World Bank’s DAI (Distortions to Agricultural Incentives) project Kym Anderson University of Adelaide and Australian National University [email protected] Seminar on Monitoring Agricultural Incentives: A Global Perspective, IFPRI, Washington DC, 18 November 2016
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World Bank’s DAI (Distortions to
Agricultural Incentives) project
Kym AndersonUniversity of Adelaide and Australian National University
Seminar on Monitoring Agricultural Incentives: A Global Perspective, IFPRI, Washington DC, 18 November 2016
Outline
Key hypotheses
Methodology
Sample
Findings
Lessons
Key hypothesis
As countries develop economically, they tend to switch from taxing to assisting farmers relative to other producers
At least until agric. sector becomes very small and begins to lose support
• Cassing, J.H. and A.L. Hillman, ‘Shifting Comparative Advantage and Senescent Industry Collapse’, American Economic Review 76(3): 516-23, June 1986
Additional hypothesis
Countries transmit international food price changes only partially so as to reduce domestic price fluctuations, esp. when prices suddenly spike up or down
Loss aversion literature
Methodology
Based primarily on annual comparison of domestic and border prices
to capture NTBs, as well as trade taxes that may be a mix of specific & ad valorem
Nominal rate of assistance (NRA) and consumer tax equivalent (CTE)
Similar to OECD’s PSE and CSE, except expressed as % rise in undistorted prices
Methodology (continued)
Also estimated NRA for non-ag tradables so as to be able to calculate a relative rate of assistance to farmers (RRA)
in spirit of Symmetry Thm. of Lerner (1936)
Simple criterion for anti-agricultural bias in policy in year t: Is RRAt< 0, where
RRAt = [(1+NRAagt)/(1+NRAnonagt) – 1]
Sample: 80 x 80 x 50
Countries: 82 included, covering >90% of global popn, GDP, agric trade, …
Products: as with OECD, enough to cover >70% of national value of agric prodn
Total of almost 80, av. of 11 per country
Years: Almost 50 years per country (except for ECA), from 1955 to 2004-7, then updated to 2011
Findings
As countries develop economically, they:
(1) do indeed tend to switch from taxing to assisting farmers relative to other producers
(2) … and at the same rate in DCs as previously in HICs during 1955-2004
RRA rises with per capita income-1
00
0
100
200
300
400
Rel
ativ
e R
ate
of A
ssis
tanc
e (%
)
-1 0 1 2 3Ln real GDP per capita
HIC RRA obs HIC fitted values
DC RRA obs DC fitted values
Findings
As countries develop economically:
(3) the strong anti-trade bias in DC agricpolicies persists
In DCs: NRA ag export taxation disappearing,
but ag import-competing NRA is >0 & growing
-60
-50
-40
-30
-20
-10
0
10
20
30
40
50
1955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
perc
en
t
Covered import-competing agricultural products
Covered exportable agricultural products
Linear (Covered import-competing agricultural
products)
Findings
(4) Rise in RRA in DCs was due as much to reductions in manuf. protection as in taxation of farming
RRA for all DCs: moved from very
negative to slightly positive after 2000
13
Findings
(5) In some cases, removal of overvalued exchange rates played a non-trivial role, e.g. China
1981-84 1985-89 1990-94 1995-99
RRA -61 -50 -31 -3
RRA (ignoring
exchange rate distortion)
-52 -41 -26 -3
Findings
(6) Much year-to-year fluctuation in NRAs around longer-run trends
… NRAs are negatively correlated with int’l price fluctuations, aimed at insulating domestic markets
Rice NRA, global wted. av. 1970-2010
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
0
100
200
300
400
500
600
700
NR
A (
%)
Inte
rn.
Pri
ce
Intern. Price in USD
NRA all countries
Agric NRA for DCs (%)
Ups & downs of ag NRA for HICs
Findings
(7) With agric RRAs in HICs & DCs converging toward zero during 1985-2011, global disarray in ag and food markets at end of DAI project was much less than at end of K/S/V project
Proportions of global farm
population facing various RRAs:
1980-89 2000-09
-1
00
-5
0
05
01
00
150
200
Rela
tiv
e R
ate of A
ssis
tance
(%
)
0 20 40 60 80 100
Cumulative share in agricultural population (%)
-1
00
-5
0
05
01
00
150
200
Rela
tive
Rate
of A
ssis
tance
(%
)
0 20 40 60 80 100
Cumulative share in agricultural population (%)
Findings
(8) However, some emerging economies are not stopping at neutral RRA=0 point
Rather, they are following NE Asia, in now increasingly assisting their farmers
RRAs to 2004: would RRAs for
China and India keep rising?
