Agriculture Pricing in Pakistan
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Agriculture Pricing in Pak
Transcript of Agriculture Pricing in Pakistan
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The heavy reliance by LDCs n the manipulati n f prices and the imp siti n f indirecttaxes t raise and redistribute revenue reflects b th administrative and p litical c nstraints(Burgess and Stern, 1993). These c nstraints are particularly apparent when it c mes tthe taxati n f the agricultural sect r, where agricultural pr fits and inc mes are difficult ttax and rural h useh lds are b th pr ducers and c nsumers. H wever, standard the reticalm dels can be easily adapted t inc rp rate these features, essentially by seeing agricultureas part f the h useh ld sect r and then f cusing n the elasticities f net trade (defined asthe difference between pr ducti n and c nsumpti n) rather than n c nsumpti n elasticities(Newbery and Stern, 1987). Als , where g vernments are m re inclined t wards gradualref rm, it is useful t f cus n identifying welfare-impr ving changes in the existing systemf price c ntr ls and indirect taxes, as pp sed t f cusing n the ptimum which may be
substantially different fr m the existing system. Analysing marginal ref rms is als m reattractive given the less stringent data requirements (Ahmad and Stern, 1984 and 1991).
In C ady (1990), using Pakistani data f r the 1970s (when g vernment price c ntr lswere extensive), we set ut a m del f r the applied analysis f price ref rms. That paperextended the w rk f Ahmad and Stern (1990) by inc rp rating a m re realistic set f p licyinstruments, in particular all wing f r the inability t tax t tal c nsumpti n f rural h use-h lds, nly their net trades ( r marketed surplus). H wever, the main f cus f the paper wasn highlighting general issues that needed t be addressed when f rmulating pricing p licy
in devel ping c untries and, m re particularly, n direct c mparis n with Ahmad and Stern(1990) was made. In this paper we highlight the fact that the impact n the results are quitedramatic in terms f the c nsequences f r the efficiency and equity implicati ns f pricing
1. Introduction
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Agricultural Pricing P licies in Devel ping C untries:An Applicati n t Pakistan
Key words:
Abstract
Department of Economics, Queen Mary and Westfield College, University of London, Mile End Rd.,London E1 4NS. E-mail address: d.coady qmw.ac.uk6
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Internati nal Tax and Public Finance, 4: 39–57 (1997)1997 Kluwer Academic Publishers
DAVID P. COADY
The range f and c nstraints n p licy instruments available t the g vernment when raising and distributingrevenue can have imp rtant c nsequences f r the efficiency and equity implicati ns f pricing p licy. The usualtrade- ff between equity and efficiency is magnified. We emphasize the p tential f r substantial efficiency gainsfr m ref rming agricultural pricing p licies and fr m devel ping m re direct inc me transfer mechanisms. Theimp rtance f inc rp rating cr ss-price effects is highlighted and we sh w that these can change the directi n fwelfare-impr ving marginal price ref rms.
Agriculture, pricing, ref rm, cr ss-price effects
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p licy. The results sh w that the usual trade- ff between equity and efficiency is magnifiedby the c nstrained nature f g vernment interventi n and als highlight the p tential f rsubstantial efficiency gains fr m ref rming agricultural pricing p licies and fr m devel p-ing m re direct inc me-transfer mechanisms. This reflects the fact that, when taxing the nettrade r marketed surplus f agricultural c mm dities, supply elasticities are imp rtant andthese tend t be substantially higher than demand elasticities. The smaller tax base als in-creases elasticities—essentially h useh lds can n w substitute t wards n n-taxed d mesticc nsumpti n as well as t reduce pr ducti n.
In C ady (1990) we assumed that cr ss-price elasticities f demand and supply werezer . A central c ntributi n f this paper is t sh w that dr pping this assumpti n, es-pecially that f zer cr ss-price elasticities f supply, substantially changes the nature fwelfare-impr ving marginal price ref rms. As ab ve, the restricti n f taxing net tradesals generates high cr ss-price elasticities and, given the nature f agricultural pr ducti nrelati nships, c mm dities which are substitutes in c nsumpti n can be either substitutesr c mplements in pr ducti n.The lay ut f the paper is as f ll ws. In Secti n 1 we present a brief discussi n f h w the
the ry f price ref rm can be applied in practice. In Secti n 2 the data used in the analysis arediscussed. Our results are presented in Secti n 3 and Secti n 4 c ncludes with s me specificand general less ns f r agricultural price ref rm in LDCs which arise fr m ur results.
