Agricultural Policy Interventions In Developing Countries: Mapping The Nature, Degree And Progress Of Reforms

In many developing countries, governments rely on price-based measures (including border protection and subsidies on inputs and outputs) more than on budgetary payments to achieve agricultural policy objectives defined to include price stabilization or food self-sufficiency. Assessing the effects of these price-based measures is thus important to evaluating whether agriculture is being protected or disprotected by commodity or in the aggregate. This aspect of producer support estimates (PSEs) is simple to describe conceptually but difficult to evaluate well empirically. Developing countries may face higher international transport and port costs for imports and exports than developed countries or may have substantial internal handling, transportation and processing costs. Separating these structural effects on farmers from agricultural policy effects requires extensive data and judgments about simplifying assumptions. In this paper, we describe the PSE measurement issues and illustrate their importance. The analysis is based on commodity-specific PSEs for three important agricultural commodities (wheat, rice and corn) in India (1985-2002), using representative disaggregated state-level results. We also explore how relaxing or changing certain standard PSE assumptions (such as altering the "scaling up" procedure) affects the results. Finally, for commodities that are near self-sufficiency, we follow Byerlee and Morris (1993) and define a relevant adjusted reference price based on the relationship between an estimated autarky price and the import and export prices. We discuss the procedure and use the implied reference price to compute the market price support component of the PSE for India. These assessments suggest that each of the factors (handling of internal costs, scaling up procedures and choice among reference prices) can have a substantial effect on reported PSEs. With these caveats established, we also report preliminary PSE estimates for China and Indonesia. For China our results are based on five commodities (wheat, rice, corn, soybeans and sugar) over 1995-2001. For Indonesia, six commodities (rice, corn, soybeans, sugar, palm oil and rubber) over 1985-2003 are included in the analysis. Based on our three-commodity PSE, support has a counter-cyclical facet in India, rising when world prices are low (as in the late 1980s and 1990s) and falling when world prices strengthen (as in the mid 1990s). For China, a trend decline in disprotection is evident, while Indonesia has generally supported its agriculture. Further research is needed to confirm and elaborate on these results.