Livestock pricing policy in sub-Saharan Africa: objectives,instruments and impact in five countries

Livestock pricing policies in many developing countries are often instituted without a good appreciation of the consequences of such policies for allocative efficiency, output and trade. This paper evaluates, in a comparative cross-country context, the objectives and instruments of livestock pricing policy in five sub-Saharan African countries: Ivory Coast, Mali, Nigeria, Sudan and Zimbabwe during the period 1970-86. It assesses the extent to which pricing policy objectives have been attained, and also estimates the effects of price interventions on output, consumption, trade and government revenues in order to draw out lessons for the future. The empirical results indicate that in comparison with real border prices, a certain degree of success was achieved in stabilising real domestic producer prices in the study countries. The results also show that since the early 1980s, there has been a gradual shift away from taxation of producers. However, consumers still appear to gain as much as producers in three of the study countries, with negative consequences for foreign exchange earnings and government revenues. The analysis reveals the importance of domestic inflation and exchange rates as key variables for livestock pricing policies and highlights the need to address the macroeconomic imbalances that cause exchange rate distortions and high domestic inflation at the same time that direct price distortions are being tackled.     

LIBERALISING OECD AGRICULTURAL POLICIES IN THE URUGUAY ROUND: EFFECTS ON TRADE AND WELFARE

A dynamic, stochastic, multi-commodity model of world food markets is used to estimate the effects of liberalising agricultural policies in industrial countries. The effects on international and domestic prices, on trade volumes and on economic welfare of a phased liberalisation of industrial-country policies between 1988 and 1992 are compared with the effects of a similar hypothetical liberalisation in the early 1980s. The results suggest that, because of the dramatic increase in agricultural protection during the 1980s, the effects of a liberalisation under the Uruguay Round would be, in real terms, more than double those that would have resulted from a similar liberalisation a decade earlier. Major gainers are consumers in Western Europe and Japan and farmers in developing countries. But the cost to tax-payers in Western Europe is also escalating, not to mention the burden on non-agricultural producers in those countries whose competitiveness is reduced by farm policies. These domestic pressures from treasuries and from producers of non-farm products, together with greater international pressure for reform from agricultural-exporting countries, have raised the probability of at least some liberalisation during the Uruguay Round of multilateral trade negotiations.     

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.     

Demand for food in Myanmar (Burma)

Aggregate quarterly time series data from 1975 to 1987 on government procurement prices and open (black) market prices were used in estimating an almost ideal demand system (AIDS) and double-log models for consumption of foodstuffs in Myanmar. The results from the AIDS model were superior to those from the double-log models. The estimated income elasticity of demand for non-meat foodstuffs was high, even for low-quality rice, which has been shown to be an inferior good in other Asian countries. The income elasticities for the non-cereals (groundnut oil, sesame oil, pulses, potato and onion) are positive and less than one. Contrary to expectation, the income elasticities for all meat items are low. Own-price elasticities for most foodstuffs were less than one. The estimated cross-price elasticities indicate the complementary nature of the basic food items to rice. A brief analysis of the effects of taxing Myanmarese rice exports and subsidising consumers indicated that there are net costs to government, unevenly distributed welfare gains to consumers and welfare losses to farmers.     

Wheat policy and economy-wide reform in Brazil

In recent years, the wheat sector in Brazil has moved from governmental protection and public intervention to a free market and privatization. In this study, those changes are analyzed through measures of governmental intervention on nominal rates of protection and on welfare of producers and consumers. Elasticities of demand and supply of wheat are estimated, and the effects of changes in policies are analyzed under official and shadow exchange rates. Welfare measures indicate that almost US$ 8 billion were spent from 1970 until 1989 with policies to subsidize producers and consumers. The policy-induced stimulus to consumer demand exceeded the stimulus to domestic production, and self sufficiency in wheat declined. The reduction in wheat subsidies since 1989 was more than an isolated sector-specific policy. It was part of macroeconomic antiinflation policy, and it coincided with other economy-wide changes such as real appreciation and a decline in international commodity prices.     

