module 3. price incentives and disincentives session 4. analysis and interpretation of indicators
TRANSCRIPT
MODULE 3. Price Incentives and DisincentivesSESSION 4. Analysis and interpretation of
indicators
Understand what the indicators mean Provide a coherent understanding of how to review the
indicators through the policy lens
Module objectives:
The perfect world: law of one priceName of product Type of good import
International currency USD Local currency FCFA
DATA Unit Symbol 2005 2006 2007
1 Benchmark price USD/TON Pb(int$) 100.00
2 Observed Exchange Rate FCFA/USD ER0 10.00
3 Observed acess cost to point of competition FCFA/TON ACwh 100.00
4 Wholesale Price FCFA/TON Pdwh 1,100.00
5 Access cost to farm gate FCFA/TON ACfg 70.00
6 Farm gate price FCFA/TON Pdfg 1,030.00
1b Adjusted benchmark price USD/TON Pbalt
2b Shadow exchange rate FCFA/USD ERsh
3b Shadow access cost to point of competition FCFA/TON ACwhsh
5b Shadow access cost to farm gate FCFA/TON ACfgsh
7 Externalities associated w ith production FCFA/TON E
8 Budget and other product related transfers FCFA/TON BOT
Quantity conversion factor (border - w holesale) Fraction QTwh
Quality conversion factor (border - w holesale) Fraction QLwh
Quantity conversion factor (w holesale - farm gate) Fraction QTfg
Quality conversion factor (w holesale - farm gate) Fraction QLfg
CALCULATED PRICES Unit Symbol 2005 2006 2007
Border Price
9 Observed FCFA/TON Pb(loc$) 1,000.00 - -
10 Parity FCFA/TON Pb(loc$)sh 1,000.00 - -
Reference Price at w holesale
11 Observed FCFA/TON ROPwh 1,100.00 - -
12 Parity FCFA/TON RPPwh 1,100.00 - -
Reference Price at Farm Gate
13 Observed FCFA/TON ROPfg 1,030.00 - -
14 Parity FCFA/TON RPPfg 1,030.00 - -
INDICATORS Unit Symbol 2005 2006 2007
15 Observed price w edge at w holesale FCFA/TON OPWwh - - -
16 Price w edge at w holesale FCFA/TON PWwh - - -
17 Observed price w edge at farm gate FCFA/TON OPWFG - - -
18 Price w edge at farm gate FCFA/TON PWfg - - -
19 Observed rate of protection at w holesale % ORPwh 0.00% #DIV/0! #DIV/0!
20 Nominal rate of protection at w holesale % NRPwh 0.00% #DIV/0! #DIV/0!
21 Observed rate of protection at farm gate % ORPfg 0.00% #DIV/0! #DIV/0!
22 Nominal rate of protection at farm gate % NRPfg 0.00% #DIV/0! #DIV/0!
23 Nominal Rate of assistance FCFA/TON NRA - - -
Distribution of price w edge Unit Symbol 2005 2006 2007
24 International markets w edge FCFA/TON IRW - - -
25 Exchange policy w edge FCFA/TON ERPW - - -
25 Access costs w edge to point of competition FCFA/TON ACWwh - - -
27 Access costs w edge to farm gate FCFA/TON ACWfg -
28 Externality w edge FCFA/TON EW - - -
Total values Unit Symbol 2005 2006 2007
29 Production volume tons 1000
30 Market price support YYY -
31 Alternative price support YYY -
Overview of potential situationsPrice Wedge
>0 <0
Observed Price Wedge
>0 I II
<0 III IV
Case I (OPW>0 & PW>0) [imported]
Price Wedge
>0 <0
Observed Price Wedge
>0 I II
<0 III IV
Name of product Example Type of good import
International currency USD Local currency FCFA
DATA Unit Symbol 2005 2006 2007
1 Benchmark price USD/TON Pb(int$) 100.00
2 Observed Exchange Rate FCFA/USD ER0 10.00
3 Observed acess cost to point of competition FCFA/TON ACwh 100.00
4 Wholesale Price FCFA/TON Pdwh 1,150.00
5 Access cost to farm gate FCFA/TON ACfg 100.00
6 Farm gate price FCFA/TON Pdfg 1,050.00
1b Adjusted benchmark price USD/TON Pbalt
2b Shadow exchange rate FCFA/USD ERsh
3b Shadow access cost to point of competition FCFA/TON ACwhsh 75.00
5b Shadow access cost to farm gate FCFA/TON ACfgsh 50.00
