For decades, agricultural price and trade policies in Sub-Saharan Africa have hampered farmers contributions to economic growth and poverty reduction. Although there has been much policy reform over the past two decades, the injections of agricultural development funding, together with ongoing regional and global trade negotiations, have brought distortionary policies under the spotlight once again. A key question asked of those policies is: How much are they still reducing national economic welfare and trade? Economy-wide models are able to address that question, but they are not available for many poor countries. Even where they are, typically they apply to just one particular previous year and so are unable to provide trends in effects over time. This paper provides a partial-equilibrium alternative to economy-wide modeling, by drawing on a modification of so-called trade restrictiveness indexes to provide theoretically precise indicators of the trade and welfare effects of agricultural policy distortions to producer and consumer prices over the past half-century. The authors generate time series of country level indexes...

National barriers to trade are often varied to insulate domestic markets from international price variability, especially following a sudden spike. This paper explores the extent of that behavior by governments in the case of agricultural products, particularly food staples whose prices have spiked three times over the past four decades. It does so using new annual estimates since 1955 of agricultural price distortions in 75 countries, updated to 2008. Responses by food importers to upward price spikes are shown to be as substantial as those by food exporters, thereby weakening the domestic price-stabilizing effect of intervention by exporters. They also add to the transfer of welfare to food-surplus from food-deficit countries -- the opposite of what is usually thought of when considering inter-sector trade retaliation. Phasing down World Trade Organization-bound import tariffs toward their applied rates would help reduce the legal opportunities for food-deficit countries to raise their import restrictions when international prices slump. To date there is no parallel discipline in the World Trade Organization that limits increases in export restrictions when prices spike upward...

The agricultural and food sector is an ideal case for investigating the political economy of public policies. Many of the policy developments in this sector since the 1950s have been sudden and transformational, while others have been gradual but persistent. This paper reviews and synthesizes the literature on trends and fluctuations in market distortions and the political-economy explanations that have been advanced. Based on a rich global data set covering a half-century of evidence on commodities, countries, and policy instruments, the paper identifies hypotheses that have been explored in the literature on the extent of market distortions and the conditions under which reform may be feasible.

This paper provides a comprehensive analysis of the degree of co-movement among the nominal price returns of 11 major energy, agricultural and food commodities based on monthly data between 1970 and 2013. A uniform-spacings testing approach, a multivariate dynamic conditional correlation model and a rolling regression procedure are used to study the extent and the time-evolution of unconditional and conditional correlations. The results indicate that (i) the price returns of energy and agricultural commodities are highly correlated; (ii) the overall level of co-movement among commodities increased in recent years, especially between energy and agricultural commodities and in particular in the cases of maize and soybean oil, which are important inputs in the production of biofuels; and (iii) particularly after 2007, stock market volatility is positively associated with the co-movement of price returns across markets.

A study of distortions to agricultural incentives in 18 developing countries during 1960-84, by Krueger, Schiff and Valdes (1988; 1991), found that policies in most of those developing countries were directly or indirectly harming their farmers. Since the mid-1980s there has been a substantial amount of policy reform and opening up of many developing countries, and indicators of that progress have been made available recently by a new study that has compiled estimates for a much larger sample of developing countries and for as many years as possible since 1955. The new study also covers Europe s transition economies and comparable estimates for high-income countries, thereby covering more than 90 percent of world agricultural output and employment. This paper summarizes the methodology used in the new study (pointing out similarities and differences with those used by the OECD and by Krueger, Schiff and Valdes), compares a synopsis of the indicators from Krueger, Schiff and Valdes and the new study for the period to 1984...

National barriers to agricultural trade are often varied to insulate domestic markets from international price variability, especially following a sudden spike. This paper examines the extent of that behavior by governments using new annual estimates of agricultural price distortions in 75 countries. Responses to price spikes are shown to be equally substantial for agricultural-importing and agricultural-exporting countries, thereby weakening the domestic price-stabilizing effect of their interventions. Bringing discipline to export restrictions through new World Trade Organization rules could help alleviate the extent to which government responses to exogenous upward price spikes exacerbate those shocks.; The authors are grateful for financial support from the Australian Research Council and World Bank.

