The Normative Analysis of Agricultural Policy: A General Framework and Review

The paper provides a general framework of normative agricultural policy analysis within which it is possible to unify forty years of literature. It is shown that the literature has gone from examining a very small set of simple policies to a much broader set of policies that combine policy instruments simultaneously. In ranking alternative policies agricultural economists have tried to consider distributive equity. While at a glance it may seem that many different methods have been used to consider distributive equity, we show that in general all these methods can be traced back to three alternative methods based on welfarism and Pareto efficiency.     

What agricultural and food policies do U.S. consumers prefer? A best–worst scaling approach

Consumer welfare effects from policy changes are traditionally calculated using estimates of consumer preferences for the underlying goods and services affected. This conventional approach is indirect, does not consider preferences people may have for the policies themselves, and makes it difficult to easily compare relative preferability of a large set of policy options. In this paper, we use the best–worst scaling approach to determine consumers’ preferences for 13 policies. A nationwide survey of 1,056 U.S. consumers indicates the highest levels of support for investments in agricultural research and requirements of food and agricultural literacy standards in public education. Fat, calorie, and soda taxes are the least popular; fewer than one-third of respondents are in favor of these three policies.     

Issues relating to Agricultural Pricing Policies and their Analysis in Developing Countries

Agricultural pricing policies in developing countries are often the result of complex interactions between producer, consumer and merchant groups and their relative effectiveness in influencing government decision making. Even within governments, various ministries often have opposing views. In this environment one of the contributions a policy analyst can make is to attempt to quantify the effects of different policy options. This permits a more informed discussion which hopefully leads to better decision-making and an improved incentive environment. Many analyses of agricultural pricing policies have used the standard partial equilibrium analysis where no linkages between commodity markets were considered. In this paper we have considered cross-price effects. Also, we have discussed issues relating to other adjustments/refinements of the standard method so that a practitioner not familiar with the various methods can form an opinion of what the options are and what adjustments may be appropriate for a particular case in question. The adjustments relate to overvaluation of currencies, input price distortions, differences in the degree of distortions between producers and consumers, and variability of border prices. The inclusion of cross-price elasticities was important for assessing production, consumption and trade effects for Argentina, but for the other countries it resulted in only somewhat improved accuracy. The adjustment for exchange rates had a large impact in Egypt and was important for other countries as well. This underlines the importance of exchange rates as key variables for agricultural pricing policies in general. The numbers show that the traditional taxation policies of agricultural products in the sample of developing countries is somewhat less widespread than in the past. These policies, however, continue to favor consumers over producers, with significant losses for some of the latter. The large size of welfare losses, especially compared to efficiency losses, highlights the importance of correcting distorted prices that adversely affect the poorest sections of society. Also, the usual government objective of taxing producers to raise revenues is frequently defeated by the large subsidies provided to consumers. For the partitioner, for whom time is often of the essence, the assessment of welfare effects using the partial equilibrium method may provide reasonably good ‘first cut’ estimates of the order of magnitude of the impact of distortions. But often, these 'base case estimates' can and should be adjusted for a number of possible factors. The analyst needs to determine how important accurate estimates of key variables are to the policy makers; he or she then needs to compare the costs involved in generating or gathering the data and doing the calculations with the benefits of a broader and more accurate analysis of the distortionary effects of the particular case in question.     

Analyzing technology adoption using microstudies: limitations, challenges, and opportunities for improvement

Policy makers and interest groups have many questions about the use of improved technologies in developing country agriculture. These include the roles of policies, institutions, and infrastructure in the adoption of improved technologies and their impact on productivity and welfare. Most micro‐level adoption studies, however, cannot address these important policy issues. Drawing on an extensive review of the literature on the adoption of agricultural technologies, this article suggests alternative approaches for designing technology adoption studies to make them useful for policy makers. It explores the generic limitations of cross‐sectional adoption studies carried out in small numbers of communities and discusses some problems faced in conducting such studies. Recommendations include the use of sampling approaches that allow data from microstudies to be generalized to higher levels of aggregation, adherence to clearly defined terms that are standardized across studies, and careful examination of the assumptions that often underlie such studies.     