An evaluati n f price ref rms inv lves an evaluati n f b th the direct effects n h use-h lds and the c sts f meeting the resulting change in net demands. The s cial welfareimpact f a price change can then be analysed by c mparing the direct effect with the s -cial c st f the changed demands. The latter, in turn, is captured by calculating (at shad wprices rather than dist rted market prices) the change in g vernment revenue resulting fr mthe price ref rm (see Dreze and Stern, 1987). Our p int f departure then is the statisticdefined as the marginal s cial c st f raising extra revenue by changing the price (tax) ng d . S :
(1)
r alternatively / where
1 /
where is the price facing h useh lds and c ntr lled by the g vernment (directly, r indi-rectly by changing taxes), and is the s cial marginal utility f extra inc me t h useh ld
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2. A model for Pakistan
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. The term is the distributi nal characteristic f g d and reflects the pattern f net trade(defined as pr ducti n minus c nsumpti n) in acr ss h useh lds with different marginals cial utilities f inc me. is the net trade in g d by h useh ld : if a h useh ld is a netpr ducer (c nsumer) f g d then is p sitive (negative). F r certain g ds (e.g. wheatr lab ur in rural areas) individual h useh lds can be net purchasers r net sellers, r have
zer trade when they c nsume all they pr duce. F r ther g ds h useh lds may always benet purchasers (e.g. chemical fertilizers in rural areas r final c mm dities in urban areas),r always net sellers (e.g. cash cr ps in rural areas). The term captures the net
trade in g d by the h useh ld sect r as a wh le (remember it n w includes the agriculturalsect r). This can be p sitive r negative depending n whether the h useh ld vect r as awh le is a net buyer r seller. F r example, if the g vernment is a net buyer f g dfr m the rural h useh ld sect r, as is the case f r wheat, then is p sitive reflecting thesurplus ver c nsumpti n in rural areas. Theref re, an increase in represents a net transferf res urces t the rural h useh ld sect r, alth ugh am ng rural h useh lds there may be
s me l sers (net purchasers) and s me gainers (net sellers). Alternatively, if the h useh ldsect r as a wh le is a net buyer f g d , as is the case with fertilizer in rural areas and manyc nsumer g ds in rural and urban areas, then is negative and an increase in representsa net transfer f res urces ut f the h useh ld sect r. N tice als that 1 when
1 acr ss all h useh lds and demand and supply d n t resp nd t price changes(i.e. all 0 s that 1).
The term captures the change in g vernment (shad w) revenue with respect t ,is the shad w tax rate n g d , and is the elasticity f with respect t . The firstterm captures the change in revenue when demands are fixed and the sec nd term calculatesthe effect n revenue when h useh lds resp nd t a price change by switching net demandsbetween g ds with varying tax rates. The use f shad w taxes and shad w revenue capturesb th the way in which equilibrium is rest red after the ref rm and interacti ns with existingdist rti ns in pr ducer prices. F r example, if changed demands are met fr m an increasein imp rts r a decrease in exp rts then the shad w price is the w rld price, but if it ismet by changing d mestic pr ducti n then the shad w price is the marginal s cial c stf d mestic pr ducti n (see Little and Mirrlees, 1974). C mm dities which have l w net
trade elasticities and/ r wh se taxati n switches net demand t wards ther c mm ditieswith relatively high tax rates have higher revenue impacts (captured by higher ), a l wer
, and are thus g d candidates f r raising revenue.We can use ur results t suggest h w extra revenue can be raised as efficiently and
equitably as p ssible. Extra revenue sh uld be raised by using instruments which have l wmarginal s cial c sts (i.e. l w s). Alternatively, by c mparing acr ss s, we can ask h wrevenue can be shifted between instruments s as t raise the same revenue at l wer s cialc st—revenue sh uld be shifted t th se instruments with relatively l w s.
In the f ll wing subsecti ns we give a brief descripti n f the w rkings f, and g vern-ment interventi n in, vari us c mm dity markets in Pakistan during the mid 1970s. Thishelps t f cus n the prices which were c ntr lled by the g vernment ( in equati n 1) andt highlight b th the pattern f net trade acr ss h useh lds (which affects the s cial valua-ti n f the direct effect) and the elasticities which are relevant t the calculati n f s (whichdetermine the efficiency impact). A m re detailed and f rmal presentati n is available inC ady (1990 and 1993).
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AGRICULTURAL PRICING POLICIES IN DEVELOPING COUNTRIES
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The g vernment sets the pr curement price f wheat which als determines the rural mar-ket price. At this price pr ducers decide h w much t pr duce and t c nsume n-farm,the difference being their net trade, and rural n n-pr ducers als decide n their level fc nsumpti n. The g vernment pr cures the residual after these decisi ns.
The g vernment als sets b th the price f atta (fl ur) in the rati n sh ps and the pen-market price f atta. At these prices it f recasts t tal atta demand which, in turn, impliesa demand f r wheat thr ugh s me input- utput relati nship. The difference between thiswheat demand and g vernment pr curement is met thr ugh imp rts.