7 Externalities associated w ith production FCFA/TON E
8 Budget and other product related transfers FCFA/TON BOT
Quantity conversion factor (border - w holesale) Fraction QTwh
Quality conversion factor (border - w holesale) Fraction QLwh
Quantity conversion factor (w holesale - farm gate) Fraction QTfg
Data available for shadow access costs both from border to point of competition and from point of competition to farm gate
Case I (OPW>0 & PW>0) [imported]
Price Wedge
>0 <0
Observed Price Wedge
>0 I II
<0 III IV
Name of product Type of good import
International currency USD Local currency FCFA
DATA Unit Symbol 2005 2006 2007
1 Benchmark price USD/TON Pb(int$) 100.00
2 Observed Exchange Rate FCFA/USD ER0 10.00
3 Observed acess cost to point of competition FCFA/TON ACwh 100.00
4 Wholesale Price FCFA/TON Pdwh 1,150.00
5 Access cost to farm gate FCFA/TON ACfg 100.00
6 Farm gate price FCFA/TON Pdfg 1,050.00
1b Adjusted benchmark price USD/TON Pbalt
2b Shadow exchange rate FCFA/USD ERsh
3b Shadow access cost to point of competition FCFA/TON ACwhsh 75.00
5b Shadow access cost to farm gate FCFA/TON ACfgsh 50.00
7 Externalities associated w ith production FCFA/TON E
8 Budget and other product related transfers FCFA/TON BOT
Quantity conversion factor (border - w holesale) Fraction QTwh
Quality conversion factor (border - w holesale) Fraction QLwh
Quantity conversion factor (w holesale - farm gate) Fraction QTfg
Quality conversion factor (w holesale - farm gate) Fraction QLfg
CALCULATED PRICES Unit Symbol 2005 2006 2007
Border Price
9 Observed FCFA/TON Pb(loc$) 1,000.00 - -
10 Parity FCFA/TON Pb(loc$)sh 1,000.00 - -
Reference Price at w holesale
11 Observed FCFA/TON ROPwh 1,100.00 - -
12 Parity FCFA/TON RPPwh 1,075.00 - -
Reference Price at Farm Gate
13 Observed FCFA/TON ROPfg 1,000.00 - -
14 Parity FCFA/TON RPPfg 1,025.00 - -
INDICATORS Unit Symbol 2005 2006 2007
15 Observed price w edge at w holesale FCFA/TON OPWwh 50.00 - -
16 Price w edge at w holesale FCFA/TON PWwh 75.00 - -
17 Observed price w edge at farm gate FCFA/TON OPWFG 50.00 - -
18 Price w edge at farm gate FCFA/TON PWfg 25.00 - -
19 Observed rate of protection at w holesale % ORPwh 4.55% #DIV/0! #DIV/0!
20 Nominal rate of protection at w holesale % NRPwh 6.98% #DIV/0! #DIV/0!
21 Observed rate of protection at farm gate % ORPfg 5.00% #DIV/0! #DIV/0!
22 Nominal rate of protection at farm gate % NRPfg 2.44% #DIV/0! #DIV/0!
23 Nominal Rate of assistance FCFA/TON NRA 25.00 - -
Distribution of price w edge Unit Symbol 2005 2006 2007
24 International markets w edge FCFA/TON IRW - - -
25 Exchange policy w edge FCFA/TON ERPW - - -
25 Access costs w edge to point of competition FCFA/TON ACWwh 25.00 - -
27 Access costs w edge to farm gate FCFA/TON ACWfg (50.00)
28 Externality w edge FCFA/TON EW - - -
Total values Unit Symbol 2005 2006 2007
29 Production volume tons 1000
30 Market price support YYY 50,000.00
31 Alternative price support YYY 25,000.00
The nominal rate of protection at wholesale and farm gate are both positives indicating the overall policy effect is supportive for the commodity. Support at wholesale means a premium of 7% and at farm gate 2.4%
As Incentives are higher at the wholesale level, it seems that policies do not benefit farmers as much as wholesalers
From a farmer point of view Inefficiencies in access from border to wholesale provide an
incentive of 25 FCFA per ton Inefficiencies in access cost from wholesale to farm gate provide
a disincentive of 50 FCFA per ton Overall policy environment (i.e. tariffs, quotas, etc.) support
farmers by 50 FCFA per ton.
