, only comparable to the Industrial Revolution in England (1760-1830).
It is during the Palaeolithic stage that, in humanity’s first production mode identified as the primitive community, the first social division of labour originates. And this occurs precisely in agriculture with the separation of the agricultural from the livestock activity. The second social division of labour develops with the specialisation in agriculture and other trades. It is a known fact that the Industrial Revolution began through England, but this process had an important precedent, the Agrarian Revolution that was the necessary preamble for the emergence and unchaining of the Industrial Revolution.
The Cuban agricultural and livestock sector is not exempt from these characteristics. The most immediate measures and that constitute a fundamental point of departure, starting with the 1959 Revolution, was the enactment of the First Agrarian Reform Law, and followed by the second Agrarian Reform Law. In the 1990s, when Cuba entered a strong economic crisis, called “special period,” the transformations began with the distribution of lands, the creation of agricultural and livestock cooperatives (UBPC), the reopening of the free agricultural market (the largest presence of productive forms). More recently, during the current process of transformations since 2007, they also started through the agricultural and livestock sector.
It is considered that, among the numerous measures implemented in agriculture, the handing over of land in usufruct is the most important. However, on occasions it has been pointed out that this measure is a necessary but not sufficient condition, since it has to be accompanied by a series of non-punctual and systemic measures.
The identification of the productive chains – and with this the chain of value -, as well as the analysis of each one of its links for the different agricultural and livestock products, is a need that cannot be postponed for the study of the performance of the prices and the new value created throughout the cycle.
The expression “it is necessary to produce more” has been repeated many times, but it is necessary to concentrate on how to do it. It is suggested that the most appropriate road to initiate the “how” is translated into:
– Decentralising more, in a systemic manner, throughout the cycle, mainly the beginning.
– Facilitating the cycle (production, distribution, exchange, consumption);avoiding restrictive measures.
– Not neglecting the performance of the market.
In search of carrying out the ownership the above can be expressed in a concrete way:
– Creating a wholesale market of inputs, equipment and services, where producers can purchase what they need to be able to successfully close the cycle (in the face of insufficient or lack of capital, an alternative is the participation of foreign investment, for which it is necessary to apply for participation offers and carry out the necessary assessments).
– That producers can discuss: price, destination in an interactive contractual process and interrelated with the demand, taking into account the social aspects.
– That the different productive forms (CCS, CPA, UBPC, state enterprise, private producers, land usufructuaries) cover as much as possible the links of the chain: production (includes seeds, nurseries), benefit, transport, conservation, retail market (marketing), with a view to reducing costs and eliminating unnecessary intermediaries.
– According to the need, place, territory, logistics, create second degree marketing cooperatives that belong and represent the producers (first-degree cooperatives, usufructuaries, private producers).
– That the analysis of prices be based on the study of the chain of value.
– The aforementioned must lead to the implementation of a totally new economic management model.
The Cuban economy needs – and at the same time it is strategic – to resolve the agricultural problem to provide a solution to food, also as a source of raw material for the industry, supplying to tourist installations and generating export funds. Achieving a growing and sustainable economic and social development depends to a large extent on the solution of the Cuban agricultural problem. (2016)
CCS: Credit and Services Cooperatives; CPA: Agricultural Production Cooperative; UBPC: Basic Units of Agricultural Production; Usufructuaries: Private producer, benefitting from the handing over of idle (not used) lands through Decree Laws 259 and 300.
See: “Comercialización de productosdel agro: mover el dominó”, by Raquel Sierra, Tribuna de La Habana, January 17, 2016.
The right ofproducers to be able to decide what to produce, who to sell what is produced, at what price; going to an input, means of production and services market to purchase the necessary means and at a timely moment, at prices consistent with what is received through the sale of their final product (chain of value), with the aim of being able to successfully close the productive cycle, and taking into account the social aspects.
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