Consequences of a food
security strategy for
welfare, income distribution
and land degradation:
the Philippine case
Ian Coxhead
University of Wisconsin-Madison
Overview
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Food policy and trade policy
Models of trade policy and the
environment
The APEX model of the Philippine
economy
Policy and technical change
simulations
Environmental and welfare
consequences
Food policy and trade
policy
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Under GATT/WTO, higher relative
protection for ag. in some LDCs
Philippines: state grain trade
monopoly (NFA) until mid-’90s
 Targets:
grain self-sufficiency and
defense of price bands
 Instruments: international trade
QRs and domestic marketing

Rising NPR for corn from 1970s
Trade policy and the
environment
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Trade policy measures alter net
ag. land demand and its allocation
to crops
Indirect environmental impact
when land degradation rates are
crop-specific
Endog. price responses to a shock
condition land demand outcomes
Food policy may dampen price
responses
Partial equilibrium effects
of a price support scheme
S
S’
D*
p*
D
q q’ q*
Land degradation and
economic welfare in
general equilibrium
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“Effective” land endowment for 2
crops: T  (1  ac )Ac Tc* (1 a d )Ad Td*
Derived demand for land:
cj g j (p, v) c j
Tj  y j

r
p j r(p,v)
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Aggregate budget constraint:
c j
e(p,u)  g(p,v)   j a j yj
r
“Weak disposal” assumes a = 0, so
environmental damages not counted.
Welfare with food policy
and land degradation

Comp. statics of a price increase:
 * y j
Tj* rj 
u
eu
 (ed  yd )   a j Tj
 yj

pd

p

r

p
j  C, D

d
d 

Net government grain purchases
DG  gd ( p,v)  ed (p,u)
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Welfare with food policy and land
degradation:
c j
e(p,u)  g( p,v)  pd D G   j a j yj

r(p,v)
Closures: fix pd and solve DG, or
vice versa
The APEX model of the
Philippines economy
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Designed for ag.policy experiments
Highly disaggregated by sector,
subsector and region
Uses econometrically estimated
response parameters
Extended to include crop-specific
land degradation rates for upland
crops
APEX agricultural sector
structure
APEX closures
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“Unrestricted”: grain import tariffs,
but no QRs and no domestic
market interventions
“NFA”: QRs fix grain trade at base
levels, and NFA buys/sells grain to
fix nominal consumer price
Other features: balanced trade and
gov’t budget (adjustment through
changes in h’hold expenditures)
APEX experiments
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Expt. 1: Increase in farm gate
support price (NFA closure)
Expt. 2: Technical progress in corn
production (unrestricted closure)
Expt. 3: Technical progress in corn
production (NFA closure)
Changes in agricultural output
Changes in producer prices
Changes in aggregate sectoral
output
Changes in measures of
aggregate welfare
Changes in real household
expenditures
Changes in land degradation
by region
Conclusions
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Food security is a desirable goal,
but self-sufficiency and price-fixing
policies may have welfare and
environmental ‘surprises’
Investments in technical progress
have high social rates of return
when env. benefits are included;
Philippine food policies diminish
these
Conclusions
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QRs and domestic price-fixing
have little effect on producer prices
or income distribution, are costly in
welfare terms, and may promote
ag. land degradation
Design of food, trade and
environmental policies should be
integrated to minimize unwanted
‘surprises’
For further information...
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APEX model and simulation results in full:
www.aae.wisc.edu/coxhead/apex/apex.htm
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Questions & comments to:
coxhead@facstaff.wisc.edu