Johanna L. Croser

Agricultural Distortion Patterns Since the 1950s: What Needs Explaining?

Among the most important influences on the long-run economic growth and distribution of global welfare are trade-related policy developments in individual countries and their combined effect on other countries via the terms of trade in international markets. Some of the policy developments of the past half century have happened quite suddenly and been transformational. They include the end of colonization around 1960, the creation of the Common Agricultural Policy in Europe in 1962, the floating of exchange rates and associated liberalization, deregulation, privatization, and democratization in the mid-1980s in many countries, and the opening of China in 1979, Vietnam in 1986, and Eastern Europe following the fall of the Berlin Wall in 1989 and the demise of the Soviet Union in 1991. Less newsworthy and hence less noticed are the influences of policies that change only gradually in the course of economic development as comparative advantages evolve. This chapter is focused on summarizing a new database that sheds light on the combined impact of both types of trade-related policy developments over the past half century on distortions to agricultural incentives and thus also to consumer prices for food. For advanced economies, the most commonly articulated reason for farm trade restrictions has been to protect domestic producers from import competition as they come under competitive pressure to shed labor as the economy grows.

How do Agricultural Policy Restrictions to Global Trade and Welfare Differ Across Commodities

For decades the worlds agricultural markets have been highly distorted by national government policies, but very differently for different commodities. Hence a weighted average across countries of nominal rates of assistance or consumer tax equivalents for a product can be misleading as an indicator of the trade or welfare effects of policies affecting that products global market. This is especially the case when some countries tax and others subsidize its production or consumption. This article develops a new set of more-satisfactory indicators for that purpose, drawing on the recent literature on trade restrictiveness indexes. It then exploits a global agricultural distortions database recently compiled by the World Bank to generate the first set of estimates of those two indicators for each of 28 key agricultural commodities from 1960 to 2004, based on a sample of 75 countries that together account for more than three-quarters of the worlds production of those agricultural commodities. These reveal the considerable extent of reforms in agricultural policies of developing as well as high-income countries over the past two decades.

Changing Contributions of Different Agricultural Policy Instruments to Global Reductions in Trade and Welfare

Trade negotiators and policy advisors are keen to know the relative contribution of different farm policy instruments to international trade and economic welfare. Nominal rates of assistance or producer support estimates are incomplete indicators, especially when (especially in developing countries) some commodities are taxed and others are subsidized, in which case positive contributions can offset negative contributions. This paper develops and estimates a new set of more-satisfactory indicators to examine the relative contribution of different farm policy instruments to reductions in agricultural trade and welfare, drawing on recent literature on trade restrictiveness indexes and a recently compiled database on distortions to agricultural prices for 75 developing and high-income countries over the period 1960 to 2004. Results confirm earlier findings that border taxes are the dominant instrument affecting global trade and welfare, but they also suggest declines in export taxes contributed nearly as much as cuts in import protection to global welfare gains from agricultural policy reforms since the 1980s.

The Political Economy of Agricultural Price Distortions: Agricultural Distortion Patterns since the 1950s

Among the most important influences on the long-run economic growth and distribution of global welfare are trade-related policy developments in individual countries and their combined effect on other countries via the terms of trade in international markets. Some of the policy developments of the past half century have happened quite suddenly and been transformational. They include the end of colonization around 1960, the creation of the Common Agricultural Policy in Europe in 1962, the floating of exchange rates and associated liberalization, deregulation, privatization, and democratization in the mid-1980s in many countries, and the opening of China in 1979, Vietnam in 1986, and Eastern Europe following the fall of the Berlin Wall in 1989 and the demise of the Soviet Union in 1991. Less newsworthy and hence less noticed are the influences of policies that change only gradually in the course of economic development as comparative advantages evolve. This chapter is focused on summarizing a new database that sheds light on the combined impact of both types of trade-related policy developments over the past half century on distortions to agricultural incentives and thus also to consumer prices for food. For advanced economies, the most commonly articulated reason for farm trade restrictions has been to protect domestic producers from import competition as they come under competitive pressure to shed labor as the economy grows.

Distribution of Agricultural NRAs across Countries and Products, 1955-84 and 1985-2007

The global database developed as an integral part of the World Banks research project on Distortions to Agricultural Incentives, which is publicly available, provides around 30,000 estimates of nominal rates assistance to agricultural industries (NRAs) and associated consumer tax equivalents for 75 countries that together account for between 90 and 95 percent of the worlds population, farmers, agricultural output and total Gross Domestic Product (GDP). They also account for more than 85 percent of farm production and employment in each of Africa, Asia, Latin America and the transition economies of Europe and Central Asia as well as all Organization for Economic Co-operation and Development (OECD) countries. More than 70 products are included (an average of 11 per country), which represents around 70 percent of the gross value of agricultural production in each of the focus countries, and just under two-thirds of global farm production valued at undistorted prices over the period covered. Not all countries had data for all of the entire 1955-2007 period, but the average number of years covered is 41 per country. This paper provides details of the coverage of the database. It also summarizes the distributions of the NRAs by showing two sets of Box plots for 1955-84 and 1985-2007, one set for various regions of the world, the other for all the covered products for each focus country.