Food and consumer behavior: why the details matter

A growing body of literature now demonstrates the importance of behavioral factors in individual food consumption. However, whether addressing hunger, nutrition, or obesity, food policies are often created to target changes at the aggregate level. These policies ignore such behavioral tools or effects and their potential heterogeneous effects on consumers. In this article, we review the most important results examining food consumption and behavioral economics and provide a thorough discussion of how such tools are now being added to the lexicon of effective policy tools. In addition, we discuss how traditional policy tools that ignore the individual behavioral effects can miss the mark or even backfire. The implication is clear: a thorough understanding of behavioral economics is necessary to create efficient food policy.     

A critical assessment of the political preference function approach in agricultural economics

The policy preference function (ppf ) approach has become popular with economists seeking to explain the origin of government policies. In this paper, a distinction between positive and normative work with the ppf concept is made. Positive work is shown to suffer from a variety of shortcomings including the misspecification of traditional ppfs and the failure to consider the importance of institutions, constraints and the interaction between different commodity policies. These weaknesses are reflected in the counter-intuitive results of a simple ppf model designed to reflect the interaction between the EC's wheat and barley policies. Furthermore, it is demonstrated that ppf weights change as a result of both political preferences and market parameters. Hence, changes in ppf weights cannot be attributed to changes in preferences alone. Tests of the axioms of revealed preference theory are used to demonstrate that even though ppf weights derived for the EC's wheat and barley markets have fluctuated considerably since the early 1970s, we are not able to conclude that there has been a shift in political preferences. The paper concludes with some comments about the use of ppfs in a normative framework. The underlying assumption that policy-makers optimise seems, not surprisingly, often to lead practitioners to the conclusion that observed policies are not so bad after all. Economists should also beware of the tendency to overlook possible differences between the ppf and the social welfare function.     

Interaction effects of targeted agri-environmental payments on non-marketed goods and services under climate change in a mountain region

Targeting of agri-environmental measures (AEMs) is a key to increasing the cost-effectiveness of governmental support for biodiversity conservation and the provision of ecosystem services from agriculture. Existing literature, however, often focuses on single measures without considering that policies are usually bundles of different measures addressing multiple non-marketed goods and services. Thus, interaction effects of a set of policies in a given policy mix may influence the cost-effectiveness of single measures. Recently, Swiss agricultural policy was redesigned using the Tinbergen rule as its basis, i.e., a single measure for each policy goal, including additional targeted direct payments. This facilitates testing for interaction effects of multiple targeted AEMs. Here we use a social-ecological, agent-based modelling framework to assess interaction effects of these agricultural policies while accounting for climate change impacts in our analysis. The results from our case study in a mountain region show that ecosystem service provision increases with targeted payments. However, interaction effects of the different targeted policies affect the provision levels of all goods and services. In particular, changes at the extensive margin, i.e., the total amount of land that is under production, largely determine the amount of ecosystem services provided. Thus, climate change driven productivity increases and policies that keep land in production may substantially support the provision of non-marketed goods and services in marginal agricultural production regions with a high potential for land abandonment. Consequently, the effectiveness of targeted policy measures should also consider changes at the extensive margin and be assessed in the context of bundles or portfolios of different policy measures.     

Agricultural policies and food systems: Priorities for indicator development

Existing indicators of agricultural protection and support were developed primarily to gauge the market and welfare effects of government policies. They have shed light on a wider range of impacts through their use in economic models and empirical analysis. The rising scale of support to agriculture globally, and continued reliance on market distorting policy instruments, make this work as important as ever. Deeper investments are nonetheless needed to address heightened concerns about the spill-over impacts of agricultural policies on the performance of food systems, in particular with respect to food security and nutrition, rural livelihoods, resource use and the environment, and global emissions. A first area for development is improved measures of policies to correct agriculture's externalities. A priority here is to develop a carbon tax equivalent of sectoral mitigation efforts. A second area is to provide a clearer delineation of government spending on private versus public goods. This would make a valuable contribution to a ‘repurposing’ agenda that seeks to identify how agricultural budgets can be spent more effectively, as well as the scope for transferring resources to wider social priorities, such as public health and climate action.     

