Food prices and the efficiency of public intervention: the case of the public distribution system in India

As public intervention is a pervasive influence on food prices, this paper asks whether and how the inefficiency of state institutions matters to food prices. In the context of the wheat subsidy scheme in India, the paper models the implications of quality differences between public and private grain supply. As both are procured at similar prices, the lower quality of public grain marks the inefficiency of government operations. The paper proposes and empirically validates a method to test for demand switches that occur as a result of quality preference. As a result, a reduction in food subsidies increases food prices and hurts the poor even when they are not major recipients of the subsidy. This seeming paradox is contingent on the inefficiency of public interventions. Thus, the outcome will be different if the reduction in food subsidy were to be accompanied by reforms in the associated state agencies.     

Weighing what’s practical: proxy means tests for targeting food subsidies in Egypt

Despite achieving a significant cost reduction over the past two decades, the absolute cost of food subsidies in Egypt is still high relative to the benefits received by the poor. There is scope for better targeting these food subsidies, in particular for targeting cooking oil and sugar ration cards, both because reforms in this area are perceived to be far less politically sensitive than adjusting subsidy policy for bread and wheat flour and because higher income groups presently receive a significant percentage of the benefits. Targeting the high-subsidy green ration cards to the poor and the low-subsidy red ration cards to the nonpoor will require identification of both poor and nonpoor households. An International Food Policy Research Institute research team in Egypt, in collaboration with the Egyptian Ministry of Trade and Supply, developed a proxy means test for targeting ration cards. The paper describes the process of moving from the optimal income-predicting model to the final model that was both administratively and politically feasible. An ex-ante evaluation of the levels of accuracy of the proxy means testing model indicates that the model performs quite well in predicting the needy and nonneedy households. An effective and full implementation of this targeting method would increase the equity in the ration card food subsidy system, and, at the same time, the total budgetary costs of rationed food subsidies would decline. Moreover, the experience gained under this reform would facilitate targeting future social interventions to reduce and prevent poverty in Egypt.     

The political economy of food subsidy reform: the case of Egypt

This paper examines the political economy of food subsidy reform efforts in Egypt. Egypt provides a case of a country with a large food subsidy program that has been relatively effective as a social safety net, but a program that is also expensive and poorly targeted to the needy. Policy discussions about strategies to improve the system’s performance run into the extreme political sensitivity of the issue of food subsidies in Egypt. Food subsidies are perceived to be important in promoting political stability and providing some legitimacy to a political system where civil liberties are limited. Egypt therefore illustrates the dilemmas facing policymakers and others contemplating food subsidy reform in developing countries where there are concerns that reform may spark political unrest. This paper argues that even in cases where food subsidy reform is a highly politicized issue, there are still a number of pragmatic policy steps that can be taken that meet the twin goals of reforming the system in ways that better target the poor while functioning more efficiently.     

Food subsidies in Egypt: reform options,distribution and welfare

Egypt's food subsidies (in 1996/97 5.5 percent of government expenditures) cover rationed cooking oil and sugar (23 percent of subsidy cost) and unrationed bread and flour (77 percent). The subsidies enhance food security but are nontargeted and have substantial leakages. This paper uses a Computable General Equilibrium (CGE) model to simulate the short-run effects of alternative food-subsidy scenarios. Government savings from reduced spending finance uniform cuts in direct tax rates across all household types. The model uses a 1996/97 database with detailed household information. The targeting of cooking oil and sugar subsidies to “the needy” (the bottom two quintiles in rural and urban areas) has a progressive effect while elimination of this subsidy is regressive. Disaggregated household consumption changes are small (±0.3 percent). The targeting of all food subsidies is pro-needy, partly due to important indirect effects. The consumption of the needy increases by 0.5 percent with little change for the nonneedy. Food subsidy elimination is regressive: the needy suffer a consumption loss of 1.1 percent. If the government savings instead are transferred to the needy, the impact is reversed: consumption increases by 4.2 percent for needy households while the nonneedy register a small loss. The overall policy implication is that food subsidy reform can benefit the needy with at worst only a modest negative impact on the nonneedy. If the subsidy is entirely eliminated, targeted government programs would be necessary to protect the needy from the negative impact.     

