Agricultural Policy Indicators:

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• 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

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Problem setting

• No comprehensive information on policies
  affecting agricultural sectors of the developing
  countries is currently available

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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

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But with a caveat

• Indicators should provide useful indications of
  policy dimensions but not take the place of
  analysis of policy impact

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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

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Structure of the Agricultural Policy Indicators
(API) project
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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

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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

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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

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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

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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)

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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

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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?

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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

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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

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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

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Transforming the information into policy
indicators for impact analysis
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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

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Methodological IssuesEconomy 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

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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

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Methodological IssuesMeasuring 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

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Methodological IssuesIncidence 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

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Computational Issuesespecially 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