Agricultural Prices: Third World Dilemma

Due to a lack of internationally comparable agricultural price data, implicit output/input price ratios are constructed as the reciprocals of input MPPs. The MPPs are estimated by a production function fitted to data from a world cross section of 119 countries. Although the output/purchased input price rations are substantially higher for the developed nations than the less developed countries, the opposite is true of the output/labor price ratio. The price of agricultural output relative to wages and per capita income is nearly three times greater in the third world than in the developed countries. Price and trade policies which maintain output prices in developing countries below world market levels are seen as a compromise between the low output/purchased input ratios and still higher output/labor ratios. Because of this compromise, third world nations are caught in a "catch-22" situation. Modern inputs are not profitable because people are poor. People are poor because modern inputs are not profitable. The proposed international food stamp program is envisioned as a way for low income countries to alleviate the short-run hunger problems while promoting long-run economic growth.