Impact and implications of price policy and land degradation on agricultural growth in developing countries

In many developing countries, a high proportion of the population resides and works in rural areas. Agriculture is the dominant sector in rural areas and has the greatest concentration of poverty: landless workers, small tenant farmers, and small farm owners. Thus, any development strategy that is directed towards increasing employment and alleviating a country's hunger must concentrate on sustainable agricultural growth. Historically, economic development in most countries has been based on exploitation of natural resources, particularly land resources. Soil erosion and land degradation have been serious worldwide. Due to reasons such as high population pressure on land and limited fossil energy supplies, land degradation is generally more serious in the developing world. Empirical studies show that soil erosion and degradation of agricultural land not only decrease the land productivity but they can also result in major downstream or off-site damage which may be several times that of on-site damage. In promoting industrialization, governments of many developing countries adopt a package of price and other policies that reduce agricultural production incentives and encourage a flow of resources out of agriculture. Increasing evidence shows that these policies cause a substantial efficiency or social welfare loss, and a great loss in foreign exchange earnings. In addition, a World Bank study on the effect of price distortions on economic growth rates concluded that neither rich resource endowments, nor a high stage of economic development, nor privatization are able to make up the adverse effects caused by high price distortions. This analysis is primarily concerned with identifying the factors that determine the agricultural production growth rate and in testing the effects these factors have on agricultural growth in developing countries. Specifically, this study involves statistical estimation of an aggregate agricultural growth function based on cross-country data for 28 developing countries. Special attention is devoted to land degradation and agricultural pricing policy, and to the policy implications resulting from the effects these variables have on agricultural and food production growth. The overall results of this study show that price distortions in the economy and land degradation had statistically significant negative impacts while the change in arable and permanent land was positively related to the growth of agricultural production and food production in 28 developing countries from 1971 to 1980. These results emphasize the importance of ‘getting prices right’ and implementation of sustainable land and water management practices if future growth in food and agricultural output is to be realized and sustained in developing countries.     

Towards a theory of policy timing*

The article presents a theory of policy timing that relies on uncertainty and transaction costs to explain the optimal timing and duration of policy reforms. Delaying reforms resolves some uncertainty by gaining valuable information and saves transaction costs. Implementing reforms without waiting increases welfare by adjusting domestic policies to changed market parameters. Optimal policy timing is found by balancing the trade‐off between delaying reforms and implementing reforms without waiting. Our theory offers an explanation of why countries differ with respect to the length of their policy reforms and why applied studies often judge agricultural policies to be inefficient when actually they may not be.     

A model of shifting cultivation: can soil conservation reduce deforestation?

Shifting cultivators manage soil not only by adjusting soil use on already‐cleared lands, as in continuous cultivation, but also by clearing forests to obtain new fertile soils. This study examines the crucial link between on‐farm soil conservation and deforestation in shifting cultivation by modeling forest clearing as an investment in soil for a private farmer. More generally, by doing so the study attempts to integrate deforestation and soil conservation models which have been separately developed in the literature. Our policy goal is to arrest tropical deforestation—as destruction of global commons—caused by land degradation in shifting cultivation while improving the well‐being of poor shifting cultivators. Our integrated approach enables joint policy analyses of deforestation and land degradation. Three welfare‐enhancing policies are considered. The first is agricultural and nonagricultural subsidies affecting farm and nonfarm income opportunities. The second is fiscal and tenure policies affecting discount rates. Our question is whether the link between forest clearing and soil fertility alters the outcomes of these two standard macroeconomic policies commonly found in the literature. The third policy (or program) is various soil conservation measures affecting soil regeneration and erosivity on already‐cleared lands. This article examines a very important question which has received little attention in previous theoretical works: can soil conservation reduce deforestation? This study confirms anti‐deforestation effects of the promotion of nonfarming activities—a common and often emphasized finding in previous works—among shifting cultivators. More importantly, it also demonstrates that improving various soil conservation measures not only discourages forest clearing among shifting cultivators but also tends to have greater effects on forest protection than promoting nonfarming activities. Contrarily, agricultural price subsidy or technological progress gives rise to the opposite outcome, and lowering the farmer's discount rate or improving tenure security encourages him/her to clear more forests just to accumulate soil.     