Egypt's food subsidy policy: Lessons and options

Government intervention in Egypt's food subsidy policy is highly complex. An evaluation of the economic effects of the system and their impact on various factors has been undertaken by IFPRI in a series of studies in collaboration with Egyptian institutes. This article reports the major generalized conclusions from these studies. Emphasis is given to summarizing results of a quantitative analytical framework which was built upon these studies and used for the evaluation of alternative scenarios for the food subsidy system in the 1980s.     

政府补贴对再制造闭环供应链的影响研究

本文在考虑消费者支付意愿存在显著差异、消费者和制造商存在不同政府补贴分配比例下,建立再制造博弈模型,探讨政府补贴再制造品对产品价格、需求以及对消费者、制造商、社会总收益的影响。结论表明,政府补贴有利于促进再制造品的需求,消费者剩余效用、制造商收益以及社会总收益都增加;政府补贴时应不允许制造商涨价,在考虑制造商积极性下尽量补贴给消费者;提高消费者环保意识才是促进再制造的根本途径。     

An improved maize marketing system for African countries: the case of Zimbabwe

This article proposes a system for Zimbabwe which retains government control of national stocks and enables the parastatal marketing system to stabilize prices, at the same time ensuring a more rational delivery system in rural areas with prices reflecting storage and transport costs. The local population is encouraged to fulfill local needs, thus avoiding the expense of directing all marketing and processing through the urban areas. A more localized system will also have greater multiplier effects. Zimbabwe's maize marketing system is used to show how this system could be modified with benefits to rural consumers, producers and government. Data suggest there is little market exploitation: price differentials between markts reflect transport costs, returns on storage are reasonable, and voluntary procurement operations are usually able to stabilize prices. Zoning, movement restrictions and compulsory procurement have been shown to destabilize food markets; prices between markets are higher in periods of strict control than when marketing is relatively free. Controlled marketing answers a real political and economic need in Zimbabwe. Existing public food marketing agencies are not inherently inefficient. While stabilizing maize supply, there are important advantages in announcing preplanting prices, but any trade in maize only takes place after price setting. It is unlikely that there would be both imports and exports in any 1 year, except when previous contracts are being fulfilled. 2 policy options are available to cover anticipated periods of insufficient national maize production: the maintenance of a strategic reserve; and importation of maize to cover supply shortfalls. Single-channel marketing should be replaced by an internal free market operating between floor and ceiling prices by supply manipulation to prevent excessive producer and consumer welfare fluctuations. This system would be more efficient and have beneficial effects on development. It is more equitable for the rural poor, and result in greater stability of producer incomes, more reliable food supplies, higher producer prices and the release of public funds.     

Farm subsidies and obesity in the United States: National evidence and international comparisons

Many commentators have claimed that farm subsidies have contributed significantly to the “obesity epidemic” by making fattening foods relatively cheap and abundant. But U.S. farm policies have generally small and mixed effects on farm commodity prices, which in turn have even smaller and still mixed effects on the relative prices of more- and less-fattening foods. Other factors have had much more influence on reducing the farm prices of food commodities and the consumer prices of food such that any effects of U.S. farm policies on U.S. obesity patterns must have been negligible. Moreover, while many arguments can be made for changing U.S. farm subsidies, even entirely eliminating the current programs could not be expected to have a significant influence on obesity rates. International evidence reinforces this finding. The countries that support their farmers most strongly tend to have relatively low obesity rates. In these countries the main support for farmers comes through trade barriers and higher consumer prices, which—like U.S. policies for sugar, dairy, orange juice, and beef—discourage consumption and reduce obesity. In contrast with agricultural subsidies, agricultural R&D has had a significant effect in the past on the relative price of food commodities and food, and has the potential to influence obesity patterns in the future, but R&D policy is a very blunt instrument for pursuing public health policy objectives.     

