fifty years of distortions in worls food markets
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Fifty Years of Distortions in f y fWorld Food Markets
Kym AndersonUniversity of Adelaide, World Bank and CEPRUniversity of Adelaide, World Bank and CEPR
IFPRI Seminar, Washington DC, 14 October 2008
Financial assistance from the World Bank Trust Funds, particularly from DfID, BNPP and the Rockefeller Foundation’s Bellagio Center , plus in-kndsupport from IFPRI, are gratefully acknowledged, as are the contributions of the country case study authors and the Washington- and Adelaide-based teams. Views expressed are the authors’ alone and not necessarily those of the World Bank or its Executive Directors, nor IFPRI. Project details are at
www.worldbank.org/agdistortions
Background
In 1958 the Haberler Report on Trends in International Trade warned the GATT Contracting parties of theTrade warned the GATT Contracting parties of the threat of agricultural protection growth in rich countries D. Gale Johnson, in his 1973 book on World Agriculture in Disarray, despaired at the persistence of:in Disarray, despaired at the persistence of:
high agricultural protection in OECD countries,anti-agric and anti-trade policies of developing countries, andthe tendency for both sets of countries to insulate their domestic yfood market from international price fluctuations, thereby exacerbating price volatility for the rest of the world
Disarray worsened for another dozen years, with agric protection growth in Europe North America and Japanprotection growth in Europe, North America and Japan peaking in 1986, thanks to an agric export subsidy warMeanwhile, some middle-income economies ‘overshot’, going from taxing their farmers to protecting them fromgoing from taxing their farmers to protecting them from import competition (e.g. Korea, Taiwan)
Raising concerns that other emerging economies may follow suit
Background (cont.)
However, since the mid-1980s some high-income and developing countries (HICs and DCs) have reformed somewhat
M i l il t ll b t l tl i tMainly unilaterally, but also partly in response to international pressures:
• the Uruguay Round, g y ,• WTO accession conditions, • structural adjustment loan conditionality by IFIs
H thi i d t fHas this improved prospects for poorer agrarian countries to export their way out of poverty?poverty?
Three questions being addressed by a World Bank research projecta World Bank research project
To what extent have developing economies moved away from taxing agric relative to other tradableaway from taxing agric. relative to other tradable sectors as they’ve grown?
and within the agric sector, what is happening to agric protection from import competition in DCs as compared withprotection from import competition in DCs, as compared with HICs? And to agric support globally?
How has that affected global agric markets, economic welfare and net farm incomes:welfare and net farm incomes:
retrospectively (since the early 1980s)?prospectively (ie, if remaining distortionary policies were removed)?removed)?
What of the future, given the evolving domestic politics, the Doha round struggles, and in view of the recent hike in world food prices?recent hike in world food prices?
Analyses and elements of explanation f li t d t th id 1980for policy trends up to the mid-1980s
Anderson and Hayami (1986) on agric protectionAnderson and Hayami (1986) on agric protection growth in NE Asia compared with that in WE and USKrueger, Schiff and Valdes (1988, 1991) on anti-agricand anti-trade policies of 18 developing countriesand anti-trade policies of 18 developing countriesTyers and Anderson (1986, 1992) on the econ effects of distortions to world food markets
