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PRODUCER SUPPORT ESTIMATES (PSEs) FOR AGRICULTURE IN DEVELOPING COUNTRIES: MEASUREMENT ISSUES AND ILLUSTRATIONS FROM INDIA AND CHINA

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  • Mullen, Kathleen
  • Sun, Dongsheng
  • Orden, David
  • Gulati, Ashok

Abstract

In many developing countries, governments rely on price-based measures (including border protection and subsidies on inputs and outputs) more than on budgetary payments to achieve agricultural policy objectives defined to include price stabilization or food self-sufficiency. Assessing the effects of these price-based measures is thus important to evaluating whether agriculture is being protected or disprotected by commodity or in the aggregate. This aspect of producer support estimates (PSEs) is simple to describe conceptually but difficult to evaluate well empirically. Developing countries may face higher international transport and port costs for imports and exports than developed countries or may have substantial internal handling, transportation and processing costs. Separating these structural effects on farmers from agricultural policy effects that drive a wedge between the domestic farmgate price and an adjusted international reference price requires extensive data and judgments. In this paper, we describe the PSE measurement issues and illustrate their importance. We estimate product-specific market price support, budget expenditures and PSEs for three important agricultural commodities (wheat, rice and corn) in India (1985- 2002), using representative disaggregated state-level results, and for five commodities (wheat, rice, corn, soybeans and sugar) in China (1995-2001). The results for India suggest that ignoring factors such as internal transport costs, marketing margins and quality differences can result in inaccurate price support estimates and PSEs that may be of the wrong sign. We also explore how relaxing or changing certain standard PSE assumptions (such as altering the "scaling up" procedure or computing the PSE as a percentage of value of production at world reference prices) can have large impacts on the results. Finally, for commodities that are near self-sufficiency, we follow Byerlee and Morris (1993) and define a relevant adjusted reference price based on the relationship between an estimated autarky price and the import and export prices. We discuss this procedure and use the resulting reference prices to compute the market price support component of the PSE for India. Based on our three-commodity PSEs for India, support is largely countercyclical, rising when world prices are low (as in the late 1980s and 1990s) and falling when world prices strengthen (as in the mid 1990s). From our more preliminary five-commodity PSE estimates for China, a trend decline in disprotection is more evident. Further research is needed to confirm and elaborate on these results.

Suggested Citation

  • Mullen, Kathleen & Sun, Dongsheng & Orden, David & Gulati, Ashok, 2004. "PRODUCER SUPPORT ESTIMATES (PSEs) FOR AGRICULTURE IN DEVELOPING COUNTRIES: MEASUREMENT ISSUES AND ILLUSTRATIONS FROM INDIA AND CHINA," MTID Discussion Papers 60451, CGIAR, International Food Policy Research Institute (IFPRI).
    • Handle: RePEc:ags:iffp12:60451
    DOI: 10.22004/ag.econ.60451
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    References listed on IDEAS

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    1. Gulati, Ashok & Narayanan, Sudha, 2003. "The Subsidy Syndrome in Indian Agriculture," OUP Catalogue, Oxford University Press, number 9780195662061.
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    2. Gopinath, Munisamy & Mullen, Kathleen & Gulati, Ashok, 2004. "Domestic Support To Agriculture In The European Union And The United States: Policy Developments Since 1996," MTID Discussion Papers 60452, CGIAR, International Food Policy Research Institute (IFPRI).
    3. Cheng, Fuzhi & Orden, David, 2005. "Exchange Rate Misalignment and Its Effects on Agricultural Producer Support Estimates: Empirical Evidence from India and China," MTID Discussion Papers 59778, CGIAR, International Food Policy Research Institute (IFPRI).
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    5. Baffes, John & De Gorter, Harry, 2005. "Disciplining agricultural support through decoupling," Policy Research Working Paper Series 3533, The World Bank.
    6. Cheng, Fuzhi & Orden, David, 2006. "Exchange Rate Misalignment and Its Effects on Agricultural Producer Support Estimates (PSEs) in India," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25299, International Association of Agricultural Economists.
    7. Hewitt, Joanna, 2008. "Impact evaluation of research by the International Food Policy Research Institute on agricultural trade liberalization, developing countries, and WTO's Doha negotiations:," Impact assessments 28, International Food Policy Research Institute (IFPRI).
    8. Rakotoarisoa, Manitra A., 2008. "The Impact of Agricultural Policy Distortions on the Productivity Gap: Evidence from the Rice Production," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6154, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    9. Crawford, Eric W. & Jayne, Thomas S. & Kelly, Valerie A., 2005. "Alternative Approaches for Promoting Fertilizer Use in Africa, with Particular Reference to the Role of Fertilizer Subsidies," Staff Paper Series 11557, Michigan State University, Department of Agricultural, Food, and Resource Economics.

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