Annual estimates of distortions to agricultural incentives in europe's transition economies

This working paper summarizes annual estimates of covered product Nominal Rate of Assistance (NRAs), for each of the focus economies of Europes transition economies, their key distortion indicators defined in Anderson et al. (2008), and provides some summary statistics for the regions estimates. Four tables are provided for each country: (a) the NRA to individual farm products covered in the study and their weighted average, using as weights production valued at undistorted prices; (b) the RRA to producers of agricultural tradable, again using as weights production valued at undistorted prices, and the component parts of the RRA calculation; (c) the weights themselves for individual covered farm products and for the residual non-covered group of products, shown as percentages and so they sum to 100 percent; and (d) the trade status of each covered product each year. The NRA in the case of a product having just its output price distorted by government policies is the percentage by which the domestic producer price exceeds the price that would prevail under free markets, that is, the border price appropriately adjusted to account for differences in product quality, transport costs, processing costs, etc. A negative value indicates the domestic price is below that comparable border price.

Global Distortions to Key Agricultural Commodity Markets

The regional books that provided detailed estimates of distortion in developing economies are all country focused. While they include commodity details for their particular country, they are not able to provide an overview for developing countries or high-income countries as a group, or for the world as a whole. This paper seeks to fill this gap. The paper begins by describing the overall projects coverage of 30 major commodities and their importance in regional and global agricultural production and trade. It then summarizes the nominal rates of assistance and consumer tax equivalents for twelve key covered products, together with their gross subsidy/tax equivalents in constant dollars. The paper then examines seven largely non-traded food staples that are nonetheless important food items for poor people in low-income countries. Even though those commodities are only a small share of global production and exports of farm products, they can be crucial to the food security of large segments of developing country societies. The agricultural distortions database lends itself to placing the policies affecting (or ignoring) those products in a broader perspective. The final part of the paper provides another new perspective on the projects database. It seeks to shed light on how relatively distorted are the various commodity markets from the viewpoint of global trade or welfare restrictiveness. This analysis draws on the theory outlined in the previous chapter, but switches the focus from countries to products.

Welfare- and trade-based indicators of national distortions to agricultural incentives

Despite reforms over the past quarter-century, world agricultural markets remain highly distorted by government policies. Traditional indicators of those price distortions such as the nominal rate of assistance and consumer tax equivalent provide measures of the degree of intervention, but they can be misleading as indicators of the true effects of those policies. By drawing on recent theoretical literature that provides indicators of the trade- and welfare-reducing effects of price and trade policies, this paper develops more-satisfactory indexes for capturing distortions to agricultural incentives. It then exploits the agricultural distortion database recently compiled by the World Bank to generate estimates of them for both developing and high-income countries over the past half century, based on a sample of 75 countries that together account for all but one-tenth of the worlds population, gross domestic product (GDP) and agricultural production. While they are still only partial equilibrium measures, they provide a much better approximation of the true trade and welfare effects of sectoral policies without needing a formal model of global markets or even price elasticity estimates.

Annual Estimates of Distortions to Agricultural Incentives in High-Income Countries

This working paper summarizes the annual estimates, for each of the worlds main high-income countries, of key distortion indicators defined in Anderson et al. (2008), and provides some summary statistics for the groups estimates. It begins with tables for the countries of Western Europe, followed by Japan, the United States, Canada, Australia, and New Zealand. Shorter versions for subsets of countries are reproduced also as Appendixes in Anderson, Lattimore, Lloyd and MacLaren (2008), Gardner (2008), Honma and Hayami (2008), and Josling (2008). Four tables are provided for each country: (a) the nominal rate of assistance to individual farm products covered in the study and their weighted average, using as weights production valued at undistorted prices; (b) the relative rate of assistance to producers of agricultural (relative to non-agricultural) tradable, again using as weights production valued at undistorted prices, and the component parts of the Relative Rate of Assistance (RRA) calculation; (c) the weights themselves for individual covered farm products and for the residual non-covered group of products, shown as percentages and so they sum to 100 percent; and (d) the trade status of each covered product each year. In the case of the European Union (EU) countries of Western Europe, the trade status is assumed to be that of the EU membership in any given year, since the Nominal Rate of Assistance (NRA) for each product is assumed to be the same for each EU member (with the membership growing progressively from initially 6 to 9 (from 1973), 12 (from 1986), and 15 (from 1995). The average NRAs for all covered products differ across EU member countries though, because of their different weights for each product in their national value of agricultural production.