Suggested the OECD countries’ agric policies depressed real international food prices in early 1980s by 20%, but that developing countries’ food policies almost fully offset that (reducing the int’l price-depressing effect to just 1%)(reducing the int l price depressing effect to just 1%)Together the domestic-market-insulating nature of those anti-trade agric policies made international food prices >3 times more volatile than they otherwise would have been in early ‘80sy y
So empirical indicators need to show what has happened in DCs and HICs to:what has happened in DCs and HICs to:
Anti- (or pro-)agricultural policy bias intersectorallyAnti-trade bias within the agric sector
Import protection vs export taxation (or subsidies)Dispersion of distortion rates across industriesDispersion of distortion rates across industries within the agric sector
since welfare cost increases with dispersionl f h d k fInsulation of the domestic market from
volatility in the int’l agric marketplacesince the latter is exacerbated by the formers ce t e atte s e ace bated by t e o e
Outline: 2 main courses plus dessertWhat did the World Bank project learn from its NRA/CTE estimates and other indicators?NRA/CTE estimates and other indicators?What global effects have reforms had since the early 1980s? What more could be contributed? ea y 980s at o e cou d be co t buted
retrospective and prospective global CGE modeling
What prospect is there for further reform?p p
Fi t iFirst main course
New estimates ofNew estimates of changes in distortionsover the past 50 yearsover the past 50 years
Structure of the World Bank’s current research projectcurrent research project Stage 1 (2006-08): [to be summarized today]
Country case studies, to provide time series of the extent of i i di t ti d l ti l ti l i i thagric price distortions and an analytical narrative explaining the
evolution of agric price and trade policies since mid-1950s• leading to 4 regional volumes (on Africa, Asia, Latin America and
Europe’s transition economies), plus a global overview book p ), p g(including the high-income countries), plus public global database
• 75 countries covered (India and Ethiopia by IFPRI staff)
Stage 2 (2008-09): [to be presented at IATRC in Dec.]g ( ) [ p ]More-intensive empirical analysis across countries and over time of causes, and of effects on inequality and poverty, of chosen vs. alternative policies
d d d l h b• Leading to 2 more edited volumes in 2009, with IFPRI contributing
Indicators estimated as part of the World Bank researchWorld Bank research
We began with nominal rates of assistance(NRAs) for major crop and livestock products(NRAs) for major crop and livestock products
covering 70% of gross value of agric production at undistorted prices in each of 75 focus countriesAlso included are ‘guesstimates’ of NRAs for the other 30%, plus non-product-specific assistance
W l l l t th g oss s bsidWe also calculate the gross subsidy equivalent (GSE) of assistance to agric, in total and per farmer (in constant 2000 US$)total and per farmer (in constant 2000 US$)And counterpart food consumer tax equivalents
Project’s focus countries: number and 2000 04 shares (%) of global economy2000-04 shares (%) of global economy
No. of countries
Pop’n share
AgGDP share
GDP share
Africa 21 11 7 1
Asia 12 51 37 11Asia 12 51 37 11
Latin America 8 7 8 5
European TEs 14 7 7 3
High-income 20 14 33 75High-income 20 14 33 75
WORLD TOTAL 75 90% 92% 95%
Product coverage of nominal rate of assistance (NRA) estimatesassistance (NRA) estimates (% of national agric prod’n of focus countries)
1980 84 1990 94 2000 041980-84 1990-94 2000-04
Af i 1 1 2Africa 71 71 72Asia 75 73 66Latin America 65 69 70SUB-TOTAL, focus DCs 73 72 67European transition econs 62 61 60High-income countries 70 70 70High income countries 70 70 70TOTAL, focus countries 71 70 68
Global coverage of NRA estimates for 30 major agric productsfor 30 major agric products
Share (%)of global ag
Share (%) of global agof global ag
productionof global ag
exports
Grains and tubers (10) 85 90Grains and tubers (10) 85 90
Oilseeds (6 products) 78 85
