Transcript Question/discussion: what the key government policies on

MAFAP: Policy Context Analysis
Module 2
Day 1 : Sessions 3 and 4
Outline of country report
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Part 1: Background and context analysis
– Description of the national and agricultural economies
– Food and agricultural policy description and political economy of decision making
– Analysis of developement and performance indicators and linkages
Part 2: Conclusions based on analyses of food and agicultural policies and public
expenditures in agriculture
– Analysis of agricultural price incentives and disincentives and degree of market
development
– Analysis of public expenditures and aid to agriculture
Part 3: Specific policy questions of particular relevance or interest to the country
Conclusions
– Consequences of analyses carried-out and for policy dialogue
– Lessons learned and way forward
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The three pillars of the MAFAP methodology
Pillar 1 : Context and
institutional framework
Main
characteristics of
the food and
agricultural
economy
Pillar 2 : Measuring price
incentives/disincentives
and market
development gaps
Measurement of
incentives and
disincentives for a
selection of key
commodities
Pillar 3: Level and
composition of public
expenditures and aid to
agriculture
Analysis of public
spending in
support to
agricultural sector
Objectives of the policy review
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Global and country reports will be used to improve
policy dialogue in dedicated fora at 3 levels
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national
subregional
Panafrican
Policy review should :
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Describe the context of our analysis
Provide key information to ease interpretation of
measurement results
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Description of policy context
• Brief description of the policy environment including political
economy analysis
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what – key issues , drivers of change
who – key players, leaders, policy champions,
how and where – policy space, interactions,
when – time, timing, timeliness, etc.
• Indicators of development and performance in various
domains
• Indicators to help interpret indicators on
incentives/disincentives to production/consumption and
public spending
Development and Performance Indicators
• DPIs based on secondary data
• To inform questions on national policy objectives
– Food security, Economic growth, Poverty reduction , etc.
• To show linkages between policy environment and sectoral performances
• To provide quantitative information on the contexte to better analyse and
understand
– Incentives /Disincentives AND Public Expenditures
• Simple but relevant indicators
• Available and reliable over time
• Common or comparable across countries
• Desaggregated to the extent possible
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What are the suitable DPIs
• Examples of DPI : Percentage of rural roads paved helps the
analysis on
– Disincentives due to high transport costs
– Public spending on infrastructure
• Indicators classified in 9 thematic categories
• Preliminary list that can evolve and be updated over
time
2/10/2011
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The 9 categories of DPIs
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2.
3.
4.
5.
6.
7.
8.
9.
2/10/2011
Sectoral performances and market structure
Costs in out put markets
Costs in input markets
Poverty, equity, food security, etc.
Labor and employment
Heath
Education
Demography and population
Environment and natural resources
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Work in Groups
1. What Food and Agricultural policies (measures) to
consider ? National? Regional?
2. What projects and programmes, past or current, on
value chain analysis or policy analysis should be
considered?
3. What are the sources of information and data for DPI
? National ? Regional? (1 to 4)
4. What are the sources of information and data for DPI
? National ? Regional? (5 to 9)
Overview of the MAFAP
Methodology
Day 1, session 3 and 4
Commodity Price Analysis and Government Policies
The goal of the this presentation is to briefly:
 Review the rational/goals of government policies.
 Review key policies and discuss their likely impacts on
commodity price incentives.
 Stress the tradeoffs in policies (between various objectives such
as efficiency, equity, etc.).
Commodity Price Analysis and Government Policies
MAFAP Objectives:
• Examine commodity market price incentives
• Examine public expenditure
AND
• Analyze/evaluate the linkages of government policies
including government investment policies to
commodity price incentives
Rationale for government policies
• Belief that government intervention can accelerate growth
• PP can correct market failure/imperfection:
 credit market in rural areas, market power, etc.
• PP can reduce the impacts of externalities
 environmental pollution, over utilization of resources
creating soil erosion, etc.
Impacts of government policies
The impacts depend on:
• Objectives or goals of policy makers
• They are subject to constraints of the economic realities
• Depend on the instruments that governments use
Note:
There are always tradeoffs in meeting different and often competing policy
goals (we discuss the issue at the end of this session)
General goals of government policies (1/2)
• Efficient resource allocations to improve
agricultural productivity
• Efficiency of production to get a sizeable market
share in the highly competitive global trade market
(comparative advantage in production)
• Equity of the income distribution (targeted policies
toward special groups)
General goals of government policies (2/2)
• Equity goal: governments like to reduce the gap between low
and high income population to reduce poverty and maintain
social harmony.
• Security goal aims at providing economic stability and in the
case of food security refers to food availability at affordable and
stable prices for all.
Question: What are the key policy goals in Tanzania?
Key constraints limiting impacts of agricultural policies
• Supply: domestic production is limited by resources, technologies,
relative input prices, and management capabilities
• Demand: domestic consumption is limited by population, income,
tastes, and relative product prices
• World Prices limit imports to increase domestic supply and to
export to increase markets for domestic production.
Question: What are the key constraints in agricultural production in
Tanzania?
