Alberto Valdes

The plundering of agriculture in developing countries

Industry has been the darling of development, certainly for the now-industrial countries, and more recently for the developing countries. Those with the reins of policy in developing countries decided that agriculture was impervious to price incentives, so they believed that taxing it would sacrifice little in output. Moreover, agricultural taxes were easy to administer and extremely attractive in countries with a thin tax base. Also, shifting scarce resources to industry was thought to be justified by agricultures declining terms of trade and by the rising protection in industrial countries. This research asks two basic questions: Is agriculture really that unresponsive to price incentives? And can countries develop faster and at lower cost by taxing agriculture? The authors examined how price interventions affect agricultural growth and overall economic growth and they measured the income transfers that price interventions induced among agriculture, government, and the rest of the economy. To see whether controls on food prices helped the poor, they studied the effects of price interventions on the incomes of the rural and urban poor in the short- and long-run. To see whether the policies for the prices of agricultural commodities kept them stable, they separated the effects of those policies from the effects of other forces determining commodity prices. The findings of this study provide a solid base for prescribing agricultural price policy.

Distortions in world food markets in the wake of GATT: Evidence and policy implications

Abstract Although the principle of trade liberalization has gained wide acceptance in recent years, many policy makers in developing countries, especially in Latin America, are exploring temporary import restrictions in the form of additional tariff protection to insulate domestic farmers from the impact of depressed prices until the Uruguay Round accord leads to higher world market prices for agricultural products. The paper argues that there is little reason to believe that current world market prices will rise substantially in real terms, even with the Uruguay Round accord fully implemented. This finding suggests that additional tariff protection would not make economic sense.

FIGHTING RURAL POVERTY IN LATIN AMERICA: NEW EVIDENCE AND POLICY

We synthesize recent case studies on rural poverty in six Latin American countries, plus two thematic studies. We find that the return to education in farming is surprisingly small; land redistribution increases total farm output, but has mixed effects on income; and urban economic growth significantly reduces rural poverty.

The Uruguay round and agricultural policies in developing countries and economies in transition

Abstract This paper reviews changes in the global trade policy environment as a result of the Uruguay Round Agreement on Agriculture, and their potential impact on developing countries and economies in transition. The Agreement is, except in a few cases, not likely to present these countries with major policy adjustment problems. In Latin America, unilateral reforms have proceeded further than required by the Agreement. In Africa, countries that have experienced structural adjustment are liberalizing faster than the Agreement requires. In Asia the situation is mixed, but in general agricultural trade liberalization appears to be moving more slowly, especially when compared to Latin America; progress in reducing quantitative restrictions has been show. In Eastern Europe and the CIS, the progression and completeness of liberalization varies widely, though GATT notions of tariffication and tariff bindings have strengthened the position of reformers in those countries that are members of the WTO. While the short term impact of the Agreement may be modest, the bringing of agriculture under the rules of GATT should help prevent reintroducing non-tariff restrictions in the future. However, given that much of the food imports, particularly in parts of Asia, are still conducted by parastatals, if state trading in GATT-legal it is hard to anticipate how strong discipline on trade distorting support could be brought about.

Agricultural incentives and international competitiveness: Government interventions and exogenous shocks in four East African countries

Abstract Real agricultural prices depend on international prices, the real exchange rate and sector-specific price interventions. For the case of four East African countries, this article decomposes the evolution of agricultural prices during the 1980s into these three components. Additionally, the article computes the relative agricultural prices that would have prevailed in the absence of sectorspecific and macroeconomic distortions. Results indicate that a strong anti-trade bias within the agricultural sector prevailed: importable products tended to be protected while exportables were disprotected. On the other hand, government interventions and inefficiencies in the marketing process precluded the increases in the real exchange rate that took place during the second half of the 1980s from being fully transmitted into higher agricultural prices. Finally, and depending on the country, the removal of sector-specific and macroeconomic distortions would have caused real agricultural prices to increase by an amount fluctuating between 10% and 68%.

