Modeling and Extrapolating Wheat Producer Support Using Income and Other Factors

Using wheat market support data from 55 countries for 1961–2011 from the World Bank Agricultural Distortion database, we develop a fixed effect model that shows a more complicated, nonlinear relationship between income and wheat support and its components than previously realised. We find that income generally has a greater effect on border market price support than on domestic price support. Moreover, the difference between these types of support is greater for net importers than for net exporters and has increased with the URAA or WTO accession. Holding other variables constant, the wheat support level of China, driven mainly by border market price support, is projected to rise with future income growth. Meanwhile, Japan is projected to maintain its high level of support, while the US and EU are projected to maintain their lower levels of support. These results are relevant in the context of multilateral trade negotiations, arguing against a narrow focus on past or current policy profiles and for long‐run analyses that might mistakenly rest on the inconsistent assumptions of constant agricultural policies against the backdrop of rising incomes.     

Efficient income redistribution for a small country using optimal combined instruments

In this paper I improve Gardner's surplus transformation curve framework by assuming that governments are able to vary many policy instruments simultaneously instead of only one. I use my framework to find the combination of the currently used instruments which provides the most efficient income redistribution for the Austrian bread grains market. Comparing the most efficient policy with the actual policy reveals that 464 × 10⁶ Austrian shillings were wasted. I theoretically compare for a small country the transfer efficiency of every possible pair of the four major agricultural policy instruments: floor price, (production) quota, co-responsibility levy, and deficiency payments. Without considering the marginal cost of public funds (MCF), deficiency payments cum quota (equal to a fully decoupled direct income support) is the most efficient policy, succeeded by floor price cum quota, and floor price cum deficiency payments. If the MCF is taken into account, the ranking crucially depends on the market parameters, the transfer level, and the value of the MCF. For the Austrian bread grains market, I empirically demonstrate that given the present support level, a fully decoupled direct income support redistributes income most efficiently as long as the MCF is lower than 1.17. Beyond this value a floor price cum quota policy becomes more efficient. A floor price cum deficiency payments policy is never superior to the floor price cum quota.     

Intervention bias in agricultural policy

This paper re-examines the motivation for government intervention in agriculture to support farm prices and incomes. A model is outlined in which the government has a preference for higher farm incomes but fails to provide farmers with the socially optimal level of price support, even when one accepts the government's income redistribution goals as a valid reflection of social preference. It is shown that agricultural policy has an intervention bias: government price supports generally are higher than would be socially optimal. The source of the intervention bias is a time inconsistency in optimal agricultural policy formation, caused by the government's inability to precommit to a rule for setting future price support levels. Simulation results indicate that in some circumstances the intervention bias in agricultural policy can be substantial.     

A FORMAL APPROACH TO AGRICULTURAL POLICY

Two of the major objectives of UK agricultural policy are the need to save imports and to effect a transfer of income to the farm sector. The paper presents a way of comparing the cost by alternative means of price support. The wheat market is used as an example. The deficiency payment policy is seen to be more efficient as a means of income transfer than a variable levy-threshold price scheme or a minimum import price programme, though the main difference is in the incidence of the burden. The minimum import price is inefficient relative to the other two policies if the objective is to save foreign-exchange. When the effects on markets using wheat us an input item are considered, the deficiency payment policy becomes far superior to the others in terms of cost. It is pointed out that a single policy cannot achieve both objectives satisfactorily, and a possible solution using a mixed policy is suggested.     

China’s Agricultural Policy Transition: Impacts of Recent Reforms and Future Scenarios

This article reviews recent developments in China’s agricultural domestic support policy, especially the transition from taxing farmers and agriculture to providing direct subsidies to grain production and purchased inputs. A model‐based quantitative analysis on the effects of these policy changes is presented. Simulation results suggest that recent policy changes have achieved the declared policy goals of increasing grain production and boosting farm income. Much of the increase in grain production and farm income can be attributed to higher per unit return to arable land, land reallocation to grain production and extra agricultural employment triggered by the policy changes. Based on the assumption that China’s public assistance to agriculture and farmers will continue and rise, two hypothetical future scenarios are simulated. Using all the support permitted under WTO de minimis limits with existing instruments, China’s policy will increase grain production, change trade patterns seemingly contrary to China’s comparative advantage, increase rural employment and significantly increase farm income (by more than 12%). If, however, decoupled instruments are applied to raise China’s agricultural domestic support to the same level, China’s agricultural production and trade will remain unchanged, rural employment remain stable, but farm income will be increased by nearly 15%.     