Tropical crops (7) 74 71
Li t k d t (7) 72 88Livestock products (7) 72 88
SUM OF ABOVE (30) 77 85( )
NRAag: high-income and developing countries, 1955-2004 (%, wted averages)countries, 1955 2004 (%, wted averages)
60
70
40
50
60
20
30
perc
ent
10
0
10
1955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
p
-30
-20
-10
30
HIC & ECA HIC & ECA, incl. decoupled payments Developing countries
NRA by region (%), 1980-84 vs 2000-04
120140 1980-84
2000-04
6080
1002000 04
0204060
-40-20
0
a ia C A Z E n
Africa
Asia LAC
ECA
ANZNorth
America WE
Japan
Nor
GSE (constant US$b), 1980-84 vs 2000-04
130
50
90
-30
10
-110
-70
110Africa ANZ LAC ECA North
AmericaJapan WE Asia
1980-84 2000-04
Global subsidy equiv. for all ag., 1955-07: it continues to grow (constant 2000 US$b )it continues to grow (constant 2000 US$b )
300
100
200
0
100
200
-100
-2001955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04 2005-07
Developing countries (no averages for periods 1955 59 and 2005 07)Developing countries (no averages for periods 1955-59 and 2005-07)
High-income countries and Europe's transition economies
Net, global (decoupled payments are included in the higher, dashed line)
Subsidy equivalent per farmerconstant (2000) US$ per yearconstant (2000) US$ per year
1980-84 1990-94 2000-04
DCs -140 -10 50
HICs 8,170 11,330 9,920
HICs (incl 9 140 12 890 13 530HICs (incl. decoupled)
9,140 12,890 13,530
Consumer tax equivalent per capitaconstant (2000) US$ per yearconstant (2000) US$ per year
1980-84 1990-94 2000-04
DCs -22 -1 8
HICs 195 175 95
In DCs: NRA ag export taxation disappearing, but ag import-competing NRA is >0 & growingg p p g g g
40
50
10
20
30
20
-10
01955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04pe
rcen
t
-40
-30
-20
-60
-50
C d i t ti i lt l d tCovered import-competing agricultural products
Covered exportable agricultural products
In HICs: export support >0 but now falling
90
50
70
10
30
-10
10
1955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
50
-30
Import-competing Exportables Total-50 Import competing Exportables Total
Long-run trend in NRA import-competing ag. goods: growing as fast in DCs as in HICs (hence the need for market access disciplines via Doha commitments)
80
60
70
40
50
erce
nt
20
30
pe
0
10
1955 59 1960 64 1965 69 1970 74 1975 79 1980 84 1985 89 1990 94 1995 99 2000 041955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
High-income countries Developing countries
What about relative rates of assistance, for farmers vs non-ag producers?for farmers vs non ag producers?
Assistance to non-ag tradable sectorsAssistance to non ag tradable sectors (NRAnonagt) can be as important for farmers as direct agric policies, in terms of encouraging ( di i ) i i(or discouraging) resource use in agric
Lerner’s (1936) Symmetry TheoremSimple criterion for anti-agricultural bias inSimple criterion for anti-agricultural bias in policy: Is RRA < 0, where
RRA = (1+NRAagt)/(1+NRAnonagt) – 1( g )/( g )
For HICs, RRA is similar to NRA…
100NRA agricultureNRA i lt
80NRA non-agricultureRRA
40
60
0
20
-20
01955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
-60
-40
… although much variation within HIC group
200 Japan/ KoreaNon-EU WEEU
100
150EUCanadaUSAustralia/ New Zealand
50
100
0
50
-50
55-5
9
60-6
4
65-6
9
70-7
4
75-7
9
80-8
4
85-8
9
90-9
4
95-9
9
00-0
4
05-0
7
195
196
196
197
197
198
198
199
199
200
200
Evolution from negative to positive average relative rate of assistance for DCsrelative rate of assistance for DCs …80
40
60
0
20
erce
nt
-20
01965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
p
-60
-40
RRA NRA non-ag tradables NRA ag tradables
RRA rise is greatest for Asia, least for Africa
0
10
20
-10
01965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
-30
-20
perc
ent
-50
-40
-70
-60
Asia Africa LAC
…especially in China & India: >half due to cuts in non-ag protection, which is now very lowcuts in non ag protection, which is now very low
