Policy-related Distortions to Agricultural Incentives

Why do we care? How do we measure them?

How do we use the measures?

Why do we care?

Traditional static inefficiencies – ‘’Harberger Triangles’’ – Tend not to be very impressive

Incentives for poor governance (corruption) Dynamic inefficiencies – poor investment

choices – Public as well as private

Some research quantifies these dynamic effects

One std. deviation in ag incentive distortion index reduces overall growth rate by 0.6 percentage pts

How do we measure distortions?

A few examples

Large World Bank research project 2010 Updating of the Krueger, Schiff, Valdes study in 1980s Many countries, developing and developed Calculated many indicators of policy, including traditional trade indicators (NRP, ERP) Major findings of large net taxation of agriculture in developing countries, mainly through indirect measures – exchange rate distortions and protection of manufacturing

Anderson also calculated many indicators, but two main ones

were… Nominal rate of assistance NRA – how much

government policy caused the nominal returns to agriculture to diverge from their levels without policy measures

Relative rate of assistance – how much government policy caused the returns to agriculture to diverge from their levels without policy measures, relative to returns to non-agriculture

One finding – trend towards neutrality, looking at NRAs …

Or RRAs

Like K-S-V study, positive support to imports, negative protection for exports, but both becoming more positive over

time

Evolution of RRAs by Developing Region

From LAC in the Global Agricultural Market: Harnessing Trade to Feed the World and Promote Rural Development

-60

-50

-40

-30

-20

-10

0

10

1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04

LAC

Africa

Asia

OECD standard indicators NAC Nominal Assistance Coefficient: ratio of farm receipts with and without support NPC Nominal Protection Coefficient: the ratio of producer prices to world prices

measured at country’s border PSE Producer Support Estimate (%): The monetary value of policy transfers expressed

as a percentage of gross farm receipts MPS Market Price Support: Part of PSE provided through measures that affect the

price received by farmers (trade measures, budget support linked to production) SCT Single Commodity Transfers: part of PSE attributable to support to identifiable

individual commodities CSE Consumer Support Estimate : Measures (trade and budget) that affect

consumer spending on ag products GSSE General Services Support Estimate: Public expenditures on services that benefit

many ag producers TSE Total Support Estimate: sum of PSE, budgetary transfers component of the CSE

and the General Services Support Estimate. TSE enumerates support provided to producers individually and collectively, as well as subsidies to consumers

Trends in support

Overall decline in support, especially based on production

From Agricultural Public Expenditure Review, Nicaragua

PSE in Nicaragua is higher than OECD average

From Agricultural Public Expenditure Review, Nicaragua

Support focused on a few commodities

From Agricultural Public Expenditure Review, Nicaragua

High Producer Support Creates Large Negative Consumer Subsidy Estimate, Reducing Food Security of Poor

Consumers

MAFAP: Monitoring African Food and Agricultural Policies

Joint project FAO, IFPRI, NEPAD, GATES Foundation, World Bank, USAID, website housed with FAO

Using many of the policy indicators mentioned in this presentation

Practical applications in country reports, policy briefs; database in 2013