Local impacts of a global crisis: Food price transmission,consumer welfare and poverty in Ghana

This paper takes a local perspective on global food price shocks by analyzing food price transmission between regional markets in Ghana. It also assesses the impacts of food price increases on various household groups. Taking the 2007–2008 global food crisis as an example, we show that prices for domestic grain products are highly correlated with world market prices. This is true both for products for which Ghana is highly import-dependent (e.g., rice) and the products for which Ghana is self-sufficient (e.g., maize). The econometric results also show that price transmission is high between regional producer markets and markets located in the country’s largest cities, and the distance between producer and consumer markets and the size of consumer markets matter in explaining the price transmission. The welfare analysis for households as consumers shows that the effect of world food prices appears relatively modest for the country as a whole due to relatively diverse consumption patterns within country. However, the national average hides important regional differences, both between regions and within different income groups. We find that the poorest of the poor—particularly those living in the urban areas—are hardest hit by high food prices. The negative effect of the food crisis is particularly strong in northern Ghana. The main explanations for this regional variation in the price effect is the different consumption patterns and much lower per capita income levels in the North of Ghana compared to other regions in the country.     

规模经济对逆向物流中政府行为的影响研究——基于三阶段博弈的策略分析

逆向物流中企业规模经济效益可以有效促进政府补贴行为。文章建立了基于企业规模效应的三阶段博弈模型,确定了企业最优回收数量和存在规模经济效益时的政府最优补贴率,分别讨论了政府补贴率与企业投资水平及规模经济效益的关系。结论显示:政府补贴可以降低企业投资门槛,从而提高企业投资新设备的积极性;企业规模经济效应会显著提高政府补贴产生的环境保护效益,促进社会总效益达到最优化。     

A welfare measure of consumer vulnerability to rising prices of food imports in the UAE

The recent and expected continuing rise in food prices has re-ignited concern and discussion in the United Arab Emirates about the country’s vulnerability to food supply shocks. Defining vulnerability as the compensating variation relative to household income, we find that although UAE households in the lowest income quintile spend on food on average less than a quarter of what households in the highest income quintile spend, the former are 3.5 times more vulnerable to rising prices of food imports than the latter.     

The rise of supermarkets and changing expenditure patterns of poor rural households case study in the Transkei area,South Africa

Since the late 1990s, the number of supermarkets in South Africa has been steadily growing. Due to a more effective and efficient management and procurement system, the supermarkets can benefit from economics of scale and sell food at a relative low price. In this paper, we present a case study of two villages in the Transkei area of South Africa. In these poor rural communities, the majority of households now buy their main food items from supermarkets rather than from local shops and farmers. While presenting an important step towards livelihood development and food security, these supermarkets form also a strong competitor for local agricultural sales. The supermarkets provide many food items at lower prices. With an increase in income, the households look for variety and exotism in their food products, and will most likely find this in the supermarkets, rather than the local stores. We argue therefore that development programs should focus on the local growers’ access to the supermarket procurement systems.     

Market failures and the additionality effects of public support to private R&D: Theory and empirical implications

We extend the theoretical basis of the empirical literature on the effects of R&D subsidies by providing an estimable model of strategic interaction among subsidy applicants, and public and private sector R&D financiers. Our model incorporates fixed R&D cost and a cost of external finance. We derive the optimal support rule. At the intensive (extensive) margin the costs of external funding reduce (increase) the optimal subsidy rate. We also establish necessary and sufficient conditions for the existence of additionality. It turns out that additionality at the intensive margin is less likely with higher spillovers. Our results suggest that the relationship between additionality and welfare may not be straightforward.     

Assessing the effect of food retail subsidies on the price of food in remote Indigenous communities in Canada

The Canadian government currently subsidizes food retailers in the 25 remote communities in Nunavut through the Nutrition North Canada program. The program expects each dollar of the food subsidy to be fully passed on to the consumer in the form of lower prices. Unfortunately, existing audits and reviews of the program have failed to determine the pass-through rate of the subsidy. Using regression analysis on food price data in each of the 25 communities, subsidy rates, and covariates that control for community characteristics, we overcome the limitations of past research and provide the first-ever estimate of the pass-through rate of Nutrition North in Nunavut. Our results suggest that most, if not all, of the subsidy is passed on to the consumer in lower food prices.     