For decades, agricultural price and trade policies in Sub-Saharan Africa hampered farmers’ contributions to economic growth and poverty reduction. This paper draws on a modification of so-called trade restrictiveness indexes to provide theoretically precise partial-equilibrium indicators of the trade and welfare effects of agricultural policy distortions to producer and consumer prices in 19 African countries since 1961. Annual time series estimates are provided not only by country but also, for the region, by commodity and by policy instrument. The findings reveal the considerable extent of policy reform over the past two decades, especially through reducing export taxation; but they also reveal that national policies continue to reduce trade and economic welfare much more in Sub-Saharan Africa than in Asia or Latin America.; This work is a product of a World Bank research project on Distortions to Agricultural Incentives (Project P093895, see www.worldbank.org/agdistortions) which was financially supported by the governments of the Netherlands (BNPP), the United Kingdom (DfID) and Ireland; and by the Australian Research Council (DP0880565).

Economists have long been interested in measuring the extent, effects and causes of agricultural price and trade policies. The topic has drawn attention because agricultural trade between countries has almost never been free, and yet it is widely accepted that trade policy distortions affect the incentives of producers and consumers and cause a redistribution of resource use in the economy. Traditional aggregations of agricultural price and trade distortions can be poor guides to the economic effects of agricultural price and trade policies. Measures without theoretical foundation — such as simple- or trade-weighted average price distortions — may introduce biases in analysis. Recent decades have seen improvements in aggregation theory in the form of scalar index numbers of the trade- and welfare-reducing effects of price and trade policies. Despite the new theory, however, analysts have continued to use less satisfactory measures in practice. This thesis calculates partial-equilibrium versions of trade restrictiveness indices from the Anderson-Neary family of indices for agricultural policy distortions in 75 developed and developing countries over a period 1960 to 2007. The data for the empirical work are from the recently released World Bank Distortions to Agricultural Incentives database. The thesis calculates indices at the country level for the sample countries. Two partial-equilibrium indices are calculated — a Trade Reduction Index (TRI) and a Welfare Reduction Index (WRI).¹ The TRI (WRI) is the uniform trade tax that yields the same loss in trade volume (welfare) as the structure of disaggregated distortions. The results of the country-level estimates show that standard weighted averages of price distortions understate the extent of global distortion from agricultural policies. One manuscript of the thesis focuses in particular on the trade restrictiveness of agricultural policy in Sub-Sahara Africa...

A study of distortions to agricultural incentives in 18 developing countries from 1960–84, by Krueger, Schiff, and Valdés (1988; 1991), found that policies in most of those developing countries were directly or indirectly harming their farmers. Since the mid-1980s, there has been a substantial amount of policy reform and opening up of many developing countries. Indicators of that progress have been made available recently by a new study that has compiled estimates for a much larger sample of developing countries, and for as many years as possible since 1955. The new study also covers Europe's transition economies and comparable estimates for high-income countries, thereby covering more than 90% of world agricultural output and employment. This article summarizes the methodology used in the new study, compares a synopsis of the indicators from Krueger, Schiff, and Valdés and the new study for the period to 1984, summarizes the changing extent of price distortions across countries and commodities globally since then, and concludes by evaluating the degree of distortion reduction over the years since 1984 compared with how much still remains, according to the results of a global economy wide model.