The Policy analysis
Price Wedge
>0 <0
Observed Price Wedge
>0 I II
<0 III IV
Case II (OPW>0 & PW<0) [imported]
Price Wedge
>0 <0
Observed Price Wedge
>0 I II
<0 III IV
Name of product Example Type of good import
International currency USD Local currency FCFA
DATA Unit Symbol 2005 2006 2007
1 Benchmark price USD/TON Pb(int$) 100.00
2 Observed Exchange Rate FCFA/USD ER0 10.00
3 Observed acess cost to point of competition FCFA/TON ACwh 100.00
4 Wholesale Price FCFA/TON Pdwh 1,150.00
5 Access cost to farm gate FCFA/TON ACfg 100.00
6 Farm gate price FCFA/TON Pdfg 1,050.00
1b Adjusted benchmark price USD/TON Pbalt
2b Shadow exchange rate FCFA/USD ERsh 11.00
3b Shadow access cost to point of competition FCFA/TON ACwhsh
5b Shadow access cost to farm gate FCFA/TON ACfgsh
7 Externalities associated w ith production FCFA/TON E
8 Budget and other product related transfers FCFA/TON BOT
Quantity conversion factor (border - w holesale) Fraction QTwh
Quality conversion factor (border - w holesale) Fraction QLwh
Quantity conversion factor (w holesale - farm gate) Fraction QTfg
Exchange rate in the country is overvalued
Case II (OPW>0 & PW<0) [imported]