Types of policies affecting agricultural commodities:
• Agricultural price policies tend to be commodity specific, either
targeted to one or more commodities or to agricultural inputs
• Macro-economic policies are country-wide policies and tend to affect
all sectors of the economy
• Government investments are expenditures from the public budget
and can affect on diverse agricultural groups depending on the
specific areas where the investment occurs
• Foreign government policies through aid and technical assistance
Impacts of Agricultural Price Policies
• Agricultural price policies will affect producers, consumers, and
the government budget.
• Depending on the type of policy, there will be transfers between
two or all three groups.
• This means there are losers and winners!
Question: What are the key recent agricultural policy initiatives in Tanzania?
Taxes and subsidies
result in transfers between the budget  producers  consumers
Taxes = transfer resources to the government
Subsidies = transfer resources away from the government
Example of fixed producer price policy (higher than the international
prices):
 gain for producers
 loss for consumers
 increase in budget outlay that should be compensated by higher taxes
Price stabilization policies
Due to high production variation causing market prices to fluctuate
substantially from one production cycle to the next and include
 trade restrictions
 price fixing
 rationing
 storage schemes
Crop insurance and futures and options markets are institutions that
reduce the uncertainty of prices and income but these institutions are not
adopted by most developing countries.
International trade restrictions
• Taxes or quotas that limit either imports or exports
 change domestic price levels
 impacts on both producers and consumers
• Import restrictions raise domestic prices above world prices
• Export restrictions lower domestic prices /world price
Question: What are the main trade measures? What
are the current policy tradeoffs?
Factor price policies: traded and non-traded
• directly affect agricultural costs of production.
• For traded inputs such as fertilizer use is straight forward
 domestic prices are compared with international prices to estimate
taxes/subsidies
• For non-traded inputs including land, labor, and capital.
 Land and labor costs account for a large share of the production costs
 Policies to consider include:
• land rental rates, control of land use, water use/cost policies
• minimum wage, interest rates
Question and discussion
1. Question: what are the key policy goals of the government?
2. Question: what are the key constraints in agricultural production?
3. Question: what are the key recent agricultural policy initiatives?
Price policy initiative?
4. Question: what are the main trade policy measures ? What are the
main policy tradeoffs?
Macro-economic Policies
• Three categories of macro-economic policies affect agriculture:
 Monetary policies
 Fiscal policies
 Exchange rate policies
Monetary and fiscal policies
• influence all sectors of the economy.
• key is their impacts on the rate of price inflation (consumer or
producer prices).
• Monetary policies that increase supply of money lead to faster
demand growth for goods thus put pressure on inflation
• Similarly, inflation increases when government deficits are
covered by expanding supply of money.
Exchange rate policies
• Exchange rates affect agricultural prices and costs of tradable
goods (imports and exports)
 domestic price (in local currency) of a tradable commodity =
world price (in foreign currency) X exchange rate (the ratio of
domestic to foreign currency).
• In the estimations of price incentives, exchange rate
misalignment needs to be estimated
Public Expenditure Policies Influencing Agriculture
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Government budget is spent directly or indirectly to
 improve incomes,
 increase productivity
 reduce transaction costs
Most common direct expenditures:
 production and input subsidies
 direct payments
 investments in infrastructure (on and off farm)
 investment in human capital (agricultural education and training, etc.)
 Investment in agriculture research and technology (and extension)
Most common indirect expenditures include rural development measures (rural
infrastructure, education, health).
Public expenditures on input subsidies
Objective: to enable farmers to use inputs and technologies
Constraint: difficult problems of developing input markets and
associated financial services to small farmers
Quick analysis of inputs subsidies:
 treat the symptoms rather than origins of market failures
 distort resource allocation
 are often costly and difficult to sustain without cutting
expenditures on important public goods.
Question: what are the policy to support access to inputs? How
are these measures implemented?
Public investments in research and technology (R&D)
• Such investments benefit both producers and consumers.
• Very important investments for production growth
• Tend to have strong long-term impacts although difficult to
measure in terms of return to specific commodity in a given year.
Question/discussion: What are the public investments in R&D and
technology ?
Public investments in infrastructure
• To improve returns to producers
• To lower costs of production
• includes investment in roads, ports, and irrigation networks (and
can be on and off farm)
• tend to be targeted and benefit mostly the producers and
consumers who live in those regions
Question/discussion: what the key government policies on
investments ? What investments in irrigation network?
Public investments in human capital
• include wide variations of policies
 All investments to improve the skill levels and health of producers
and consumers
 Investments in formal schools, training and extension centers
 Investments in public health facilities, and clinics and hospitals
• very important investments for long-term development
• Their short-terms impacts on prices difficult to measure.
Question/discussion: What are the investments on human capital
(education, extension service, health care, etc.)?
Discussion on Policy Tradeoffs
• Often gains for one policy goal result in losses for another (example of
price subsidy and budget deficit or consumer and producer price
subsidy).
• Assigning weights to objectives of government policies are value
judgments but the goal of analysis is to identify the appropriate
tradeoffs between policies.
• Quantitative analyses are critical for policymakers to examine the
impacts of their policies (producers, consumers, budget, efficiency,
equity, etc.).
Question and discussion:
1. Question/discussion: what are the policy to support access to inputs? How are
these measures implemented?
2. Question/discussion: What are the public investments in R&D and technology ?
3. Question/discussion: what the key government policies on investments ? What
investments in irrigation network?
4. Question/discussion: What are the investments on human capital (education,
extension service, health care, etc.)?
Thank you!