Government Distortions of Agricultural Prices: Lessons from Rich and Emerging Economies

For many decades agricultural protection and subsidies in high-income (and some middle-income) countries have been depressing international prices of farm products, which lowers the earnings of farmers and associated rural businesses in developing countries. That worsened between the 1950s and the early 1980s (Anderson et al., 1986), thereby adding to global inequality and poverty because three-quarters of the world’s poorest people depend directly or indirectly on agriculture for their main income (World Bank, 2007). In addition to that external policy influence on rural poverty, however, the governments of many developing countries have directly taxed their farmers over the past half-century. A well-known example is the taxing of exports of plantation crops in postcolonial Africa (Bates, 1981). At the same time, many developing countries chose also to pursue an import-substituting industrialization strategy, predominantly by restricting imports of manufactures, and to overvalue their currency. Together those measures indirectly taxed producers of other tradable products in developing economies, by far the majority of them being farmers (Krueger et al., 1988, 1991).