The thesis analyses the patterns and underlying political economy causes of long-run trends and short-run fluctuations in national distortions to agricultural incentives. It does so by exploiting, revising and expanding a dataset of agricultural distortion measures in developing and developed countries from 1955 to 2004 for developing and 2007 for high-income countries by Anderson and Valenzuela (2008). More specifically, it extends its time period to 2009 for developing countries and 2010 for high-income countries. An essential contribution of the thesis is the update of this database to 2010 in order to capture the most recent international food price spike period. The large dataset makes it possible to analyse insulating behaviour in agricultural markets historically over the past 55 years, and to compare governments' reactions to food market shocks and upwards and downwards price spikes in the most recent years vis-a-vis those in the past. The thesis examines the extent of domestic market insulating behaviour of governments by both food-exporting and food-importing countries. This is because the policies of both country groups contribute substantially to international food price volatility and therefore to economic instability and to trade and welfare fluctuations. The international-to-domestic food price transmission elasticity is used as one indicator of such policy action. The evidence also allows us to test to what extent the policy decisions of governments achieve the goal of protecting domestic producers or consumers from international price spikes in either direction. The results of the analysis are subdivided into the contribution of different regions...

Despite recent reforms, world agricultural markets remain highly distorted by government policies. Traditional indicators of those price distortions can be poor guides to the policies' economic effects. Recent theoretical literature provides indicators of trade and welfare-reducing effects of price and trade policies which this paper builds on to develop more-satisfactory indexes. The authors exploit a new Agricultural Distortion database to generate estimates of them for developing and high-income countries over the past half century. These better approximations of the trade and welfare effects of sector policies are generated without a formal model of global markets or even price elasticity estimates.

To what extent has Sub-Saharan Africa's slow economic growth over the past five decades been due to price and trade policies that discouraged production of agricultural relative to non-agricultural tradables? This paper uses a new set of estimates of policy induced distortions to relative agricultural prices to address this question econometrically. First, the authors test if these policy distortions respond to economic growth, using rainfall and international commodity price shocks as instrumental variables. They find that on impact there is no significant response of relative agricultural price distortions to changes in real GDP per capita growth. Then, the authors test the reverse proposition and find a statistically significant and sizable negative effect of relative agricultural price distortions on the growth rate of Sub-Saharan African countries. The fixed effects estimates yield that, during the 1960-2005 period, a ten percentage points increase in distortions to relative agricultural prices decreased the region's real GDP per capita growth rate by about half a percentage point per annum.

For decades the world's agricultural markets have been highly distorted by national government policies, but very differently for different commodities. Hence a weighted average across countries of nominal rates of assistance or consumer tax equivalents for a product can be misleading as an indicator of the trade or welfare effects of policies affecting that product's global market. This is especially the case when some countries tax and others subsidize its production or consumption. This article develops a new set of more-satisfactory indicators for that purpose, drawing on the recent literature on trade restrictiveness indexes. It then exploits a global agricultural distortions database recently compiled by the World Bank to generate the first set of estimates of those two indicators for each of 28 key agricultural commodities from 1960 to 2004, based on a sample of 75 countries that together account for more than three-quarters of the world's production of those agricultural commodities. These reveal the considerable extent of reforms in agricultural policies of developing as well as high-income countries over the past two decades.

The main purpose of this study is to assess the changing landscape of agricultural protection and taxation patterns in the region. The study is based on the EU-10 sample, plus Turkey, as well as seven countries in the Commonwealth of Independent States (CIS): Kazakhstan, the Kyrgyz Republic, the Russian Federation, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan (the CIS-7). In 2000-04, these countries accounted for 89 percent of the region's agricultural value added, 91 percent of the population, and 95 percent of total gross domestic product (GDP). In agricultural subsidy and trade policy, analyses of politically feasible reforms or policy options for coping with structural changes (such as the current boom in energy raw material prices that has intersectoral Dutch disease effects) need to be based on a clear understanding of the recent and current extent of policy interventions and the political and economic forces behind the evolution of these interventions. The second purpose of this study is thus to improve our understanding of the political economy of distortions in agricultural incentives in countries in the region. Based on this better understanding...

This book provides an overview of the evolution of distortions to agricultural incentives caused by price and trade policies in the World Bank-defined region of Latin America and the Caribbean. Following the introduction and summary, it includes commissioned country studies of one Caribbean, one Central American, and six South American economies. The chapters are followed by two appendixes. The first describes the methodology used to measure the nominal and relative rates of assistance to farmers and the taxes and subsidies involved in food consumption; the second provides country and regional summaries, in tables, of annual estimates of these rates of assistance. This study on Latin America is based on a sample of eight countries, comprising the big four economies of Argentina, Brazil, Chile, and Mexico; Colombia and Ecuador, two of the poorest South American tropical countries; the Dominican Republic, the largest Caribbean economy; and Nicaragua, the poorest country in Central America. Together, in 2000-04...