Price Wedge
>0 <0
Observed Price Wedge
>0 I II
<0 III IV
Name of product Type of good import
International currency USD Local currency FCFA
DATA Unit Symbol 2005 2006 2007
1 Benchmark price USD/TON Pb(int$) 100.00
2 Observed Exchange Rate FCFA/USD ER0 10.00
3 Observed acess cost to point of competition FCFA/TON ACwh 100.00
4 Wholesale Price FCFA/TON Pdwh 1,150.00
5 Access cost to farm gate FCFA/TON ACfg 100.00
6 Farm gate price FCFA/TON Pdfg 1,050.00
1b Adjusted benchmark price USD/TON Pbalt
2b Shadow exchange rate FCFA/USD ERsh 11.00
3b Shadow access cost to point of competition FCFA/TON ACwhsh
5b Shadow access cost to farm gate FCFA/TON ACfgsh
7 Externalities associated w ith production FCFA/TON E
8 Budget and other product related transfers FCFA/TON BOT
Quantity conversion factor (border - w holesale) Fraction QTwh
Quality conversion factor (border - w holesale) Fraction QLwh
Quantity conversion factor (w holesale - farm gate) Fraction QTfg
Quality conversion factor (w holesale - farm gate) Fraction QLfg
CALCULATED PRICES Unit Symbol 2005 2006 2007
Border Price
9 Observed FCFA/TON Pb(loc$) 1,000.00 - -
10 Parity FCFA/TON Pb(loc$)sh 1,100.00 - -
Reference Price at w holesale
11 Observed FCFA/TON ROPwh 1,100.00 - -
12 Parity FCFA/TON RPPwh 1,200.00 - -
Reference Price at Farm Gate
13 Observed FCFA/TON ROPfg 1,000.00 - -
14 Parity FCFA/TON RPPfg 1,100.00 - -
INDICATORS Unit Symbol 2005 2006 2007
15 Observed price w edge at w holesale FCFA/TON OPWwh 50.00 - -
16 Price w edge at w holesale FCFA/TON PWwh (50.00) - -
17 Observed price w edge at farm gate FCFA/TON OPWFG 50.00 - -
18 Price w edge at farm gate FCFA/TON PWfg (50.00) - -
19 Observed rate of protection at w holesale % ORPwh 4.55% #DIV/0! #DIV/0!
20 Nominal rate of protection at wholesale % NRPwh -4.17% #DIV/0! #DIV/0!
21 Observed rate of protection at farm gate % ORPfg 5.00% #DIV/0! #DIV/0!
22 Nominal rate of protection at farm gate % NRPfg -4.55% #DIV/0! #DIV/0!
23 Nominal Rate of assistance FCFA/TON NRA (50.00) - -
Distribution of price wedge Unit Symbol 2005 2006 2007
24 International markets w edge FCFA/TON IRW - - -
25 Exchange policy w edge FCFA/TON ERPW (100.00) - -
25 Access costs w edge to point of competition FCFA/TON ACWwh - - -
27 Access costs w edge to farm gate FCFA/TON ACWfg -
28 Externality w edge FCFA/TON EW - - -
Total values Unit Symbol 2005 2006 2007
29 Production volume tons 1000
30 Market price support YYY 50,000.00
31 Alternative price support YYY (50,000.00)
The nominal rate of protection is negative, meaning that farmers are not supported by the overall policy environment.
In this case there are no differences along the value chain thus there is no specific market power.
This negative support due to an overvalued exchange rate shows that existing trade policies do not compensate the impact of the exchange rate.
The Policy analysis
Price Wedge
>0 <0
Observed Price Wedge
>0 I II
<0 III IV
Case III (OPW<0 & PW>0) [imported]
Price Wedge
>0 <0
Observed Price Wedge
>0 I II
<0 III IV
International currency USD Local currency FCFA
DATA Unit Symbol 2005 2006 2007
1 Benchmark price USD/TON Pb(int$) 100.00
2 Observed Exchange Rate FCFA/USD ER0 10.00
3 Observed acess cost to point of competition FCFA/TON ACwh 200.00
4 Wholesale Price FCFA/TON Pdwh 1,150.00
5 Access cost to farm gate FCFA/TON ACfg 100.00
6 Farm gate price FCFA/TON Pdfg 1,050.00
1b Adjusted benchmark price USD/TON Pbalt
2b Shadow exchange rate FCFA/USD ERsh 10.50
3b Shadow access cost to point of competition FCFA/TON ACwhsh 50.00
5b Shadow access cost to farm gate FCFA/TON ACfgsh 5.00
7 Externalities associated w ith production FCFA/TON E
8 Budget and other product related transfers FCFA/TON BOT
Quantity conversion factor (border - w holesale) Fraction QTwh
Quality conversion factor (border - w holesale) Fraction QLwh
Quantity conversion factor (w holesale - farm gate) Fraction QTfg
Quality conversion factor (w holesale - farm gate) Fraction QLfg
Exchange rate is overvaluedAccess costs are very high in the country (i.e. bad infrastructure, bribes, market power by wholesalers...)
