1. 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

2. Problem setting No comprehensive information on policies affecting agricultural sectors of the developing countries is currently available

3. 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

4. But with a caveat… Indicators should provide useful indications of policy dimensions but not take the place of analysis of policy impact

5. 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

6. Structure of the Agricultural Policy Indicators (API) project

7. 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

8. 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

9. 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

10. 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

11. 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)

12. 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

13. 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?

14. 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

15. 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

16. 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

17. Transforming the information into policy indicators for impact analysis Nominal rate of protection (NRP) Increase in gross revenue per unit (producer price) from sales of product Adjusted nominal rate (ANRP) Increase in net revenue per unit after input subsidies (taxes) are taken into account Effective rate of protection (ERP) Increase in value added per unit (gross revenue less input costs) Nominal rate of assistance (NRA) Increase in revenue including payments not tied to production (decoupled) Effective rate of assistance (ERA) Increase in value added after adding decoupled payments Producer subsidy equivalent (PSE) Income transfers through price and non- price policies as a proportion of with- policy income

18. 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

19. Methodological Issues E conomy 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

20. 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

21. Methodological Issues Measuring 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

22. Methodological Issues Incidence 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

23. Computational Issues especially 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