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.
Data as of December 1990