In summary, the g vernment sets three prices: the pr curement (and rural price) f wheat,the urban rati n price f r atta, and the urban pen-market price f atta. The elasticities rele-vant in (1) are then the price elasticities f g vernment pr curement and f demand f r attan the pen market—rati n all cati ns are held fixed. The pr curement elasticity, in turn,
will reflect supply and demand elasticities acr ss rural h useh lds, i.e. pr curement levelsare a residual after private r h useh ld sect r trades rather than a feature f behavi uralresp nses by the g vernment.
The g vernment sets the pr curement price f paddy rice (unhusked grain) and, given this,rice farmers decide h w much t pr duce. The farmer sells all this grain t the public-sect rrice-husking plant and buys back his c nsumpti n requirements f husked rice at a pricefixed by the g vernment—we als assume that this is the price faced by ther c nsumerss the g vernment can c nfr nt all c nsumers with it, even th se wh als pr duce rice.In rder t guarantee a certain level f pr fits t millers the g vernment has a pricing rulefixing the price rati f paddy and rice. The final demand f r rice determines the demandf r paddy and the surplus is exp rted by the g vernment, but husked rice (like atta ab ve)is a n n-traded c mm dity.
In effect then, the g vernment c ntr ls nly ne pricing instrument, i.e. the pr curementprice f rice in rural areas, this in turn fixing the price f rice n the pen market. Theelasticities relevant in (1) are then the elasticities f supply and demand f r rice.
We assume that the g vernment sets the pr curement price f cane. Given this price, farmersdecide n the level f their marketed surplus, all f which is s ld t the g vernment. Theg vernment then sets b th the market and rati n prices f r sugar as well as the sugar rati nqu ta f r vari us h useh lds. The market price f sugar determines the market demandf r sugar. D mestic pr ducti n f sugar is determined by the am unt f cane pr cured bythe g vernment thr ugh s me input- utput relati nship. The difference between the t taldemand f r sugar (market and rati ned) and d mestic pr ducti n f sugar is imp rted, butcane is a n n-traded c mm dity.
2.1. Wheat and atta
2.2. Rice
2.3. Sugarcane and refined sugar
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In summary then, the g vernment c ntr ls three prices: the pr curement price f cane,and b th the rati n and pen-market price f sugar. The elasticities relevant in (1) are theg vernment pr curement elasticity f r cane and the demand elasticity f r sugar. As withwheat, the pr curement elasticity will reflect b th the price elasticities f supply and demandf r cane.
We assume that all raw c tt n is s ld t the g vernment s that the pr curement elasticity issimply the supply elasticity f r c tt n. Since ther prices (including the price f raw c tt nt c tt n mills) are held c nstant the d mestic demand f r c tt n d es n t change and thechange in the d mestic supply f c tt n is matched by a c rresp nding change in c tt nexp rts.
The g vernment fixes the c nsumer price f fertilizer. S me fertilizer pr ducers are in theprivate sect r while thers are in the public sect r. H wever, since the g vernment guaran-tees pr ducers a fixed return, and subsidizes r taxes (i.e. a surcharge) any deviati ns fr mthis return, we can pr ceed as if the fertilizer sect r is t tally within the public sect r. Weassume that d mestic pr ducers are pr ducing at full capacity and that d mestic demandf r fertilizer exceeds d mestic supply with the difference being imp rted. Any changes indemand br ught ab ut by price ref rms will theref re lead t an adjustment in imp rts. Therelevant elasticity is then the elasticity f demand f r fertilizer.
We assume that all ther g ds are final c nsumer g ds. The relevant elasticities are thenthe c nventi nal demand elasticities and the direct effect n welfare f changes in theirprices depends n the extent f c nsumpti n by each h useh ld.
The perati n f the lab ur market is inc rp rated thr ugh the den minat r f (1), i.e.thr ugh the revenue elasticity term, . Net demand f r lab ur is part f the vect r f nettrade, , and theref re has c rresp nding entries in the elasticity terms, . N te that if theshad w wage rate is bel w the ruling market wage then lab ur will have a p sitive entry inthe shad w tax vect r, . Theref re, any ref rm which increases the demand f r lab ur willsh w up as a fav urable increase in g vernment (shad w) revenue. In the results presentedbel w we assume that the net elasticity f lab ur supply is zer but, in any case, the resultswere n t sensitive t this assumpti n (see C ady, 1993, f r m re detail).
2.4. Cotton
2.5. Fertilizer
2.6. Other final commodities
2.7. Labour
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T calculate the marginal s cial c st f r each p licy instrument we need inf rmati n nthe patterns f net trade acr ss h useh lds, the directi n and extent f net trade by theh useh ld sect r as reflected in the degree f c ntr l exercised by the g vernment, shad wtax rates, and the elasticities f net trade. We discuss these very briefly bel w, but a m redetailed discussi n is available in C ady (1993). Bef re d ing s it is useful t p int utthat the difference between the results presented here and th se in C ady (1990) reflectsdifferences in the data available. In particular, C ady (1990) used sec ndary data n shad wprices ( r acc unting rati s) and surplus elasticities which were calculated under the strict(and imp rtant) assumpti n that cr ss-price elasticities f supply and demand were zer .These sh rtc mings are rectified in the present paper and this is crucial f r the f cus f thepaper and plays an imp rtant r le in subsequent arguments.