INDIA CHINA
Contribution of exchange rate distortion to China’s RRA (percent)(p )
1981-84 1985-89 1990-94 1995-99
RRA, incl.h t
-61 -50 -31 -3exchange rate distortionRRA l 52 41 27 3RRA, excl.exchange rate distortion
-52 -41 -27 -3
distortion
China’s RRA trend helps explain two apparent paradoxes:apparent paradoxes:
China has remained close to self sufficient in farm products over the past three decades
… yet was expected to experience rising import dependence in food and fibre given its relativelydependence in food and fibre, given its relatively low endowment of agric land per capita and rapid industrialization
China’s commitments under WTO to cut agric tariffs was expected to reduce agric self sufficiency and add to farm household poverty
That hasn’t happened either. Instead, farm household incomes have been rising in all decileshousehold incomes have been rising in all deciles and in all regions of that country
All agric and processed food: 100(X-M)/(X+M)(includes cotton, whose net imports grew with end of MFA)( p g f )
percent1980-84 1985-89 1990-94 1995-99 2000-04
percent
China 9 7 19 1 -16C a 9 9 6
South Asia
8 3 10 1 -6
H h l b l li f iHow much global policy reform progress since the early 1980s? A two-dimensional summary:
Reductions in the anti-ag sectoral bias in DCs, and the pro-agric sectoral bias in HICs, would p g ,mean the RRA is approaching zero, where relative rate of assistance to farmers vs producers of other tradables isproducers of other tradables is RRA = (1+NRAagt)/(1+NRAnonagt) – 1
Reductions in the anti-trade bias within agricwould mean the trade bias index is approaching
h T d Bi I d f ll i izero, where Trade Bias Index for all agric is TBI = (1+NRAagx)/(1+NRAagm) – 1
RRA and trade bias index: 1980-84 vs 2000-04
Japan
150
e (%
)
WEJapan
100
Ass
ista
nce
AsiaLACECA
WE
NA NAANZ0
50ve
s R
ate
of
Asia
Africa AfricaLAC
ANZ
500
Rel
ativ
-5
-.4 0-0.6 -0.2 -0.1-0.2-0.3-0.5Trade Bias Index
RRATriangle: 1980-84, Circle: 2000-04
However, dispersion in NRAs (in addition to that due to anti-trade bias) is still high) g
Across countries and sub regionsAcross countries and sub-regionsAnd across commodities within each countrycountry
Whi h i iWhich means resources in agric continue to be inefficiently allocated both between and within countriesboth between, and within, countries
Cross-country dispersion in NRAagric, 2000-04
150
100
50
0
-50
abw
eiv
oire
mbi
aza
nia
ntin
aio
pia
rain
ene
gal
geria
Egy
ptag
uaud
anA
frica
roon
iland
asca
ran
datra
liais
tan
aysi
a R
epde
shal
and
garia
hana
Bra
zil
Chi
leC
hina
olan
dK
enya
anka
uado
rex
ico
nesi
aIn
dia
ussi
aU
Sto
nia
tnam
pine
sur
key
nada
mbi
ah
Rep
biqu
eva
kia
uani
aSp
ain
ngar
yrtu
gal
Italy
Latv
iam
ark
ranc
em
any
nlan
dU
Ked
enus
tria
ands
man
iaiw
anel
and
veni
aK
orea
rland
orw
ay
Zim
baC
ote
d 'i
ZaTa
nzAr
ge Eth Uk
Sen
Nig E
Nic
ara S
Sou
th A
Cam
eTh
aM
adag
aU
gaAu
sPa
kM
ala
Dom
inic
anBa
ngla
dN
ew Z
ea Bulg G B C C Po K
Sri L Ec
u MIn
don
Ru
Est
Vie
Phili
pp TuC
aC
olo
Cze
chM
ozam
bSl
ovLi
thu S
Hun
Por L
Den Fr
Ger
mFi
n
Sw
eA
uN
ethe
rlaR
om Ta IreSl
ov KSw
itze No
NRAs by product: DCs versus HICs
Rice
Milk
Sugar
Milk
Sugar
Rice387
Wheat
Poultry
Rice
Poultry
Beef
Milk
Coffee
Pigmeat
Maize
Soybean
Pigmeat
Cotton
Beef
Soybean
Coffee
2000-04
1980-84 Wheat
Maize
Soybean
2000-04
1980-84
Cotton
Coconut
Rapeseed
Barley
-150 -50 50 -150 -50 50 150 250
Also insulation of food markets persistsAlso, insulation of food markets persists, so volatility of int’l food prices continuesFluctuations around trend NRAag from year to year remain common, esp. for food staples such as ricestaples such as riceThis reluctance to import instability from int’l food market, and tendency to export , y pinstability from domestic food market, imposes an international public ‘bad’ on the rest of the worldrest of the world
Beggar-thy-neighbour behavior: requires more WTO discipline, including on export policy?