Case III (OPW<0 & PW>0) [imported]
Price Wedge
>0 <0
Observed Price Wedge
>0 I II
<0 III IV
Name of product Type of good import
International currency USD Local currency FCFA
DATA Unit Symbol 2005 2006 2007
1 Benchmark price USD/TON Pb(int$) 100.00
2 Observed Exchange Rate FCFA/USD ER0 10.00
3 Observed acess cost to point of competition FCFA/TON ACwh 200.00
4 Wholesale Price FCFA/TON Pdwh 1,150.00
5 Access cost to farm gate FCFA/TON ACfg 100.00
6 Farm gate price FCFA/TON Pdfg 1,050.00
1b Adjusted benchmark price USD/TON Pbalt
2b Shadow exchange rate FCFA/USD ERsh 10.50
3b Shadow access cost to point of competition FCFA/TON ACwhsh 50.00
5b Shadow access cost to farm gate FCFA/TON ACfgsh 5.00
7 Externalities associated w ith production FCFA/TON E
8 Budget and other product related transfers FCFA/TON BOT
Quantity conversion factor (border - w holesale) Fraction QTwh
Quality conversion factor (border - w holesale) Fraction QLwh
Quantity conversion factor (w holesale - farm gate) Fraction QTfg
Quality conversion factor (w holesale - farm gate) Fraction QLfg
CALCULATED PRICES Unit Symbol 2005 2006 2007
Border Price
9 Observed FCFA/TON Pb(loc$) 1,000.00 - -
10 Parity FCFA/TON Pb(loc$)sh 1,050.00 - -
Reference Price at w holesale
11 Observed FCFA/TON ROPwh 1,200.00 - -
12 Parity FCFA/TON RPPwh 1,100.00 - -
Reference Price at Farm Gate
13 Observed FCFA/TON ROPfg 1,100.00 - -
14 Parity FCFA/TON RPPfg 1,095.00 - -
INDICATORS Unit Symbol 2005 2006 2007
15 Observed price w edge at w holesale FCFA/TON OPWwh (50.00) - -
16 Price w edge at w holesale FCFA/TON PWwh 50.00 - -
17 Observed price w edge at farm gate FCFA/TON OPWFG (50.00) - -
18 Price w edge at farm gate FCFA/TON PWfg (45.00) - -
19 Observed rate of protection at w holesale % ORPwh -4.17% #DIV/0! #DIV/0!
20 Nominal rate of protection at wholesale % NRPwh 4.55% #DIV/0! #DIV/0!
21 Observed rate of protection at farm gate % ORPfg -4.55% #DIV/0! #DIV/0!
22 Nominal rate of protection at farm gate % NRPfg -4.11% #DIV/0! #DIV/0!
23 Nominal Rate of assistance FCFA/TON NRA (45.00) - -
Distribution of price wedge Unit Symbol 2005 2006 2007
24 International markets w edge FCFA/TON IRW - - -
25 Exchange policy w edge FCFA/TON ERPW (50.00) - -
25 Access costs w edge to point of competition FCFA/TON ACWwh 150.00 - -
27 Access costs w edge to farm gate FCFA/TON ACWfg (95.00)
28 Externality w edge FCFA/TON EW - - -
Total values Unit Symbol 2005 2006 2007
29 Production volume tons 1000
30 Market price support YYY (50,000.00)
31 Alternative price support YYY (45,000.00)
The nominal rate of protection is positive meaning that the overall policy environment is supportive of farmers
The overvalued exchange rate is providing a disincentive for farmers (implicit tax) of 50
Inefficiencies in access from border to wholesale provide an incentive of 150 FCFA per ton
Inefficiencies in access cost from wholesale to farm gate provide a disincentive of 45 FCFA per ton
There is some kind of import subsidy that is also dis-incentivising production for a value of 50.
The Policy analysis
Price Wedge
>0 <0
Observed Price Wedge
>0 I II
<0 III IV
Case IV (OPW<0 & PW<0) [imported]
Price Wedge
>0 <0
Observed Price Wedge
>0 I II
<0 III IV
International currency USD Local currency FCFA
DATA Unit Symbol 2005 2006 2007
1 Benchmark price USD/TON Pb(int$) 100.00
2 Observed Exchange Rate FCFA/USD ER0 10.00
3 Observed acess cost to point of competition FCFA/TON ACwh 200.00
4 Wholesale Price FCFA/TON Pdwh 1,150.00
5 Access cost to farm gate FCFA/TON ACfg 100.00
6 Farm gate price FCFA/TON Pdfg 1,050.00
1b Adjusted benchmark price USD/TON Pbalt
2b Shadow exchange rate FCFA/USD ERsh 10.50
3b Shadow access cost to point of competition FCFA/TON ACwhsh 50.00
5b Shadow access cost to farm gate FCFA/TON ACfgsh 55.00
7 Externalities associated w ith production FCFA/TON E