Drivers of food price in China: A heterogeneous panel SVAR approach

In this paper, we examine the effects of shocks in agricultural output, production material price and production price on China's food price using panel data of 26 provinces for the period 2004 Q1–2015 Q4. Employing a heterogeneous panel structural vector autoregressive (SVAR) model, we identify the causal flows between the endogenous variables via directed acyclic graphs method. The empirical results from impulse response functions and variance decompositions suggest sizeable cross‐province variations. The main driving force of food price is the price inertia shock, rather than the agricultural output or the vertical chain of price transmission shocks. The findings support the view that price expectation is the key shifter of food price. Moreover, the shocks in the vertical chain of price transmission are only weakly linked to food price. Our findings are robust to an alternative panel SVAR model identified via Cholesky decomposition.     

Fertilizer demand in Greece

Limiting fertilizer use is becoming an important policy objective world-wide. However, the debate on appropriate policy measures is far from settled and evidence on fertilizer demand elasticities is still insufficient. Past studies on fertilizer demand leave several methodological and empirical issues open. This paper aims to contribute to the debate on the methodology of estimating fertilizer demand using single-equation methods. Dynamic aspects are also considered using error-correction modelling methodology and cointegration techniques. The model is applied using data front Greece. Short-run and long-run price elasticities of fertilizer demand with respect to own price and to output prices show significant response to price changes and the adjustment coefficient of fertilizer use to the error-correction term was found to be fairly rapid. The main policy conclusion of the paper is that reducing agricultural support may be an alternative and, perhaps, more effective way of reducing fertilizer demand than increasing fertilizer prices.     

最低收购价政策调整对我国粮食安全的影响以稻谷为例

目的 最低收购价政策实施以来,在稳粮价、促生产、保粮安的同时,也产生了显著的负面影响,探索以市场机制为核心的粮食价格支持政策改革势在必行。方法 文章以稻谷为例,通过构建局部均衡模型,模拟逐渐下调最低收购价、取消最低收购价、取消最低收购价并大幅增加农业补贴等方案对我国稻谷的产量、总消费、库存和净进口等方面的影响,进而探究最低收购价政策调整对我国粮食安全的影响。结果 （1）下调稻谷最低收购价,对稻谷市场价格、总产量和总消费的影响较小,而对库存和净进口量的影响较大;（2）取消最低收购价,虽然能大幅度减小国内外差价、库存量和进口量,但短期内也会显著减少稻谷产量,对我国的粮食供给安全带来了巨大冲击;（3）取消稻谷最低收购价,并大幅度提高了农业补贴后,稻谷总产量下降水平明显减少,既解决了托市收购带来的负面影响,也降低了取消托市收购对粮食供给安全的冲击。结论 最低收购价政策的支持效应显著,为充分保障国内粮食安全,在推行粮食市场化改革时,应首先考虑小幅度下调最低收购价,而不是一次性取消最低收购价政策;同时,要配套相应的补贴政策,优化农业补贴结构,来保障粮农的种植积极性。     

THE EFFECT OF PRICE SUPPORT POLICIES ON AGRICULTURAL INVESTMENT,EMPLOYMENT, FARM INCOMES AND LAND VALUES IN THE U.K.

Agricultural price policy has a major impact on the input markets as well as the output markets and a model is developed to analyse the effects of changes in support levels on U.K. agricultural employment, earnings, investment and land prices. This paper describes the specification, estimation and evaluation of the model and simulates the effects of a one per cent increase in support prices. The main conclusions are that net investment would increase in the years following the rise by a maximum in the second year of £12m and by a cumulative total of £44m (representing an increase of about 0.4 per cent in the capital stock). Employment on the other hand, while rising at first, would subsequently fall to almost one per cent below its original level, and earnings of hired labour also fall slightly. Net farm income increases by around 10 per cent and this is capitalised into a similar increase in land values.     

Rural–urban migration and agricultural productivity: the case of Senegal

This paper explores the relationship between agricultural productivity and rural-urban migration by developing an econometric model and applying it to the case of Senegal. Country level data is used covering the years 1961-1996. Policy implications of reducing rural-urban migration using agricultural output elasticities are developed. The findings support the hypothesis that rural-urban migration is a positive function of the ratio of urban per capita income to rural per capita income. Moreover, the results support a policy aimed at reducing rural-urban migration flows through increases in per capita earnings derived from increased agricultural investment.     

PROBLEMS OF AGRICULTURAL POLICY IN EUROPE–A DANISH POINT OF VIEW

Recent developments in the agricultural situation of Western Europe has led to inceased self-sufficiency in importing countries and stagnation in the world trade of agricultural products. An examination is made of the effects of these developments on Danish agriculture and the Danish economy, which has been subject to a very rapid change of structure. Characteristics of the Danish agricultural support policy are commented upon as well as the issue of price support versus income support in relation to the objectives of greater efficiency and improved farm structure. The importance of other measures is emphasised, including action to impove the mobility of agricultural manpower. On the basis of past experience some comments are finally made about the enlargement of E.E.C. and its possible effects on the world trade, on the situation of overseas producers, including the developing countries, and possible ways of reducing the difficulties.     