Rice NRA for South Asia is inversely correlated with int’l priceinversely correlated with int l price
6002030
400
500
01020
300
400
USD
30-20-10
NR
A %
100
200
-50-40-30
-
100
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04
-70-60
197
197
197
197
197
198
198
198
198
198
199
199
199
199
199
200
200
200
Pw S Asia
What have we learned?Inter-sectoral anti-agricultural bias has declined greatly and their intra-agric sector anti-trade bias alsogreatly, and their intra agric sector anti trade bias also has declined somewhat on average in DCs since 1980s
And pro-agric bias in HICs also has declined somewhat But some reforming DCs have ‘overshot’ in the sense ofBut some reforming DCs have overshot , in the sense of moving from RRA<0 to RRA>0 as their incomes rose
But, within agric, the dispersion across product NRAs is still high in many countries as it is across countriesstill high in many countries, as it is across countries
much resource misallocation within and between countries stillAlso, trade measures continue to contribute to int’l food
i l tilit b tt ti t t bili d ti f dprice volatility by attempting to stabilize domestic food marketsSo, how far have these reforms reduced the disarray in yworld agricultural markets?
S d iSecond main course
New estimates ofNew estimates of global effects of
2004 policies
Global CGE resultsNew global, economy wide modeling results (from Linkage Model) on effectsresults (from Linkage Model) on effectsof national price distortions, drawing on WB project’s NRA estimates as of 2004WB project s NRA estimates as of 2004 and comparing their effects with:
What 1980 84 distortions’ effects were andWhat 1980-84 distortions’ effects were, andWhat the world would be like with fully liberalized goods marketsliberalized goods markets
New agric distortions we insert in global model for 2004 (%)global model for 2004 (%)
Agric Agric Agric Non-ag domestic support
export subsidy
import tariff
import tariff
HICs 3 7 22 1HICs 3 7 22 1
ETEs 1 -0 22 8
DCs:Africa -1 0 20 11Asia 2 1 30 8
L Amer -0 -1 8 6L Amer 0 1 8 6
WORLD 2 3 22 3
S f t f li i tSources of cost of policies tothe global economy (%, 2004)
Due toAgric & food
Other merch.
ALL GOODS Due to
policies in: policies tariffs SECTORS
High-income 36 6 42High income countries
36 6 42
Developing 24 34 58Developing countries
24 34 58
WORLD 60 40 100
Sources of costs of policies toSources of costs of policies todeveloping economies (%, 2004)
Due toAgric & food
Other merch.
ALL GOODS Due to
policies in: policies tariffs SECTORS
High-income 53 12 65High income countries
53 12 65
Developing 30 5 35Developing countries
30 5 35
WORLD 83 17 100
Reform effects: retrospectively since 1980-84 and prospectively as of 20041980 84, and prospectively as of 2004
Reform from 1980 84 t
Move to f t d1980-84 to
2004free trade
as of 2004Global econ welfare $b (%) $233 (0 8%) $168b (0 6%)Global econ welfare, $b (%) $233 (0.8%) $168b (0.6%)
DCs’ econ welfare, $b (%) $73b (1.0%) $65b (0.9%)
% global ag output exported 9% 8% 8% 13%
DC share of global ag output 58% 62% 62% 65%g g p
DC share of global ag exports 43% 55% 55% 64%
% rise in int’l ag &food prices 13% <1%% rise in int’l ag &food prices 13% <1%
% rise in DC ag (nonag) VA 4.9%(0.4%) 5.6%(1.9%)
What do these CGE results imply?
Economic welfare cost to world (to DCs) of global distortions to goods markets has fallen by 58% (46%)distortions to goods markets has fallen by 58% (46%) since early 1980s
and DCs gained disproportionately from reforms since early 1980s, and would again from completing the process (0.9% vs1980s, and would again from completing the process (0.9% vs 0.6% for HICs)
Of that prospective gain to DCs, 5/6ths would be due to agric policy reform, of which 2/3rds would come fromagric policy reform, of which 2/3 would come from HIC policies
means DCs have a much bigger stake in WTO’s Doha round, and esp. its agric negotiations, than previous analyses usingand esp. its agric negotiations, than previous analyses using GTAP protection database suggest
• Why are DCs so reluctant to engage in DDA and commit?
DC farmers have gained since early 1980s, and wouldDC farmers have gained since early 1980s, and would be main gainers from completing the reform (5.6% boost to ag value added vs 1.9% for nonag VA)
D tDessert
Future policy trendsp yand prospects for
more reformmore reform
Will DCs stop RRA at zero, or follow HICs with positive and rising RRAs as their incomes grow?
