Files
Abstract
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 that drive a wedge between the domestic farmgate price and an adjusted
international reference price requires extensive data and judgments.
In this paper, we describe the PSE measurement issues and illustrate their importance. We estimate product-specific market price support, budget expenditures and
PSEs for three important agricultural commodities (wheat, rice and corn) in India (1985-
2002), using representative disaggregated state-level results, and for five commodities
(wheat, rice, corn, soybeans and sugar) in China (1995-2001). The results for India
suggest that ignoring factors such as internal transport costs, marketing margins and
quality differences can result in inaccurate price support estimates and PSEs that may be
of the wrong sign. We also explore how relaxing or changing certain standard PSE
assumptions (such as altering the "scaling up" procedure or computing the PSE as a
percentage of value of production at world reference prices) can have large impacts on
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 this
procedure and use the resulting reference prices to compute the market price support
component of the PSE for India. Based on our three-commodity PSEs for India, support is largely countercyclical,
rising when world prices are low (as in the late 1980s and 1990s) and falling
when world prices strengthen (as in the mid 1990s). From our more preliminary five-commodity
PSE estimates for China, a trend decline in disprotection is more evident.
Further research is needed to confirm and elaborate on these results.