THE OUTPUT RESPONSE OF THE RISK AVERSE FIRM: SOME COMPARATIVE STATICS FOR AGRICULTURAL POLICY

The policy conclusions which stem from the deterministic theory of the competitive firm are well known and unambiguous. However, once product price is regarded as stochastic, there exist several theories upon which to base an analysis of the impact of agricultural policy on the output response of the firm. The paper considers four models from the safety-first and expected utility frameworks. These models produce a diverse set of comparative statics results which in many instances conflict with those of the deterministic model. Hence, the paper concludes that it is important in agricultural policy analysis that greater consideration by given to the links between risk aversion, policy-induced uncertainty and output response than is conventionally the case.     

THE COMMON AGRICULTURAL POLICY: THE IMPLICATIONS FOR ITALIAN AGRICULTURE

The relative importance of Italian agriculture in the EC, both in terms of net value added and of employment, has never been matched by a comparable impact on the CAP policymaking process. Mediterranean agricultural products in particular have been less favoured by the overwhelming common policy instrument of product price support, which has also a negative impact on the economy as a whole. The most relevant effects of the CAP are reviewed: the impact on resource allocation, including international income transfers, and the effects on the environment, as well as the effects on interpersonal income distribution. An evaluation of CAP is then made from different points of view: the likely perspective of present Italian farmers, a national perspective and an overall perspective, including the interests of non EC countries and future generations. Lower and more balanced price support, together with higher concern for structural and environmental policies especially in less favoured areas, are advocated.     

The economics of coupled farm subsidies under costly and imperfect enforcement

This study relaxes the assumption of perfect and costless policy enforcement found in traditional agricultural policy analysis and introduces enforcement costs and cheating into the economic analysis of output subsidies. Policy design and implementation is modeled in this paper as a sequential game between the regulator who decides on the level of intervention, an enforcement agency that determines the level of policy enforcement, and the farmer who makes the production and cheating decisions. Analytical results show that farmer compliance is not the natural outcome of self‐interest and complete deterrence of cheating is not economically efficient. The analysis also shows that enforcement costs and cheating change the welfare effects of output subsidies, the efficiency of the policy instrument in redistributing income, the level of government intervention that transfers a given surplus to agricultural producers, the socially optimal income redistribution, and the social welfare from intervention.     

WORLD AGRICULTURAL TRADE AND THE NEW GATT ROUND

World agricultural markets are grossly imbalanced with supplies running well ahead of demand at current depressed world prices. At the heart of the problem is the high protection given to agriculture in many OECD countries. In particular, price supports to farmers are too high and incentives to maintain or expand production too great. The success of the Uruguay Round in achieving greater liberalisation of trade in agriculture will depend on the willingness of participating governments to undertake significant reforms of domestic agricultural policies, with the aim of reducing overall protection to agriculture and switching support measures away from direct producer price support to income aid for specific disadvantaged producers. In some countries, this notion has run up against complex politico-social and structural objectives, which prevent these countries from agreeing to any significant price reduction. Price support policies, however, have been ineffective in the long run in retarding the outmigration of labour from agriculture. Measures involving only quantitative controls on production will be useful in the short run to reduce surpluses but will not solve the underlying problems which the new GATT Round must address.     

The Calculation of returns to research in distorted markets: Comment

In a recent article, Oehmke reported that a high internal rate of return for investment in research when the interaction between research and price policy costs was disregarded could become very low or even negative when the effects of research on the costs of price policy were considered. In this paper, the social returns from research in the presence of the price policies considered by Oehmke are reexamined using a simple geometric approach. The analysis suggests that an output subsidy in a small importing economy, an output subsidy in a closed economy, and a target price in a large exporting economy will on Oehmke's assumptions - cause only small reductions in the internal rate of return from investment in research. This implies that the apparent underinvestment by governments in agricultural research cannot be explained away by a large upward bias, known to governments, in measured rates of return due to failure to account for interactions between research and the costs of price policy measures.     