400
%)
0030
0ss
ista
nce
(%10
020
Rat
e of
As
0R
elat
ive
-100
-1 0 1 2 3Ln real GDP per capita
HIC RRA obs HIC fitted valuesDC RRA obs DC fitted values
Korea and Taiwan followed Japan …0
200
0015
0)
501
RR
A (%
0-5
0
7 8 9 10Ln real GDP per capitaLn real GDP per capita
Japan Korea Taiwan
… so will China and India too, to avoid social unrest from widening urban-rural income gap?f g g p
200
015
050
100
RR
A (%
)0
-50
7 8 9 10Ln real GDP per capita
China Japan Korea Taiwan India
Are WTO bindings helping to prevent agric protection growth in developing countries?
Most DCs have very high binding overhang in agric (gap between WTO-bound and appliedagric (gap between WTO-bound and applied tariff or domestic subsidy), following the Uruguay Round Agreement on Agricultureg gChina has little overhang on tariffs on average, but plenty where it matters, and also lots of p yoverhang in bindings of domestic farm subsidies
Chi ’ WTO it t ll id blChina’s WTO commitments allow considerable scope for agric protection growth
Out-of-quota tariffs are high (currently prohibitive):prohibitive):
65% for grains50% for sugarg40% for cotton
And China is allowed up to 8.5% product-specific domestic support, plus another 8.5% non-product-specific assistance (or more if ‘d l d’ h t f d ti )‘decoupled’ somewhat from production)
Bindings matter: What if agric protection in Japan and Korea had been bound when they joined GATT?y j
200 Japan(1955 = 16.6%)
China(2001 = 4.5%)
100
150 Korea(1967 = 7.4%)
( )
50
100
A (%
)
01955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-05
NR
-50
1955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-05
-100Japan Korea China
If Chi h t k it RRAIf China chooses to keep its RRA near zero, will it push up int’l food prices?China’s impact on int’l prices of food has been less than for minerals and energybeen less than for minerals and energy
because of low income elasticities of demand for food and rising RRA over the past 3 decadesfood and rising RRA over the past 3 decades
Now with China’s RAA close to zero, its future agric import growth could acceleratefuture agric import growth could accelerate if it chooses not to follow Ja/Ko/Ta in raising its NRAag continually over timeraising its NRAag continually over time
Implications for WTO negotiationsNeed large cuts to bound tariffs and subsidies so as to reduce prospect of:
trend NRAag and RRA rising with incomestrend NRAag and RRA rising with incomescontinuing fluctuations around trend for product NRAs via variable trade restrictions
Need to not only ban agric export subsidies but alsoNeed to not only ban agric export subsidies but also discipline agric export restrictions at WTO?As a quid pro quo, abandon proposed ‘Special Products’and ‘Special Safeguard Mechanism’ (which will add to ag p g ( gprotection growth and to int’l food price volatility)?
and instead encourage DCs to pour more of their ag support into ag R&D, rural education and infrastructure (via aid-for-trade?)
C tl i R&D i i t j t 0 3% NRA i DC (1% i HIC )• Currently agric R&D is equiv. to just 0.3% NRA in DCs (1% in HICs)
ReferencesAnderson, K., M. Kurzweil, W. Martin, D. Sandri and E. Valenzuela, “Measuring Distortions to Agricultural Incentives Revisited” World Trade Review 7(4):Incentives, Revisited , World Trade Review 7(4): 675–704, October 2008Valenzuela, E., D. van der Mensbrugghe and K. Anderson, “General Equilibrium Effects of PriceAnderson, General Equilibrium Effects of Price Distortions on Global Markets, Farm Incomes and Welfare”, Ch. 13 in Anderson, K. and Associates, Distortions to Agricultural Incentives: A Global gPerspective, 1955 to 2007, forthcoming 2009For all project working papers and (by end-October 2008) the global agric distortions database, see
ldb k / di t tiwww.worldbank.org/agdistortions
Thanks!