( )
This value is taken as the value f utput minus the value f c nsumpti n f r h useh ld .F r c mm dities such as wheat, rice and sugarcane there is b th utput and c nsumpti nf r m st h useh lds. F r c tt n, c nsumpti n is zer . F r all ther c mm dities (includingfertilizer) the surplus is simply minus the value f c nsumpti n. These values are takendirectly fr m G vernment f Pakistan (1979).
In calculating s we require shad w taxes, , which are calculated as (1 ) with theacc unting rati defined as the rati f the shad w price f a g d t its market price. AllARs are taken fr m C ady (1992, Chapter 5) and are presented in Table A1. N te thatf r sugarcane the relevant entry f r the shad w tax is the difference between the shad wprice f refined sugar and the marginal s cial c st f the d mestic pr ducti n f sugar; thiscaptures the s cial pr fitability f sugar pr ducti n.
In ur analysis we examine the sensitivity f ur ref rm pr p sals t vari us sets fshad w prices. Different sets f ARs were calculated using a range f ARs f r lab ur (thewage c nversi n fact r, WCF) and capital (the asset c nversi n fact r, ACF). The valuesf r the ACF were taken as 1.2, 1.0 and 0.8, and f r the WCF were 1.4, 1.15 and 0.9. Thebasis f these values is explained in C ady (1992, Chapter 5). In presenting ur results wef cus n the (WCF,ACF) c mbinati n f (1.4,1.2) but the results were n t sensitive t thesevalues (see C ady, 1993, f r m re detail).
( )
The c nsequences f tax ref rms f r the distributi n f inc me and ur attitude t wardsthe present distributi n are captured by the welfare weights. We can attach a higher s cialmarginal utility f inc me t l wer-inc me h useh lds, i.e. welfare weights are calculated
3. Data
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3.1. Surplus trade q s
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as a decreasing functi n f h useh ld inc me. The welfare weight f r h useh ld can bewritten as:
( / )
where is the per capita inc me level f h useh ld and that f r the ’th (reference)h useh ld. A higher attaches a relatively higher weight t inc me accruing t l wer-inc me h useh lds and can be interpreted as ur aversi n t inc me inequality ( 0giving an equal unitary weight t inc me acr ss all h useh lds). We n rmalize the weightf r the l west (per capita) inc me h useh ld t unity and this inv lves an implicit assump-ti n that inc me t the g vernment and this h useh ld are treated equally. This n rmaliza-ti n affects the magnitude f ur s but n t their ranking acr ss c mm dities. N tice thatbef re being able t c mment n the appr priate level f g vernment revenue ne w uldhave t justify m re precisely the n rmalizati n pr cedure ad pted and this w uld inv lvean analysis f h w extra revenue is spent, e.g. an analysis f the s cial pr fitability f g v-ernment investments including s cial expenditures. In ur analysis f price ref rms we areessentially c nfining urselves t a subset f g vernment expenditures, i.e. raising revenuet reduce ther taxes. We examine the sensitivity f ur results t different values f ,taking 0, 0.5, 1.0, 2.0 and 5.0.
( )
The distributi nal characteristic is calculated as [ / ] and encapsulatesthe direct effects n h useh ld welfare f price changes—individual h useh ld effects areweighted by welfare weights which reflect c ncern ab ut inc me distributi n. If welfareweights are a decreasing functi n f inc me then c mm dities which acc unt f r a rela-tively large pr p rti n f the budgets f higher inc me gr ups will have a relatively l werdistributi nal characteristic implying a l wer s cial c st f raising revenue by taxing thesec mm dities, and making them m re attractive candidates f r taxati n. Inthe case f agricultural utput, the distributi nal characteristic will be l wer the m re itis pr duced by richer h useh lds. Theref re, as ( ur inequality aversi n parameter) in-creases, c mm dities f r which p r h useh lds are net c nsumers and richer h useh ldsnet pr ducers bec me m re attractive as candidates f r taxati n (e.g. by setting pr curementprices bel w w rld prices).