Agricultural Supply Response: A Survey

This paper surveys the literature on agricultural supply response to prices in developing countries. Empirical estimates of elasticities depend both on the methodology adopted and on country-specific factors relating to technology, economic structure and macro constraints. The paper seeks to establish some general conclusions on supply responsiveness within these limitations. Supply response to output prices at the aggregate and at the crop levels is considered first. Crop-specific acreage elasticities range between zero and 0.8 in the short run while long-run elasticities tend to be higher — between 0.3 and 1.2. Yield elasticities are smaller and less stable than acreage elasticities. Clearly, inter-crop pricing can be relied upon to effect shifts in the commodity composition of agricultural output. Evidence also suggests that supply elasticities vary systematically with such factors as price and yield risks, multiple-cropping, the importance of the crop, farm incomes, farm size, tenancy and literacy. The most controversial and important aspect of supply response is the effect on aggregate agricultural output of agriculture's terms of trade. Conventional time-series estimates range from 0.1 to 0.3. A major cross-country study reports an aggregate elasticity as high as 1.66. It is argued that cross-country estimates are apt to exaggerate aggregate responsiveness while time-series studies underestimate it somewhat. For LDCs, a tentative range of 0.4 to 0.5 seems plausible. Hence, the distributive effects of the terms of trade are likely to be more significant than the allocative effects. Asian evidence shows that only a third of the inter-country differences in fertilizer use can be attributed to fertilizer price policies. Provided new technologies and infrastructure are in place, fertilizer subsidies can help in technology diffusion and in overcoming credit constraints. The choice between price supports and input subsidies will depend on a variety of country- or situation-specific factors. Nevertheless, a significant general factor favoring price supports is that they can more easily be coupled with price stabilization goals than input subsidies. Though sparse, the available evidence on the response of marketed surplus suggests that price policy is not a reliable instrument for regulating inter-sectoral trade.     

Does oligopsony power matter in price support policy design? Empirical evidence from the Thai Jasmine rice market

In the oligopsony market, farmers may receive low prices and policy analysis assuming perfect competition can yield serious bias results. In this paper, we estimate oligopsony power between processors and farmers and evaluate the welfare impact of the paddy pledging program (PPP), a generous price support program in the Thai Jasmine rice market, with an imperfect competition model. We develop a model that consists of rice supply equation and derived demand equation. We then simultaneously estimate these equations using system estimation methods to recover oligopsony power parameters. Finally, we use these parameters to assess the welfare impact of the price support program. Using annual panel data running from crop marketing year 2001/2002–2015/2016 and exploiting the institutional feature of the PPP, we find strong evidence of some oligopsony power, a moderate level of oligopsony price distortion, and a negative relationship between price support and oligopsony power. We also find that the PPP is inefficient but effective in income redistribution. Moreover, the program benefits both farmers and consumers. With better policymaking decisions, the PPP can be efficient by setting a suitable support price. Therefore, our results show that in the case of the Thai Jasmine rice market, the generally accepted “wisdom” about agricultural price support policy does not necessarily hold, and price support can be designed to improve the efficiency of the market.     

Agriculture’s Inter‐industry Linkages,Aggregation Bias and Rural Policy Reforms

As agricultural policy reform and its effects have become increasingly territorialised, analyses that attempt to explain or predict impacts need to be both more localised and to identify spill‐over effects. Local and regional general equilibrium approaches have become increasingly popular because they can extend predictions of policy shocks obtainable from partial equilibrium sectoral models to identify the wider effects. However, agriculture is usually described as a single sector in input–output accounts, whereas policy shocks that affect constituent commodities with differential impacts will have inter‐industry effects that are different to those implied by average input–output coefficients. Regionalisation of aggregated input–output tables adds further to these difficulties. The objective of this study is to develop a practical method for dealing with these problems. It describes the theoretical basis of aggregation bias and shows how it can be measured, in two contrasting case study regions in the UK and Sweden. Having established that this is a significant issue, a simple but effective procedure is demonstrated, based on additional information on variable costs, which transforms policy shocks from a direct change in agricultural output to that transmitted to the suppliers of inputs. This method provides an impact close to that which could be calculated if the general equilibrium system had indeed been disaggregated, and supports use of this approach in impact studies where insufficient time or funding are available for complete disaggregation of an agricultural sector’s regional accounts.     

农业支持政策结构变迁的国际比较分析

[目的]在多哈回合谈判再次要求削减黄箱政策背景下,通过量化比较分析典型发达国家和地区在多哈回合谈判前后农业支持政策结构变化趋势,为中国农业供给侧结构性改革背景下农业支持政策改革提供方向借鉴。[方法]使用OECD农业政策评价指标对比分析欧盟、美国、日本和中国4个国家和地区农业支持力度、支持结构的变化趋势。[结果]发达国家和地区积极创新农业支持手段以替代市场价格支持,加快农业支持政策的市场化转变,强调支持政策与资源环境保护的交互作用,注重对农业知识和创新体系的资金投入。[结论]我国应持续加大对农业的支持力度,逐渐减少市场价格支持比重,创新支持工具并强化政策间的协调性,优化一般服务支持结构,加大对农业知识和创新体系的财政投入。