Tariff-based commodity price stabilization schemes in Venezuela

Venezuela's agricultural sector is heavily regulated and protected. As part of structural adjustment, the government is considering major reform of its agricultural trade policies. The strategy is to introduce competition into the economy by removing government price controls and liberalizing trade. In 1990, the Government proposed a price stabilization scheme to ease the liberalization of quota-driven, price-managed domestic markets for several "essential" commodities - including maize, sorghum, rice, wheat, sugar, palm oil, soybeans and soybean products. The authors analyzed historical data to demonstrate the effects of several alternative stabilization schemes on domestic prices and government revenues. They also calculated average welfare benefits, including transfer and risk benefits, based on assumptions about risk aversion among producers. The effects of the various stabilization schemes on government revenues and producer welfare depend on both the crop and the method of stabilization chosen. Generally, the authors conclude that a wide price band, based on a moving average of nominal border prices, is the least offensive of the stabilization proposals, providing benefits when price movements are extreme but preserving average international price signals.