The ingredients necessary f r calculating net trade ( r market surplus) elasticities can beseen fr m the f ll wing. Net trade f r c mm dity is defined as:
where is utput and c nsumpti n. We can think f utput as a functi n f prices andc nsumpti n a functi n f prices and inc me. Differentiating with respect t the price f
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AGRICULTURAL PRICING POLICIES IN DEVELOPING COUNTRIES
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g d and expressing in elasticity f rm gives:
( / ) ( / )
where , and are, respectively, the elasticities f net trade, utput and demand f rg d with respect t the price f g d , and , and are the levels f demand, utput andnet trade f r g d respectively. Ahmad and Stern (1990) c nsidered the case where h use-h lds were n t pr ducers and theref re used nly demand elasticities. H wever, nce weall w f r h useh lds as pr ducers and that nly net trades can be taxed, ne must als inc r-p rate supply elasticities and f cus n and n t , where the f rmer can be viewed as aweighted average f supply and demand elasticities. The greater the pr p rti n f c nsump-ti n met fr m h useh ld pr ducti n, the higher the weight attached t the supply elasticities.Since, f r agricultural c mm dities, supply elasticities are usually substantially higher thandemand elasticities, surplus elasticities als tend t be substantially higher. This tendencyis further reinf rced by the fact that / can greatly exceed unity when a high pr p rti nf h useh ld c nsumpti n is met fr m h useh ld pr ducti n (i.e. appr aching zer ). In
C ady (1990) we sh wed h w these surplus elasticities can be inc rp rated int the analysisf agricultural price ref rms. Bel w we discuss why this can have dramatic c nsequences
f r the efficiency implicati ns f price ref rms and f r the trade- ff between equity andefficiency. H wever, in C ady (1990), because f data limitati ns at the time, we assumedthat cr ss-price elasticities f demand and supply were zer . In this paper we dr p this as-sumpti n and sh w that this has imp rtant implicati ns f r the nature f welfare-impr vingmarginal price ref rms. As ab ve, this reflects the fact that cr ss-price supply elasticitiestend t be higher than cr ss-price demand elasticities and magnified when translated intcr ss-price surplus elasticities. Als , as we will see bel w, the nature f agricultural pr duc-ti n in LDCs is such that c mm dities which are substitutes in c nsumpti n can be eithersubstitutes r c mplements in pr ducti n.
In rder t calculate net trade elasticities ne needs utput and demand elasticities ( wn-and cr ss-price) and data n the pr p rti nal relati nship between aggregate h useh ld ut-put and demand. T calculate these elasticities we use the demand elasticities fr m Ahmadand Ludl w (1987), the agricultural utput and fertilizer elasticities fr m Ali (1988), andthe lab ur and fertilizer elasticities derived in C ady (1993) using aggregate pr fit func-ti ns. S me sensitivity analysis with regard t alternative estimates f demand elasticitieswas carried ut but the results were n t sensitive t these data (see C ady, 1993, f r detail).When calculating the net trade elasticities we have taken int acc unt the fact that s meprice changes d n t affect all f the h useh ld sect r. F r example, changes in pr cure-ment r fertilizer prices affect nly farmers while changes in rati n prices affect nly th seentitled t rati ns. Theref re, the elasticities used in ur analysis take acc unt f the limitedincidence f certain price changes. The net trade elasticities used in ur analysis are pre-sented in Table A2 (n te the higher cr ss-price effects c mpared t th se in C ady, 1990).And the pr p rti nal relati nships between utput, demand and net trade are presented inTable 1. Supply elasticities are presented in Table 2. One can see that b th wn- and cr ss-price elasticities can be quite high. Als , whereas c tt n is a substitute in pr ducti n twheat and rice, the latter tw are c mplements t each ther. This reflects the nature f theGreen Rev luti n techn l gy in LDCs where d uble cr pping f cereals is c mm n, with
4s y x
s y x
s x
j
y s x s
I j x y sI
y ss
2h h h
h h h
h h
DAVID P. COADY
o o o o oo o o o o o o
o o o oo o o
o o o o o o o o o
o o o ooo o o o o o
o oo o o o o
o o o o oo o o
o o oo o o
o oo o o o o o
47
a given pl t f land all cated t wheat during the winter seas n and rice during the summerseas n. Theref re, price ref rms which increase acreage all cated t wheat will als tend tincrease the acreage all cated t rice and vice versa. The zer entries f r sugarcane reflectthe assumpti n that, in Pakistan at least, certain land areas are c nfined exclusively t itspr ducti n because f climatic, techn l gical r g vernment z ning restricti ns.
We n w analyze the distributi nal and efficiency effects f price changes. We first l kat each separately but then c mbine b th t examine the verall impact n s cial welfare.The substantive differences between the results presented bel w and th se presented inC ady (1990) emerge n the efficiency side f the analysis; the discussi n and results n theequity side in is lati n are identical. The discussi n f the efficiency, and thus the c mbinedequity-efficiency, results is m re detailed than previ usly. The new features f the presentresults, which will be highlighted and interpreted bel w, relate t b th the magnitude andsigns f the marginal s cial c sts (i.e. the s).