This policy paper focuses on the incentive framework for Pakistani agriculture, with emphasis on trade and price policies. It first presents a synthesis of major trends in the performance of the sector and analyzes Pakistan's extraordinarily complex, opaque and discretionary, and continually-changing trade regime. It presents a disaggregated analysis of the border measures for the selected products (trade and price interventions vary by product), and estimates the joint effect of trade and procurement policies on farm prices, captured by direct price comparison. It concludes by providing policy recommendations emphasizing on the revision of trade regime to eliminate quantitative restrictions and to modify tariffs in the direction of greater equality, a positive, moderate and uniform tariff on imports across the board as the only border measure for import competing products.

Notwithstanding the tariffication component of the Uruguay Round Agreement on Agriculture, import tariffs on farm products continue to provide an incomplete indication of the extent to which agricultural producer and consumer incentives are distorted in national markets. Especially in developing countries, non-agricultural policies indirectly impact agricultural and food markets. Empirical analysis aimed at monitoring distortions to agricultural incentives thus need to examine both agricultural and non-agricultural policy measures including import or export taxes, subsidies and quantitative restrictions, plus domestic taxes or subsidies on farm outputs or inputs and consumer subsidies for food staples. This paper addresses the practical methodological issues that need to be faced when attempting to undertake such a measurement task in developing countries. The approach is illustrated in two ways: by presenting estimates of nominal and relative rates of assistance to farmers in China for the period 1981 to 2005; and by summarizing estimates from an economy-wide computable general equilibrium model of the effects on agricultural versus non-agricultural markets of the project's measured distortions globally as of 2004.

Agricultural markets in OECD countries have long been highly distorted by government policies. Traditional weighted average aggregates of the price distortions involved, such as producer and consumer support estimates can be poor indicators of the trade restrictiveness and economic welfare losses associated with them, especially if a country's support estimates vary a lot across the product range. Certainly estimates of trade and welfare effects of price supports can be obtained from sector or economy-wide models using price elasticity estimates, but the results can be contentious if there is no consensus on what model specification and elasticity parameters to use. This paper shows that, if there is a willingness to accept simple assumptions about elasticities, it is possible to generate indicators of the welfare and trade restrictiveness of agricultural policies using no more than the price and quantity data needed to generate producer and consumer support estimates. These new indexes thus provide an attractive supplement to the current policy monitoring regime developed by the OECD Secretariat.

For decades, the earnings from farming in many developing countries have been depressed because of a pro-urban, anti-agricultural bias in own-country policies and because governments in more well off countries are favoring their farmers by imposing import barriers and providing subsidies. These policies have reduced national and global economic welfare, inhibited economic growth, and added to inequality and poverty because no less than three-quarters of the billion poorest people in the world have been dependent directly or indirectly on farming for their livelihoods (World Bank 2007). The purpose of the rest of this chapter is to outline the analytical framework and the common empirical methodology adopted in the global and national case studies reported in subsequent chapters, to summarize and compare the modeling results from the global and national models, and to draw some general policy implications. The findings are based on three chapters (part two) that each use a global model to examine the effects of farm and nonfarm price and trade policies on global poverty and the distribution of poverty within and across many of the countries identified...

This paper documents China’s experience of transforming its food production and commerce from a centrally planned regime to a market system. The reforms have progressed in three steps: (a) raising agricultural procurement prices, (b) introducing market mechanisms to replace state controls, and (c) moving towards complete market operations. This series of reforms boosted agricultural production, raised per capita consumption of food products, and strengthened national food security. Agricultural price reforms in China in the past three decades suggest that right policies and institutions are essential in solving its food problems.