Agricultural Policy Indicators:
Developing an approach to monitor policy
changes and their impacts on the agricultural sector of developing
countries
Statistics, Knowledge and Policy
OECD World Forum on Key Indicators
Palermo 10-13 November 2004
Workshop on
Indicators to evaluate agricultural policies in OECD and non-OECD countries
Basic Foodstuffs Service
Commodities and Trade Division
FAO
Problem setting
• No comprehensive information on policies
affecting agricultural sectors of the
developing countries is currently available
Why is such information needed?
• First, to understand nature of and changes in
policies affecting the agricultural sector for
cross country and temporal comparisons
• Then, to assess the impact of those changes
on global and domestic commodity markets,
and more importantly on food security of
vulnerable population groups
But with a caveat…
• Indicators should provide useful indications
of policy dimensions but not take the place of
analysis of policy impact
With the ultimate objective of…
• providing developing countries with
information that will be useful in improving
their agricultural policies,
• through measuring the effects of policies on
the incentives of the actors and their ability
to respond to those incentives
Structure of the Agricultural Policy
Indicators (API) project
Which policies?
Structural Module
• Labour market:
– wage rate & training policies
• Capital market:
– credit policies
• Land market:
– property rights & rental markets
• Infrastructure:
– government investment in rural and institutional infrastructure
• Marketing:
– policy towards marketing boards & other agencies
Which policies?
Macro Environment Module
• Macroeconomic policies:
– Exchange rate policies, i.e. indirect effects of exchange rate
disequilibrium
• Trade policy environment:
– non-agricultural tariffs & non-tariff measures
• General price level & price stability:
– Inflation, relative prices between farm and non-farm sectors,
measures of price stability
Which policies?
Research & Deployment Module
• Research:
– Government research & government sponsored private
research
• Advisory services:
– i.e. extension and other services related to output levels and
hectarage
• Technology:
– Government policies toward uptake of new technology,
including patents, other IPRs, plant breeders and farmers
rights
Which policies?
Regulatory Environment Module
• Food quality:
– implementation of both product and processing standards
• Plant and animal health:
– sanitary and phytosanitary standards
• Food safety:
– food born diseases
• Environmental:
– problems that influence and are caused by farm practices
Which policies?
Commodity Market Module (CMM)
• Output market policies:
– price support on internal market, direct payments tied to
production etc.
• Input market policies:
– input subsidies and taxes
• Border policies:
– tariffs and non-tariff barriers, applied rates qualified by
preferential access provisions (also for traded inputs)
The Commodity Market Module
• CMM: is the main module that will be
developed first, eventually for most
developing countries
• the module will allow:
– develop quantitative policy indicators to monitor and
evaluate agricultural policy developments for individual
commodities
– assess whether producers in developing countries are
being subsidized or taxed
– integrate the monitored indicators into quantitative/
comparative analyses of agricultural policies
The policy questions to be
answered by the CMM
• Output market policies:
– Question: What incentives do producers get from the set
of market price policies and the direct support they
receive?
• Input market policies:
– Question: What is the impact of input market policies on
producer incentives?
• Border policies:
– Question: How do border policies contribute to the level
of incentives afforded by other price policies?
Information to be collected within
the CMM
• on production and marketing chains of the
selected commodities
• on production processes
• on all policies currently employed through
output & inputs markets that affect
production incentives
• stock-taking of all government activities and
expenditures in output and input markets
Information to be collected
continued…
• Output markets:
– major commodities (mainly tradables): producer/
wholesale/retail prices in major producing and
consuming regions and border prices at major
ports
– costs of handling, storage and transportation for
the bulk of farm commodities between major
production, consumption and exit/entry centers
• Input markets:
– retail prices at major production regions and
exit/entry centers
– costs of handling, storage and transportation
Information to be collected
continued…
• Border measures:
–
–
–
–
all tariffs, taxes, subsidies
TRQs, preferential access
non-tariff barriers
port charges and any other costs associated with
the importation or exportation of the commodity
• Direct payments:
– all direct payments applied to the commodity and
related major inputs
Transforming the information into
policy indicators for impact analysis
Nominal rate of
protection (NRP)
Increase in gross revenue per unit
(producer price) from sales of product
Adjusted nominal rate
(ANRP)
Increase in net revenue per unit after
input subsidies (taxes) are taken into
account
Effective rate of
protection (ERP)
Increase in value added per unit (gross
revenue less input costs)
Nominal rate of
assistance (NRA)
Increase in revenue including payments
not tied to production (decoupled)
Effective rate of
assistance (ERA)
Increase in value added after adding
decoupled payments
Producer subsidy
equivalent (PSE)
Income transfers through price and nonprice policies as a proportion of withpolicy income
Methodological Issues
• Accounting for economy wide interventions
• Structural Impediments and marketing Margins
• Measuring government outlays
• Public goods in the absence of pricing
• Incidence of income transfers to agriculture
• Commodity coverage
Methodological Issues
Economy wide interventions
• Various indicators, i.e. NRPs, ERPs, etc., do not
capture effects of non-agricultural sector specific
policies caused by
– exchange rate misalignments (departure from
equilibrium exchange rates)
– trade policies affecting the non-agricultural sector
• As a minimum, and where available, real exchange
rate movements (price of tradables to non-tradables)
be monitored
• Where this is not possible, purchasing power parity
exchange rate be monitored
Methodological Issues
Structural impediments and marketing
margins
• Distinguishing explicit trade and price policies from
presence of structural impediments due to
– poor physical and institutional structure
– uncompetitive processing industry
– high intermediate transaction costs due to erratic policy
changes
Methodological Issues
Measuring government outlays
• List of budgetary outlays can be long
• Data only available on sector level, not commodity
level
• Not all outlays are done by central governments
• Estimates can vary depending on reporting
government agency
Methodological Issues
Incidence of income transfers to
agriculture
• Difficult to differentiate who really benefits from
government outlays
–
–
–
–
Farmers, or
input suppliers, or
agro-processing industry, or
simply reflect the cost of excessive bureaucracy
Computational Issues
especially related to ERPs
• definition of non-tradables (Corden – primary factor inputs,
or Balassa – traded inputs with zero level of nominal tariff)
• possible substitution between traded inputs (only few
empirical estimates of elasticities – could bias results if
input prices are more distorted than output prices)
• degree of substitution between traded inputs and primary
factors (non-traded inputs): how value added is estimated
could change if there is substitution
• interpretation of ERPs in terms ranking or relative scale of
protection