Trade,value chains,and rent distribution with foreign exchange controls: Coffee exports in Ethiopia

Exchange rate policies can have important implications on incentives for export agriculture. However, their effects are often not well understood. We study the issue of foreign exchange controls and pricing in the value chain for Ethiopia's coffee—its most important export crop. Relying on unique pricing and cost data, we find that coffee exporters are willing to incur losses during exporting by offering high prices for coffee locally in order to access scarce foreign exchange. We further find that the consequent high wholesale prices for coffee are transmitted to producers, so that coffee farmers are unintended beneficiaries of this rent.     

Agricultural price distortions: trends and volatility,past, and prospective

Historically, earnings from farming in many developing countries have been depressed by a pro‐urban bias in own‐country policies, as well as by governments of richer countries favoring their farmers with import barriers and subsidies. Both sets of policies reduced global economic welfare and agricultural trade, and added to global inequality and poverty. Over the past three decades, much progress has been made in reducing agricultural protection in high‐income countries and agricultural disincentives in developing countries. However, plenty of price distortions remain. As well, the propensity of governments to insulate their domestic food market from fluctuations in international prices has not waned. Such insulation contributes to the amplification of international food price fluctuations, yet it does little to advance national food security when food‐importing and food‐exporting countries equally engage in insulating behavior. Thus there is still much scope to improve global economic welfare via multilateral agreement not only to remove remaining trade distortions but also to desist from varying trade barriers when international food prices gyrate. This article summarizes indicators of trends and fluctuations in farm trade barriers before examining unilateral or multilateral trade arrangements, together with complementary domestic measures, that could lead to better global food security outcomes.     

Economic Effects of the Consumer‐oriented Genetically Modified Products in Markets with a Labelling Regime

This paper builds on the literature on the economic effects of the second‐generation, consumer‐oriented genetically modified products (GMPs). It analyses the market and welfare impacts of the introduction of these new products in markets, like the EU, that mandate the segregation and labelling of the first‐generation, producer‐oriented GMPs. Developing an empirically relevant model of heterogeneous consumers and producers, the study determines the effects of the consumer‐oriented GMPs on the markets of conventional, GM and organic products, and the welfare of consumers and agricultural producers. Analytical results indicate that the market effects of the new GMPs are case specific and depend on: (i) the consumer valuation of the quality‐enhancing attribute of the new GMP; (ii) the level of consumer aversion to GMOs; (iii) the strength of consumer preference for organic products; and (iv) the production costs and marketing margins in the different supply channels. The policy on the labelling of the first‐generation GMPs does not affect the impacts of the second‐generation GMPs on the quantities and market shares of the different products. However, it does affect their price effects and welfare implications. The introduction of consumer‐oriented GMPs under a mandatory labelling regime can result in losses for some GM consumers and all producers of the conventional product.     

The impact of OECD biofuels policies on developing countries

OECD countries’ biofuels policies, derived from energy and environmental legislation and activated by high oil prices, were the primary cause of not only the sudden spike in grain and oilseed prices in 2007–2008 but also of the ensuing price volatility. Even though developing countries have a comparative advantage in biofuels production, they were shut out of rich countries’ biofuel markets by trade discriminating biofuels policies. Developing countries would not have been able to take full advantage of the price spike in the short run anyway given the low supply elasticities and the long time required for biofuel production to come online, unlike for corn‐ethanol. The controversy over the right price of food is misplaced and policy makers should instead focus on improving biofuels policies, which like their counterpart agricultural policies in previous decades, have damaged the welfare of developing countries.     

Technology,production environment,and household income: Assessing the regional impacts of technological change

This paper clarifies the factors determining the welfare effects of improved agricultural technologies when technology diffusion is unevenly distributed across production environments Household-level income effects are shown to depend primarily on: (a) whether the economy is open or closed with respect to world markets; (b) whether households are net consumers or net producers of the commodity for which technological change occurs; (c) whether households are adopters or non-adopters of the new technology; (d) the degree to which labor is mobile across agricultural regions; and (e) government intervention in commodity and/or factor markets. A review of recent empirical work indicates considerable variation in the relative strength of these various factors across countries, and that assumptions regarding the mechanism by which commodity prices are determined – endogenously as in a closed economy, or exogenously as in an open economy – is especially critical.     