Determinants of Rural Poverty in Colombia

The objective of this chapter is to provide insights into the quantitative importance of the various factors affecting poverty among small farmers and landless rural households in Colombia. We present a profile of rural poverty, first based on household characteristics of the total survey population across income quintiles, then by separating households according to whether they are primarily agricultural, landless agricultural or rural non-agricultural. The second part of the analysis involves an econometric estimation of the determinants of income for each of these groups. Both analyses are based on the CASEN2 1993 household survey data.

The macroeconomic environment necessary for agricultural trade and price policy reforms

Abstract This article summarizes the lessons from a study of agricultural trade and price policy in 18 countries over a 25 year period. Agriculture has typically been subject to high levels of government intervention, and judging the sweep and sequencing of reforms is a complex task. The author offers guidelines for a new agricultural trade strategy which could address these issues.

Chapter 27 Agriculture and the macroeconomy, with emphasis on developing countries

Abstract Based on an economy-wide perspective, this paper begins with a discussion of the bias against exports and agriculture that characterized the economic literature and the development strategies in many developing countries after World War II. This is followed by an analysis of how the macroeconomic environment affects agricultural price incentives. Specifically, the paper discusses how policies concerning industrial protection, exchange rates, and interest rates and other fiscal policies can strongly influence the economic incentives for agriculture compared with other sectors, identifying the most relevant literature and alternative approaches used on this issue. It then proceeds to examine how the real exchange rate can be affected by exogenous shocks, such as the foreign terms of trade, with emphases on the Dutch disease phenomenon and agriculture. The paper next examines the influence of interest rates on incentives in agriculture, arguing that, surprisingly, this has been a neglected area in the literature. The paper explores the effects on agriculture of structural adjustment programs implemented since the early 1980s in developing countries. The final section surveys the literature on agriculture and the macroeconomy in industrial countries, focusing on the impact of the exchange rate on export competitiveness in the United States, the cost of agricultural protection for the overall economy in Europe and Japan, and the increased importance of fluctuations in money markets for the farm sector and the additional instability they generate.

Mix and sequencing of economywide and agricultural reforms: Chile and New Zealand

Once committed to economywide and sectoral reforms- stabilization, structural adjustment, and trade liberalization - and companion reforms of institutions, how does government best proceed? With what reforms in response to initial conditions, and in what mix, sequence, strength, and speed? This study examines what factors were most critical to success during transition in two early reformers. The economies of Chile and New Zealand have undergone seismic reforms, starting in the mid-1970s and 1980s, respectively. Comparative analysis of their reforms look at the prior conditions that induced drastic action and the policy choices made in each country. Though similar in many respects, differences in initial economic conditions and implementation led to dissimilar, even contrary results. For Chile, the outcome was a vigorous, recharged economy and agricultural sector; for New Zealand, the economy and the sector are lagging still. How policy choice and implementation, as well as simultaneity of reforms, affected the outcomes is the major thrust of the study. The preeminence of trade and macroeconomic policies over sectoral interventions, and in particular the strategic nature of the real exchange rate in allowing agriculture to compete domestically and internationally highlight the discussion.

Estonian Agriculture in Efforts to Accede to the European Union

A team of World Bank economists presents results of their investigation of Estonias agricultural sector in light of the countrys efforts to accede to the European Union. The paper is based largely on field surveys and interviews conducted in 1997, as well as unpublished local statistics extending to 1998. The coverage encompasses agricultural policy, costs and prices, producer subsidies and price supports, consumer incomes, national budgets, foreign trade, and institutions promoting accession to the Union. Three alternative policy scenarios involving Estonias principal agricultural commodities (milk, wheat, barley, beef, and pork) are modeled and analyzed to assess options for the countrys integration with European regulations and legislation. Journal of Economic Literature, Classification Numbers: O19, O52, Ql 1, Q17, Q18. 14 tables, 48 references.