ldb k / di t tiwww.worldbank.org/agdistortionskym.anderson@adelaide.edu.auy @
Trade Restrictiveness Index: a way of incorporating mean and dispersion in a single policy indicatorp g p y
The more NRAs vary across products within an agric sector, the more the sectoral average NRA
d t t th lf t f th di t tiunderstates the welfare cost of those distortionsespecially if some NRAs are <0 and others >0, as is often the case in DCs
Wh d l NRA CTE ( d )What common ad valorem NRA or CTE (or trade tax) would have the same effect on national econ welfare (or on trade volume) as the observed structure of
d C h d ?NRAs and CTEs across the product range?Taking into account that the welfare cost of a distortion is proportional to the square of its NRA or CTE
Variants of the Trade Restrictiveness Index
J. Anderson and P. Neary focused mostly on tariff equivalents and import restrictivenessand import restrictiveness
As has the World Bank’s global monitoring report to dateMeasured it from the viewpoints of welfare and trade reductions (using estimated import demand elasticities for each product)
But an early Anderson/Bannister (1992) paper, and a chapter of the Anderson/Neary 2005 book, look at PSEs and CSEs for Mexican agric
algebra is complex, and requires domestic demand and supplyalgebra is complex, and requires domestic demand and supply elasticities for each product
Lloyd (2008) simplifies the algebra, in part by being willing to make assumptions about domestic demand and supply elasticitieselasticities
Enables the calculation of separate producer distortion indexand consumer distortion index for covered agric products (PDI and CDI), and their combination (a welfare-reduction index, WRI), all of which are >0),Also enables the calculation of a trade-reduction index (TRI)
Assumptions to make index calculations possible with just NRAs and CTEspossible with just NRAs and CTEs
For PDI (or CDI), assume price elasticities of domestic supply (demand) are the same for each product, and cross-price l ti iti f l (d d)elasticities of supply (demand) are zero
For WRI and TRI, assume also that aggregate sectoral domestic supply and demand elasticities (ignoring sign) are equalAll that’s then needed are NRA and CTE estimates, andAll that s then needed are NRA and CTE estimates, and production (consumption) valued at undistorted prices to serve as weights to aggregate across parts of or the whole product range
And for TRI need to nominate the trade status of each industryAnd, for TRI, need to nominate the trade status of each industryWhile these elasticity assumptions are limiting, this at least takes us some way towards what a formal PE or CGE model can do in terms of capturing the welfare effect of a dispersed structure of NRAs within the agricultural sectorNRAs within the agricultural sector
Welfare reduction index: DCs, HICs and ETEs(percent)
80
60
40
0
20
1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04 2005-07
Developing countries Europe’s transition econs. High-income countriesb
NRAag, DCs, HICs and ETEs, 1955-2004(percent)(percent)
60
40
20
01955-59 1965-69 1975-79 1985-89 1995-99 2005-07
-20 High-income countries
High-income countries (incl. Europe's transition economies)
Developing countries
Welfare reduction index: Africa, Asia, LAm(percent)
60
80
40
60
20
01960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
Africa Asia Latin America
Points to note from WRI/NRA comparison
Africa’s NRA is zero in 1985-89, but that’s when its WRI is at its highestthat s when its WRI is at its highest (because large increase in NRAm meant it offset NRAx but added to WRI)x )This is also why Africa’s TRI spikes in the 1985-89 period (next slide)p ( )
Notice also on next slide the rapid TRI decline for Asia (whereas it turns up again li htl f Af i & LA ft 1990 )slightly for Africa & LA after 1990s)
Trade reduction index: Africa, Asia, LAm (percent)
60
40
0
20
01960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
Af i A i L ti A iAfrica Asia Latin America
Trade reduction index: DCs, ETEs and HICs(percent)
60
40
20
-20
01960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04 2005-07
0Developing countries Europe’s transition econs. High-income countriesb
What have we learned?K/S/V’s inter-sectoral anti-agricultural bias has declined greatly, and their intra-agric sector anti-trade bias also has declined some hat on a e age in DC since 1980sdeclined somewhat on average in DC since 1980s But some reforming DCs have ‘overshot’, in the sense of moving from RRA<0 to RRA>0 as their incomes rose, rather than stopping at neutral policies (RRA=0)p ( )
Because on import side, agric protection growth continuesDomestic market insulation continues
Legally possible because of import tariff and export subsidy binding overhang at WTO and no discipline on export restrictionsoverhang at WTO, and no discipline on export restrictions
Within agric, there is still much dispersion across product NRAs in many countries
reflected in PDIs (and CDIs) being much higher than NRAs (and CTEs)
Next question: How far have these reforms reduced the disarray in world agricultural markets?
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