AGRICULTURAL POLICY AND REMOTE RURAL AREAS

This paper examines the interface between agricultural policy and other planning policies affecting development and change in rural areas with specific reference to one remote rural area of Britain. Differences between conventional agricultural policy approaches and planning approaches to rural problems are examined in the context of the policy instruments that have affected the rural economy of Orkney. It is suggested that the policies are not entirely congruent and that the economic and social costs of pursuing sectional and contradictory policies may be considerable.     

EVALUATION OF THE EFFICIENCY OF RESOURCE USE ON FARMS AND THE WELFARE OF FARM PEOPLE

Studies evaluating efficiency of resource use on farms and farmer welfare have commonly failed to specify the precise nature of problems often described in terms such as 'low-income'. Hence superior, alternative welfare and resource use positions, of interest to the policy formulator, are inadequately specified. Additionally, criteria used in these studies have often been invalid or inappropriate. This paper examines the theoretical and operational bases of efficiency and welfare criteria.     

Policy recommendations for enabling transition towards sustainable agriculture in India

Aligning existing agricultural polices with UN-Sustainable Development Goals is imperative for the transition towards a cleaner and planet friendly food production, especially for a geographically and demographically diverse country like India. In this context, the present study focuses on ascertaining the major social and environmental challenges affecting agriculture in India, while evaluating the potential of efficient policy restructure in boosting growth within this sector. The methodology incorporates a quantitative assessment of social, ecological and economic indicators of agricultural sustainability in India, coupled with a co-relation analysis between several nutrition and land-based indicators for leading agriculture states across the country. The results highlight that despite attaining sufficiency in terms of food production, access to food by all in the country remains a major challenge along with incoherence between certain Sustainable Development Goals (SDGs) indicators and their corresponding data values. Furthermore, a critical analysis of operational as well as recommended agriculture and farmer welfare policies indicate that formulation of an overarching policy influencing sustainable management of agricultural systems, combined with proper implementation of social welfare schemes, would lead to the timely realisation of SDG 1 (no poverty), SDG 2 (zero hunger), and SDG 3 (good health and well-being) in India. Consequently, an umbrella policy (National Policy on Eco-Agri-Food Systems) has been proposed by authors for sustainable management of the country’s entire agricultural value chain. Recommendations related to agricultural waste management and adoption of planetary healthy diets have also been suggested for enabling the smooth transition of agriculture as a sustainable enterprise in India.     

Effect of soil heterogeneity on the welfare economics of biofuel policies

Biofuel policies (blend mandate or tax credit) have impacts on food and energy prices, and on land-use. The magnitude of these effects depends on the market response to price, and thus on the agricultural supply curve, which, in turn, depends on the land availability (quantity and agronomic quality) and relative prices. To understand these relationships, we develop a theoretical framework with an explicit representation of land heterogeneity. The elasticity of the supply curve is shown to be non-constant, depending on land heterogeneity and the availability of land for agricultural expansion. This influences the welfare economics of biofuels policies, and the possible carbon leakage in land and fuel markets. We emphasize that the impacts of biofuel policies on welfare and land-use change depend strongly on the potential development of the agricultural sector in terms of expansion and intensification, and not only on its current size.     