WELFARE IMPLICATIONS OF MORE ACCURATE RATIONAL FORECAST PRICES

Models are constructed to assess the welfare effects for producers, consumers and society of producers using forecast prices based on more accurate estimates of variables causing shifts in the demand for and supply of commodities. The basic model is a stochastic cobweb model in which producers' forecast price is the rational forecast price. The model is extended for many commodities, for partial producer response to more accurate forecast prices, and to include stock holding. In terms of economic surplus, producers and consumers gain from more accurate estimates of demand shift variables, producers gain and consumers lose from more accurate estimates of supply shift variables, and in both cases there is a net society gain.     

Welfare Impacts of the Canada-U.S. Softwood Lumber Trade Dispute: Beggar Thy Consumer Trade Policy

The welfare impacts of the 1987–91 Canadian "voluntary" 15% lumber export tax and the current 6.51 % U. S. import duty are analyzed using a simultaneous equations model of the softwood lumber market. The results show that U.S. consumers suffer losses 35% to 45% of those endured by Canadian producers. Canadian national welfare was much higher under the voluntary export tax, indicating the Canadian government erred in unilaterally terminating the agreement. In both instances, the U.S. government pursued policies that benefited domestic producers at the expense of U.S. lumber consumers, with no attempt or discussion of compensation. Thus, this appears to be a case of "beggar thy consumer" trade policy.     

The effects of the Food Reserve Agency on maize market prices in Zambia

Over the last decade, governments throughout eastern and southern Africa have increasingly used strategic reserves and/or marketing boards to influence grain market outcomes, yet little is known about how these activities are affecting grain markets. This article estimates the effects of the Food Reserve Agency (FRA) on maize market prices in production and consumption regions in Zambia using a vector autoregression model and monthly data from July 1996 through December 2008. In recent years, FRA has become the dominant buyer of smallholder maize in Zambia. Simulations show that FRA activities stabilized market prices throughout the July 1996–December 2008 study period and raised mean prices between July 2003 and December 2008 by 17–19%. The price raising effects of FRA policies have assisted surplus maize producers but adversely affected net buyers of maize in Zambia, namely urban consumers and the majority of the rural poor. The increase in maize price stability is unlikely to have had substantial welfare effects on poor households. In contrast, relatively wealthy producers are likely to have benefited from the higher average and more stable maize prices resulting from FRA policies.     

The Evolution and Implications of the U.S. Food Security Act of 1985

The Food Security Act of 1985 sets the United States (U.S.) policy course for the five years, 1986–1990, in the areas of farm product prices and farmer incomes, agricultural production, food aid, and trade in agricultural products. It is clearly an evolution of past policy, deeply rooted in the institutional processes of participatory policymaking. The Act will have important implications for not only domestic producers, consumers, agribusinesses, and taxpayers, but alto product agricultural exporters and importers around the world. Just as it was substantially, affected by the current loss of export markets and the economic crisis in the U.S. agricultural sector, its implementation and impacts will be affected in the future by the unpredictable weather, macroeconomic conditions around the world, and international trading policies. This article examines the development of the policy embodied in the Act and analyzes its primary economic implications. Although most provisions of the U.S. agricultural price and income policy that had evolved over the past half century were continued, important changes were made. The resulting policy closely mirrored the preferences revealed from research concerning farmers and leaders of national agricultural and food interest groups. Primary changes from the previous 1981 Act were: lengthening the duration to five years; substantial lowering of the minimum price support levels; permitting a gradual decline in the minimum target prices; providing for a whole dairy herd buyout program; establishing export enhancement initiatives through credit, promotion, and export payment-in-kind (PIK); and initiating major efforts to increase farmland conservation and withdrawal of fragile lands from production. Likely implications of the new Act include: (1) lower product prices for agricultural producers around the world, and also farmer incomes if there is no income protection from national policies; (2) a similar but a less proportionate impact on consumers; (3) a substantial burden on the U.S. Treasury, and possibly those of the other nations as well, depending upon the type of policies followed; and (4) likely intensification in the immediate future of the economic conflicts and negotiations between major agricultural trading nations of the world. Research played a vital role in the development of the U.S. 1985 Act. Given the turbulent, uncertain, and important nature of the agricultural and food sector in the world, research is challenged to provide more and better knowledge for future policymaking.     