The distributi nal characteristics, s, are presented in Table 3 al ng with their rankingsf r vari us values f . We can interpret s as the marginal s cial c st f extra revenue when
4. Results
4.1. Equity
DD
y
2
2
2
2
2
h
Table 1.
y s
Note: sy x s y s
Source:
Table 2.
Note:Source
l
e
4
o o o o o o o
o o o o o
o o oo
o o
o o o o o o oo o o o o
o o oo o
o o o o
o o
o o
o o o o o o
AGRICULTURAL PRICING POLICIES IN DEVELOPING COUNTRIES
C nsumpti n and h useh ld net trade f r maj r cr ps.
Pr p rti n f T tal Output
C nsumed S ld tPr cured On Farm Open Mkt. /
Wheat 0.25 0.60 0.15 4.00Rice 0.30 0.20 0.50 —Sugarcane 0.30 0.70 — 3.33C tt n 1.00 — — 1.00
is net trade f the h useh ld sect r ( r g vernment pr cure-ment) and t tal pr ducti n. Als n te that ( / ) ( / ) 1.
G vernment f Pakistan (1979 and 1985). Repr ducedfr m C ady (1990, Appendix Table 1a).
Price elasticities f supply ( ) f r maj r agricultural cr ps.
Wheat Rice C tt n S’cane
Wheat 0.327 0.248 0.217 0Rice 0.641 1.920 0.462 0C tt n 0 0.616 1.339 0Sugarcane 0 0 0.230 0.810
Entries represent the elasticity f supply f ‘r ws’ t the price f ‘c lumns’.: Ali (1988).
o o o o oo o oo o o o o
o o o o o o oo o o
o o o o o oo o o o o o oo o o o o o
o o o o o o o oo o o o o
o o o oo o o o o
o o o oo o o oo o oo o o o o o
o o o o oo o o
o o o o o o oo o o o o o o o o o
o o o o o oo o o o
48
net trade elasticities are zer . The first thing t n tice is that the f r wheat bec mes nega-tive at very l w values f r reflecting the fact that p rer h useh lds are net c nsumers fwheat and richer h useh lds net pr ducers. An increase in the tax n wheat c rresp nds ta decrease in its pr curement price and theref re in the rural market price. Thus, l weringthe pr curement price f wheat appears as the m st attractive s urce f revenue fr m adistributi nal p int f view. N tice that a tax n wheat net pr ducers is simultane usly asubsidy t net c nsumers and, alth ugh the rural sect r as a wh le (which is a net pr -ducer) is w rse ff, the s cial benefit accruing t gainers utweighs the s cial l sses fthe l sers given the relative s cial welfare weights ass ciated with these. Als n te thatincreasing a tax n c mm dities with negative s is a net welfare impr vement even ifwe thr w away the revenue. Other c mm dities with l w distributi nal characteristics arerice (where bec mes negative f r 5), meat, ther f ds and ther n n-f ds. S , f rexample, l wer pr curement prices f r rice and higher c nsumer taxes n meat are am ngthe best ways f raising revenue fr m an equity viewp int. C mm dities exhibiting high
s are atta (market and rati ned), sugar (rati ned), maize and pulses. The high s f r ra-ti ned c mm dities are, f c urse, expected since rati ning systems are designed t channelcertain c mm dities t l wer inc me h useh lds. Theref re, if the g vernment wishes traise m re revenue it sh uld av id increasing rati n prices r decreasing subsidies t mar-ket atta. Sugarcane and fertilizer bec me m re attractive s urces f revenue as increases
4
D
D
D
D D
2 2 2 2
2
e
e e e e e
e
Table 3.
. . . .
Note: DR R
Source:
e
e
e
4 4 4 4 4
4
o o o
o o
o o
oo
ooo oo
o o o o oo o o o o o
o o o oo o o
DAVID P. COADY
Ds f r vari us values f .