A Note on Evaluating Agricultural Policy in the Presence of Health Care Cost Externalities: Dairy Production Quotas and Coronary Heart Disease Costs

The purpose of this note is to illustrate that the health cost externalities related to food consumption are significant and can be large enough to have implications for the economic evaluation of agriculture and food policy. The individual dietary intake of fats can affect the probability of being afflicted with coronary eart disease (CHD). While fat consumption is primarily a private decision, much of the annual $7.4 billion cost of CHD in Canada is borne socially through publicly funded health care, disability and pension plans. This note calculates the per-unit disease cost externality from saturated fatty acid consumption in Canada to be $5.07 per kilogram of saturated fatty acid. To demonstrate the importance for policy analysis, the disease cost externality was incorporated in a conventional welfare analysis of dairy production quotas in Canada. The externality was large enough to make the restrictive production quotas no further from social optimum than the competitive equilibrium. The importance of the disease cost externality suggests much more research is needed to incorporate these and other health cost externalities into many types of agricultural policy analysis.     

Farmers' adoption of ecological practices: A systematic literature map

Understanding the factors associated with adoption of ecological farming practices is a well-established topic of interest to agricultural economists. As the transition to more sustainable agriculture has become a policy priority for the European Union, broad and balanced reviews of this literature are important. We develop a systematic map of quantitative observational studies which describes the ecological practice(s) adopted, the frequency of inclusion and significance of a range of independent variables, and how the dependent variable is measured. We also conduct a quality assessment. We find that while socio-demographic variables and farm structural variables are frequently included, they were insignificant more often than they were significant. For behavioural factors we find stronger evidence for the importance of cognitive or attitudinal variables compared to dispositional attitudinal variables. We also find a growing interest in social factors which will be valuable for researchers to explore further and reflect on the policy implications of our findings.     

How did post-2000 agricultural policy changes in Turkey affect farmers? – A focus group evaluation

The aim of this study is to provide an analysis on how producers have been affected by the decisions made in 2000 in the agricultural sector. Data collected from the focus group discussions was compared to the agricultural policy effects on Antalya Burdur and Isparta provinces. The participants were primarily selected from a list of state institutions and organizations, and included representatives from cooperatives and producer organizations that are engaged in the agricultural sector and/or bring service to rural areas. The discussion revealed that small-scale farmers were unable to use the support provided by the policies; as a consequence, many of them were unable to cultivate their land and had to migrate. In general, the participants stated that significant social and economic changes did occur in rural areas, however they emphasized that these changes were to the detriment of small-scale farmers and instead favored farmers operating on large scale.     

Volatility,agricultural risk,and household poverty: micro‐evidence from randomized control trials

Households in developing countries are often highly exposed to risk and despite households’ risk strategies negative shocks often result in substantial welfare losses. Given the possibility that weather risks in particular might be further increasing, there is renewed policy attention on improving households’ risk management strategies. This article provides an overview of insights learned from recent randomized control trials on predictions coming out of the theoretical literature on households’ ex ante risk management. It reveals new puzzles and questions regarding households’ inter‐temporal decision making under risk, and draws lessons for effective policy design.     

Why do we need to integrate farmer decision making and wildlife models for policy evaluation?

Environmental and agricultural policy instruments cause changes in land-use which in turn affect habitat quality and availability for a range of species. These policies often have wildlife or biodiversity goals, but in many cases they are ineffective. The low effectiveness and the emergence of unwanted side effects of environmental and agricultural policies are caused by over-simplistic assumptions in the design of policy instruments as well as difficulties with predicting behaviours of policy subjects. When considering wildlife in agricultural landscapes, policy's performance depends both on human (farmers) actions, which the policies aim to affect, and wildlife responses to land-use and management changes imposed by farmers. Thus, in order to design effective agri-environmental policies, detailed ex-ante assessments of both of these aspects are necessary. Due to the restrictive assumptions and technical limitations, traditional agricultural economic and ecological models fall short in terms of predictions of impacts of agri-environmental measures. The feedback situation between policy, human behaviour and ecological systems behaviour can confound these approaches, which do not take systems complexity into account. Therefore, a solution that integrates both feedback interactions and the differing scales at which these interactions take place is needed. For this, we suggest developing integrated policy assessment tools comprising of simulated farmer decision making, on-farm land-use and wildlife responses in the form of spatially explicit, dynamically connected agent-based models. Although complex and necessitating true inter-disciplinarity, these approaches have matured to the point where this endeavour is now feasible.