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.     

The trade distorting effects of export refunds: The case of beef exports to Africa

The usual sale of European agricultural products to Africa using export refunds has been heavily discussed in recent decades. At the centre of the discussion are the consequences on the agricultural producers in Western and Southern Africa. There are two different points of view: On the one hand, the European Union's (EU) export policy reduces the prices on these markets and relieves high burdens on local producers; on the other hand are claims that refunds do not influence local prices significantly. Hence, the Common Agricultural Policy (CAP) has no effect on markets of third countries, besides depressing world market prices. This paper focuses on the effects of EU's export subsidies for beef exports on its market share in several developing countries. Twenty-seven African countries were analysed using a fixed-effects model between 1988 and 2000. The results clearly show a highly significant positive impact of the export refund rate on the market and the import share. With its export policy, the EU raises its market position and edges out other competitors.     

Markets and welfare effects of food fraud

This study develops a theoretical framework of heterogeneous consumers and producers and imperfectly competitive food companies to analyse the system‐wide market and welfare effects of food fraud in the form of food adulteration and mislabelling. The results show that, while the price impacts of food fraud are product‐specific with the equilibrium prices of high‐quality and low‐quality products moving in different directions, the equilibrium quantities depend on the relative magnitude of the demand and supply effects of food fraud. Regarding the welfare effects of food fraud, they are shown to be highly asymmetric across different consumers and producers. In addition to enabling the disaggregation of the welfare effects of food fraud, the explicit consideration of agent heterogeneity, asymmetries in the probability of fraud detection and the endogeneity of the producer quality choices also enables the derivation of a key result of this study; contrary to what is traditionally believed, both low‐quality and high‐quality producers can have economic incentives to commit fraud. The group that is more likely to cheat is determined by the social attitudes towards fraudulent behaviour, the enforcement policy parameters and the relative magnitude of the demand and supply effects of food fraud. A comparison of the market effects of mislabelling and food adulteration reveals that, while the equilibrium quantity of the high‐quality product is higher in the presence of mislabelling, producers are more likely to mislabel than adulterate their products.     

CROSS-SUBSIDISATION OF RURAL AREAS VIA UTILITY PRICING POLICIES*

Public utilities which apply roughly uniform prices to all consumers often engage in cross-subsidisation — charging prices which are below cost for consumers in low population density areas but above cost for consumers in high density areas. The distributional and allocative implications of this practice are examined and it is concluded that some cross-subsidisation may be justifiable on welfare grounds even where no externalities exist. There is, however, little empirical evidence released by utilities to enable assessment of the efficiency of their practices. If nothing else, we highlight the need for greater public disclosure of pricing practices by public utilities.     

Food Security and Agricultural Protection in South Korea

South Korea has been pursuing food self-sufficiency using high tariffs and high administrative prices in key agricultural and food markets. Using a dual approach to trade and trade restrictiveness indices, we analyze the impact of these market distortions on welfare and trade volume. Then, we compute second-best distortions, which minimize the welfare cost of meeting observed levels of self-sufficiency and production. We rationalize these second-best distortions to what could be claimed as legitimate protection under a "food security" (FS) box in World Trade Organization (WTO) negotiations. FS-box protection is sensitive to changes in the definition and the extent of the FS objectives. We show that FS via production targets and reliance on imports would be more palatable to consumers and trade partners, while preserving income transfer to the farm sector.     

Ex Ante Research Evaluation and Regional Trade Flows: Maize in Kenya

Public sector investment in agricultural research is an important component of developing country efforts to bolster staple cereal production in the face of rapid population growth. This paper uses a spatial equilibrium model to evaluate the potential impact of maize research in six regions of Kenya. The application highlights the important role of research in meeting future food needs, as well as the geographic variability of producer and consumer benefits from technology and trade policy options. Despite significant research induced supply shifts, Kenya will require additional production increases of 1.5 to 2 per cent per year to meet stated goals of self-sufficiency in maize production with open markets. Import restrictions can ensure self-sufficiency and generate producer welfare gains at greater expense to the majority of Kenyans who are net consumers of maize. In the debate over trade policy, public sector investments in maize research should be seen as a potential mechanism to compensate producers for welfare losses associated with market liberalisation.