0 0 5 1 0 2 0 5 0
C mm dity D R D R D R D R D R
(1) Wheat 1 1 0.126 1 0.410 1 0.397 1 0.174 1(2) Atta (M) 1 1 0.580 18 0.359 18 0.166 18 0.056 16(3) Atta (R) 1 1 0.598 20 0.389 20 0.201 20 0.082 19(4) Rice 1 1 0.500 4 0.258 2 0.070 2 0.006 2(5) Sugarcane 1 1 0.524 11 0.293 11 0.109 6 0.013 3(6) C tt n 1 1 0.533 14 0.318 15 0.150 16 0.064 17(7) Fertilizer 1 1 0.520 10 0.291 10 0.111 8 0.023 7(8) Sugar (M) 1 1 0.529 13 0.305 13 0.126 13 0.029 10(9) Sugar (R) 1 1 0.582 19 0.369 19 0.186 19 0.078 18
(10) Pulses 1 1 0.553 16 0.332 16 0.148 15 0.046 15(11) Maize 1 1 0.558 17 0.339 17 0.164 17 0.082 20(12) Meat 1 1 0.500 5 0.273 5 0.102 5 0.021 6(13) Milk 1 1 0.517 7 0.288 6 0.111 7 0.024 8(14) Veg., Fruit & Spices 1 1 0.518 9 0.291 9 0.116 10 0.030 11(15) Edible Oils 1 1 0.517 8 0.290 8 0.113 9 0.026 9(16) Tea 1 1 0.534 15 0.310 14 0.130 14 0.034 14(17) H using, Fuel & Light 1 1 0.513 6 0.289 7 0.118 11 0.034 13(18) Cl thing 1 1 0.524 12 0.296 12 0.118 12 0.030 12(19) Other F ds 1 1 0.496 3 0.265 4 0.093 3 0.015 4(20) Other N n-f ds 1 1 0.492 2 0.263 3 0.095 4 0.021 5
is an inequality aversi n parameter (see Secti n 2.3 f r discussi n), captures the distributi nal effectsf the ref rms, is the ref rm ranking with 1 indicating the m st distributi nally attractive ref rm, and (M)
and (R) refer t market and rati ned c mm dities respectively.Repr duced fr m C ady (1990, Table 5).
o o o oo o o o o
o o o oo o o o o o o
o o o o o
oo o o o o o
o o oo
o o oo o o o
o o o o oo o o o
o o o o o o oo o o o o o o o o
o o o oo o o o
o o o o oo o o o o o o o
o o oo o o o o
o o o o oo o o o o o
o o oo o o o o o o
o o o o o o oo o o o o o
o o o o oo o o o o o
o o o o o o oo o o o o
o o o o o o o oo
o o o o o oo o o o o o o
o o o oo o o
o o o o oo o o o oo
o o o o oo o o o
49
with c tt n bec ming a less attractive candidate. These results suggest that, fr m an equitystandp int, the g vernment c uld impr ve welfare by l wering wheat, rice and sugarcaneprices, and use the increase in revenue t finance l wer rati n prices, higher subsidies tmarket atta and higher c tt n prices. H wever, these rec mmendati ns t tally ign re thec nc mitant efficiency l sses, t which we n w turn.
When 0 (i.e. 1) the s are simply the inverse f the revenue elasticities. Table 4presents the s ver vari us values f . F cusing n values f r 0, the striking feature isthat decreasing the pr curement prices f r wheat and rice, and increasing the sales price ffertilizer, actually decrease revenue (hence their negative s). Theref re, increasing revenueusing these p licy instruments will als increase c nsumer welfare, i.e. we can interpret theabs lute value f these s as the marginal s cial fr m increasing revenue! This is ac nsequence f the signs and magnitudes f the wn- and cr ss-price net trade elasticities.
In the case f a decrease in the pr curement price leads t a substantial fall in g v-ernment pr curement. This sh rtfall is met thr ugh higher levels f m re c stly imp rts.L wer wheat pr curement prices als lead t l wer rice pr ducti n implying l wer exp rtsf rice at w rld prices higher than d mestic pr curement prices. These effects swamp the
increase in revenue fr m a fall in demand f r subsidized fertilizer. L wer pr curementprices lead t l wer exp rts f rice and a rise in expensive wheat imp rts. The increase insugarcane pr ducti n is reflected in a rise in the d mestic pr ducti n f s cially unpr fitablerefined sugar. These effects swamp the increased revenue fr m higher pr ducti n and ex-p rts f c tt n and falling fertilizer demand. Higher prices increase wheat imp rts,and lead t a fall in rice and c tt n exp rt levels. These adverse effects n revenue swampthe revenue increases which arise fr m l wer levels f s cially unpr fitable sugar utput andfalling fertilizer demand (see C ady, 1990, f r sensitivity analysis). The negative effects fl wer prices n c tt n exp rts is d minated by the c nsequent fall in wheat and fertil-izer imp rts, even th ugh sugar pr ducti n increases. L wer prices lead t l wersugar pr ducti n and fertilizer imp rts, b th f which increase revenue (see C ady, 1990and 1993, f r a m re detailed discussi n f r sugarcane). In summary, fr m an efficiencyperspective increasing wheat r rice pr curement prices, r l wering th se f r sugarcane,c tt n r fertilizer, are the m st attractive p licy instruments f r raising revenue. N te thatthe attractiveness f l wer fertilizer prices arises partly fr m the large dist rti ns in theprices f maj r agricultural cr ps—l wer prices increase the pr ducti n f cr ps which areheavily taxed thus increasing g vernment revenue.
