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: eva.fernandez@uc3m.es. 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).

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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)

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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).

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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).

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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)

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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.

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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)

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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

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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