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Diversification challenges—whither agriculture?

Published: 
Monday, May 28, 2018

T&T’s petroleum resource is depleting. Since it provides the bulk of our foreign exchange from exports, plans have to be put in place to replace this revenue. This is of extreme importance since T&T is a small open economy (SOE), which, given its limited human and physical resources cannot produce locally most of what it needs to support a comfortable lifestyle. Hence, it has to import many products and services and to fund these it has to export.

Thus, the production activities in the country are defined by; the export sector, the import sector and the production sector for local consumption. The export sector can also provide products for local consumption. This export sector also provides the foreign exchange to fund the imports and by import substitution this demand for foreign exchange can be reduced. This is important also, since sustainable development in an SOE depends on the astute investment of foreign exchange savings, ie the margin of export earnings overpayments for imports.

The diversification process then ultimately is the choice of what to do in these three sectors, bearing in mind that at present the energy sector provides almost all of our foreign exchange, which is some TT$80 billion/year, net present value. This sum will have to be replaced eventually by on-shore exports as the petroleum resource depletes, if we are to maintain our standard of living.

Our concern is to devise an optimum mix among the sectors given the constraint imposed by an SoE, ie there are limited human and physical resources compounded by the knowledge/skills/innovation capacity of the human resource. One extremity of this mix is that we import everything that we need—there is no local production for in-country consumption, and we export to provide the foreign exchange to pay for this. The other extreme is that we produce locally all that we need, ie import/export nothing, which is unattainable since we do not have the resources to do so—for example, we need to import machines, vehicles, computers, telecom and electrical equipment and the list goes on.

The optimum position has to be somewhere between these two extremes.

What we know of the optimum point is that we have to be globally competitive both in what we export and even what we produce for local consumption in our own markets. In the latter case, as an open market with various trade agreements, we have to compete with imports in the home market based on these agreements. For example, we see items from Caricom competing in our home market with our local products, so much so that recently Grenada complained that it appears that its honey is banned from the T&T market, violating the Caricom agreement.

At present, we are operating at a certain state in which the energy sector is the major exporter and the main activity on-shore is importing with some production for local use.

If, then, we had to assign a certain element of our resources to economic diversification, it could either be to new exports or import substitution.

The decision would be the former if the foreign exchange earned exceeded that saved by import substitution been chosen.

Still, there is a view that even as we are not globally competitive in agriculture, we should “eat what we grow and grow what we eat”— though it costs less to import, eat local! Some also suggest that our diversification thrust should be driven by export agriculture.

During an SoE, the distributors, sellers, in general, will be reluctant to sell locally produced basic agricultural products if cheaper and quality items can be imported.

Further, it would be virtually impossible to export uncompetitive products. Hence, global competitiveness, even with comparative advantage, is a fundamental parameter in making the decision in diversifying whether to export or use import substitution.

Many would claim that competitiveness in agriculture needs lower skilled personnel, farmers, while industrial plants need staff with higher skills given the massive automation now taking place.

The error is that the lowest rewards in the produc t i on value chain go to the actual manufacture or growing process. The highest rewards go to branding, market development, marketing , product design and inn ovation.

Whether it is agriculture or other products that are being considered, the whole value chain requires highly skilled people. Further, competitiveness is sustained by knowledge, its creation and innovation, be it agriculture or industry. This is particularly so in the increasing technological age of the fourth industrial revolution.

The corollary of this is that a more highly-skilled human resource will provide higher incomes to its population if the economy is efficiently/ effectively managed. Hence, our exports should aim to be of high value and produced by highly productive staff.

Consider then, that some 70 per cent of our graduate workforce emigrates and government traditionally spends some 50 per cent of its income on subsidies and transfers, part of which goes to make-work programmes.

One can draw the obvious conclusion as to the effectiveness/ efficiency of our economy.

Creating farmers’ markets or government bulk purchases of agricultural produce may be political objectives, which contribute little to economic diversification. The dynamic process of diversification then reduces to allocating our skilled human and financial resources to the optimum division between new exports and import substitution, while the skills of the workforce are continually upgraded.

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