Combined price support and fertilizer subsidy policies for food self-sufficiency: A case study of rice in Bangladesh

Output price support and input subsidies, particularly fertilizer subsidies, are used in many developing countries as short-term policies for stimulating food production. This paper presents a method of evaluating combined price support and fertilizer subsidy policies, allowing for differences in emphasis on each. Bangladesh is taken as a case study. The paper also indicates the likely distributional consequences of the various combined policies and formulates policy suggestions based on the results. The guiding hypothesis for the study is that some combination of price support and fertilizer subsidies is preferable to a price support or fertilizer subsidy monopolicy in achieving rice self sufficiency in Bangladesh.     

Preventives Versus Treatments Redux: Tighter Bounds on Distortions in Innovation Incentives with an Application to the Global Demand for HIV Pharmaceuticals

Kremer and Snyder (Q J Econ 130:1167–1239, 2015) show that demand curves for a preventive and treatment may have different shapes though they target the same disease, biasing the pharmaceutical manufacturer toward developing the lucrative rather than the socially desirable product. This paper tightens the theoretical bounds on the potential deadweight loss from such biases. Using a calibration of the global demand for HIV pharmaceuticals, we demonstrate the dramatically sharper analysis achievable with the new bounds, allowing us to pinpoint potential deadweight loss at 62% of the global gain from curing HIV. We use the calibration to perform policy counterfactuals, assessing welfare effects of government policies such as a subsidy, reference pricing, and price-discrimination ban. The fit of our calibration is good: we find that a hypothetical drug monopolist would price an HIV drug so high that only 4% of the infected population worldwide would purchase, matching actual drug prices and quantities in the early 2000s before subsidies in low-income countries ramped up.     

Do the urban poor face higher food prices? Evidence from Vietnam

Whether there is a poverty penalty, in terms of food prices, is unsettled in the literature after more than four decades of study. Unit values from household surveys suggest that prices vary with income while outlet surveys typically find food prices varying with store type but not with neighborhood income. Most outlet surveys are from rich countries, with just one spatially limited study from a developing country. In this paper we use especially collected food price data from metropolitan areas of Vietnam to test whether the urban poor face higher food prices. Food prices in low-income neighborhoods are 1% lower, on average, than in other neighborhoods. Unit values give a different answer to the question of whether the poor face higher prices and are not suited to answer such a question.     

A comparative political economic analysis of maize sector policies in eastern and southern Africa

Maize sector policies in eastern and southern Africa are characterized by a large and often growing presence of the state. Yet the scope, scale, and modalities of state activities vary substantially across countries. Drawing on data from Malawi, Zambia, Kenya, and Mozambique this article compares the relative degree of state intervention in the maize sector. We show that relative preferences for output market subsidies, input market subsidies, trade restrictions, or non-interventionist approaches reflect the interplay of interest group lobbying, patronage networks, and ethnic and regional political affiliations. These relationships have deep historical roots and have often been intensified in the context of the emergence of multiparty politics. We show that interventionist orientations in output markets and trade do not translate into better performance or welfare outcomes. Input subsidy preferences produce more ambiguous welfare results, when the opportunity costs are not fully accounted for.     

Urban food subsidies in the context of adjustment: The case of Zambia

One of the most complex policy issues facing many developing-country governments over the next decade, particularly in sub-Saharan Africa, concerns the problem of providing the impoverished sections of urban populations with adequate food at prices they can afford, while both meeting the fiscal requirements of adjustment programmes and promoting domestic agricultural production. The pressure to reduce urban food subsidies is in many cases already immense, and the implications for urban household food security are considerable. This article looks at recent Zambian experience, and suggests that new and more efficient ways of targeting subsidies may be required if levels of food consumption are not to deteriorate still further.     

Why organic food in Germany is a merit good

The conventional view of welfare economics is that subsidies for organic food are inefficient. This paper challenges this view and argues that subsidies for organic food may be justified by the concept of individualistic merit goods. Therefore, the concept of individualistic merit goods is briefly reviewed. Market preferences and reflective preferences for organic food in Germany are described. It is then shown how they relate to political preferences. Finally, it is argued how economic theory in general and food policy in particular should take account of the existence of merit goods.