-50
050
100
150
200
RR
A (
%)
7 8 9 10Ln real GDP per capita
China Japan Korea Taiwan India
Agric NRAs (%): China & Indonesia
already exceed average for EU countriesSources: Huang et al. (2009), Warr (2009) and OECD (2016)
Findings
(9) World is still a long way from being free of agric distortions, because:
Still very wide cross-country dispersion of NRAs within HIC and DC country groups
Still very wide cross-product dispersion of NRAs within each country’s agric sector
NRAagric trends for DCs, 1955-2009
(%, 5-year averages, and spread in 2005-09)
-30
-20
-10
0
10
20
30
40
50
60
1955-59 1965-69 1975-79 1985-89 1995-99 2005-09
Global NRA averages by product, 2005-09
(%)
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
Lessons
To avoid exaggerating av. NRA/CTE:
Expand product coverage to also cover 70% of value of consumption of farm products
Assume something about NRAs and CTEs for the missing 30% of products
Improve price comparisons by estimating price transmission along the value chain
back to farm, forward to consumer
To provide better indicators of the welfare and trade
reductions associated with price distortions (using no more than the data needed to estimate NRAs/CTEs)
… also estimate partial equil. variants of TRIs pioneered by J. Anderson/P. Neary
Welfare (or Trade) Reduction Index
= that uniform agric. trade tax rate which, if applied to all goods in place of all actual ag. producer and consumer price distortions, would result in the same reduction in national economic welfare (or in value of trade)
NRA global av. understate true welfare-
and trade-reducing effects of policies
0
10
20
30
40
50
60
70
80
1960-64 1970-74 1980-84 1990-94 2000-04
NRA WRI TRI
Databases and booksAll Agric Distortions Research Project working papers, regional and poverty e-books, and global distortions database are freely available at: www.worldbank.org/agdistortions
BOOKS:Anderson, K and A. Valdés (eds.), Distortions to Agricultural Incentives in Latin America, World Bank, 2008
Anderson, K and J. Swinnen (eds.), Distortions to Agricultural Incentives in Europe’s Transition Economies, World Bank, 2008
Anderson, K and W. Martin (eds.), Distortions to Agricultural Incentives in Asia, World Bank, 2009
Anderson, K and W.A. Masters (eds.), Distortions to Agricultural Incentives in Africa, World Bank, 2009
Anderson, K. (ed.), Distortions to Agricultural Incentives: A Global Perspective, 1955-2007, Palgrave Macmillan, 2009
Anderson, K., J. Cockburn and W. Martin (eds.), Agricultural Price Distortions, Inequality and Poverty, World Bank, 2010
Anderson, K. (ed.), The Political Economy of Agricultural Price Distortions, Cambridge University Press, 2010
Summary journal articles
Anderson, K. “Reducing Distortions to Agricultural Incentives: Progress, Pitfalls and Prospects” (AAEA Fellows Address), American Journal of Agricultural Economics 88(5): 1135-46, December 2006.
Anderson, K., M. Kurzweil, W. Martin, D. Sandri and E. Valenzuela, “Measuring Distortions to Agricultural Incentives, Revisited”, World Trade Review 7(4): 675–704, October 2008.
Anderson, K. “Policy Reform Affecting Agricultural Incentives: Much Achieved, Much Still Needed”, World Bank Research Observer 25(1): 21-55, February 2010
Anderson, K. “Krueger/Schiff/Valdés Revisited: Agricultural Price and Trade Policy Reform in Developing Countries Since 1960”, Applied Econ Perspectives and Policy 32(2): 195-231, Summer 2010
Anderson, K., J. Cockburn and W. Martin, “Would Freeing Up World Trade Reduce Poverty and Inequality? The Vexed Role of Agricultural Distortions”, The World Economy 34(4): 487-515, April 2011
Anderson, K., G. Rausser and J.F.M. Swinnen, “Political Economy of Public Policies: Insights from Distortions to Agricultural and Food Markets”, Journal of Economic Literature 51(2): 423-77, June 2013
Anderson, K. “Agricultural Price Distortions: Trends and Volatility, Past and Prospective”, Agricultural Economics 44(S): 163-71, November 2013
TRI/WRI journal articles
Croser, J.L., P.J. Lloyd and K. Anderson, “How Do Agricultural Policy Restrictions to Global Trade and Welfare Differ Across Commodities?” American Journal of Agricultural Economics 92(3): 698-712, April 2010
Lloyd, P.J., Croser, J.L. and K. Anderson, "Global Distortions to Agricultural Markets: New Indicators of Trade and Welfare Impacts, 1960 to 2007" Review of Development Economics 14(2): 141-60, May 2010
Anderson, K. and J.L. Croser, “New Indicators of How Much Agricultural Policies Restrict Global Trade, Journal of World Trade 44(5): 1109-26, October 2010
Anderson, K. and J.L. Croser, “Novel Indicators of the Trade and Welfare Effects of Agricultural Distortions in OECD Countries”, Review of World Economics 147(2): 269-302, June 2011
Croser, J.L. and K. Anderson, “Changing Contributions of Different Agricultural Policy Instruments to Global Reductions in Trade and Welfare”, World Trade Review 10(3): 297-323, July 2011
Croser, J.L. and K. Anderson, “Agricultural Distortions in Sub-Saharan Africa: Trade and Welfare Indicators, 1961 to 2004”, World Bank Economic Review 25(2): 250-77, 2011
Food price insulation articles
Martin, W. and K. Anderson, “Export Restrictions and Price Insulation During Commodity Price Booms”, American Journal of Agricultural Economics 94(2): 422-27, January 2012
Anderson, K. and S. Nelgen, “Agricultural Trade Distortions During the Global Financial Crisis”, Oxford Review of Economic Policy 28(2): 235-60, Summer 2012
Anderson, K., M. Ivanic and W. Martin, “Food Price Spikes, Price Insulation, and Poverty”, Ch. 8 in The Economics of Food Price Volatility, edited by J.-P. Chavas, D. Hummels and B.D. Wright, University of Chicago Press for NBER, 2014
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