8 Budget and other product related transfers FCFA/TON BOT
Quantity conversion factor (border - w holesale) Fraction QTwh
Quality conversion factor (border - w holesale) Fraction QLwh
Quantity conversion factor (w holesale - farm gate) Fraction QTfg
Quality conversion factor (w holesale - farm gate) Fraction QLfg
Exchange rate in the country is overvaluedAccess costs are ineffcient
Case IV (OPW<0 & PW<0) [imported]
Price Wedge
>0 <0
Observed Price Wedge
>0 I II
<0 III IV
Name of product Type of good import
International currency USD Local currency FCFA
DATA Unit Symbol 2005 2006 2007
1 Benchmark price USD/TON Pb(int$) 100.00
2 Observed Exchange Rate FCFA/USD ER0 10.00
3 Observed acess cost to point of competition FCFA/TON ACwh 200.00
4 Wholesale Price FCFA/TON Pdwh 1,150.00
5 Access cost to farm gate FCFA/TON ACfg 100.00
6 Farm gate price FCFA/TON Pdfg 1,050.00
1b Adjusted benchmark price USD/TON Pbalt
2b Shadow exchange rate FCFA/USD ERsh 11.00
3b Shadow access cost to point of competition FCFA/TON ACwhsh
5b Shadow access cost to farm gate FCFA/TON ACfgsh
7 Externalities associated w ith production FCFA/TON E
8 Budget and other product related transfers FCFA/TON BOT
Quantity conversion factor (border - w holesale) Fraction QTwh
Quality conversion factor (border - w holesale) Fraction QLwh
Quantity conversion factor (w holesale - farm gate) Fraction QTfg
Quality conversion factor (w holesale - farm gate) Fraction QLfg
CALCULATED PRICES Unit Symbol 2005 2006 2007
Border Price
9 Observed FCFA/TON Pb(loc$) 1,000.00 - -
10 Parity FCFA/TON Pb(loc$)sh 1,100.00 - -
Reference Price at w holesale
11 Observed FCFA/TON ROPwh 1,200.00 - -
12 Parity FCFA/TON RPPwh 1,300.00 - -
Reference Price at Farm Gate
13 Observed FCFA/TON ROPfg 1,100.00 - -
14 Parity FCFA/TON RPPfg 1,200.00 - -
INDICATORS Unit Symbol 2005 2006 2007
15 Observed price w edge at w holesale FCFA/TON OPWw h (50.00) - -
16 Price w edge at w holesale FCFA/TON PWw h (150.00) - -
17 Observed price w edge at farm gate FCFA/TON OPWFG (50.00) - -
18 Price w edge at farm gate FCFA/TON PWfg (150.00) - -
19 Observed rate of protection at w holesale % ORPw h -4.17% #DIV/0! #DIV/0!
20 Nominal rate of protection at wholesale % NRPwh -11.54% #DIV/0! #DIV/0!
21 Observed rate of protection at farm gate % ORPfg -4.55% #DIV/0! #DIV/0!
22 Nominal rate of protection at farm gate % NRPfg -12.50% #DIV/0! #DIV/0!
23 Nominal Rate of assistance FCFA/TON NRA (150.00) - -
Distribution of price wedge Unit Symbol 2005 2006 2007
24 International markets w edge FCFA/TON IRW - - -
25 Exchange policy w edge FCFA/TON ERPW (100.00) - -
25 Access costs w edge to point of competition FCFA/TON ACWwh - - -
27 Access costs w edge to farm gate FCFA/TON ACWfg -
28 Externality w edge FCFA/TON EW - - -
Total values Unit Symbol 2005 2006 2007
29 Production volume tons 1000
30 Market price support YYY (50,000.00)
31 Alternative price support YYY (150,000.00)
The nominal rate of protection is negative and thus farmers are dis-incentivsed.
Most of the disincentive comes from an overvalued exchange rate (100).
However there seems to be also some kind of import subsidy that is further depressing prices that could be obtained by farmers.
The Policy analysis
Price Wedge
>0 <0
Observed Price Wedge
>0 I II
<0 III IV
Aggregation
The final figure can cancel out incentives in one commodity and disincentives in another Aggregation by incentivized and dis-incentivized commodities
(mentioning share of total output) can avoid this Commodity specific analysis to complement the aggregated
indicator
Using the production figures and the wedges and aggregated indicator for the whole agricultural sector can be obtained (total market price support)
ni
ifgiag i
OPWOutputMPS1
ni
ifgni
ii
iag i
OPWOutput
OutputORP
1
1
Thank you!