The fact that the ref rm f agricultural pricing p licies c uld lead t maj r efficiencygains is an imp rtant feature f ur results. N tice als that alth ugh we have m delled therati ning f atta and sugar as if they were lump-sum transfers, changing rati n prices is n tthe m st effective way f raising revenue—in fact it is a relatively unattractive meth d. Thisreflects the fact that in a sec nd-best w rld with many dist rti ns lump-sum transfers dhave ass ciated efficiency l sses—in this case by reducing demand f r ther taxed g ds.In ther w rds, whereas in a first-best w rld (i.e. with ptimum indirect taxes r prices)switching revenue-raising away fr m ‘dist rti nary’ tax instruments t wards lump-sum
4 44
4.2. Efficiency
D
benefit
wheat
rice
fertilizer
cottonsugarcane
e ll e e
l
l
AGRICULTURAL PRICING POLICIES IN DEVELOPING COUNTRIES
50 DAVID P. COADY
2 22
22
22
22
2
le
ee
ee
e
ll
ll
l
ll
l
Tab
le4
.
..
..
No
te:
44
44
4
oo
o
oo
oo
o ooo o
oo
oo
oo
oo
oo
oo
oo
oo
oo
oo
o
sf
rva
rius
valu
esf
.
00
51
02
05
0
Cm
mdi
tyR
RR
RR
(1)
Whe
at0.
278
10.
035
30.
114
40.
110
90.
048
16(2
)A
tta(M
)0.
900
70.
522
120.
323
140.
149
150.
050
17(3
)A
tta(R
)0.
993
110.
594
170.
386
180.
200
200.
082
19(4
)R
ice
0.22
52
0.11
21
0.05
81
0.01
61
0.00
12
(5)
Sug
arca
ne0.
224
40.
118
40.
066
30.
024
30.
003
3(6
)C
ttn
0.74
55
0.39
75
0.23
75
0.11
211
0.04
815
(7)
Fer
tiliz
er0.
119
30.
062
20.
035
20.
013
20.
003
1(8
)S
ugar
(M)
1.21
619
0.64
318
0.37
016
0.15
316
0.03
612
(9)
Sug
ar(R
)1.
016
150.
591
160.
375
170.
189
180.
079
18(1
0)P
ulse
s0.
982
100.
543
140.
326
150.
146
140.
045
13(1
1)M
aize
1.18
518
0.66
119
0.40
119
0.19
419
0.09
720
(12)
Mea
t0.
995
130.
498
100.
272
100.
102
70.
021
6(1
3)M
ilk1.
005
140.
519
110.
290
110.
111
100.
024
7(1
4)Ve
g.,F
ruit
&S
pice
s1.
577
200.
817
200.
460
200.
183
170.
047
14(1
5)E
dibl
eO
ils1.
045
170.
540
130.
303
120.
119
120.
027
9(1
6)Te
a1.
027
160.
548
150.
318
130.
134
130.
035
11(1
7)H
usin
g,F
uel&
Ligh
t0.
914
80.
470
70.
264
90.
108
80.
031
10(1
8)C
lth
ing
0.82
86
0.43
46
0.24
56
0.09
86
0.02
58
(19)
Oth
erF
ds0.
995
120.
493
90.
263
80.
092
40.
015
4(2
0)O
ther
Nn-
fds
0.97
49
0.47
98
0.25
67
0.09
35
0.02
05
See
nte
tTa
ble
3.is
the
mar
gina
lsci
alc
stfe
ach
ref
rm.T
here
sults
are
base
dn
a(W
CF,
AC
F)c
mbi
nati
nf(
1.4,
1.2)
and
netl
abur
supp
lyel
astic
ities
are
assu
med
equa
ltze
r.N
egat
ive
sim
ply
that
incr
easi
ngut
putp
rcu
re-
men
tpric
esr
decr
easi
ngin
putp
rices
incr
ease
sre
venu
e—in
such
case
sra
nkin
gis
base
dn
incr
easi
ngan
dde
crea
sing
thei
rre
spec
tive
pric
esan
dw
eca
nin
terp
reta
bslu
tes
asm
argi
nals
cial
bene
fits.
o oo o o o
o o o o o oo o o o o o
o o o o oo o o o o o o o o o
o o o o o o oo o o o o
o o o o o o oo o o
o o o o o oo o o o
o o o o o oo o o
o o o oo o o o o o
o o o o
o o oo o o o o o o
o oo o o oo o o
o o oo o ooo o o o
o o o o o o o oo
o o o oo o o o o o oo o
o o o oo o o o o o o o o
o o o o o o oo o o o o oo o o o
o o o o oo o o o o
o o o o o o o o oo o o o o o o o o
51
instruments unambigu usly increases welfare (see Atkins n and Stiglitz, 1980, p. 373) thisis n t necessarily the case in a sec nd-best situati n (see Atkins n and Stern, 1974).
The interacti n f efficiency and distributi nal c nsiderati ns is captured by the s f r0. The fall in the c rrelati n between the ranks f the s fr m 1 t 0.39 when g es
fr m 0 t 5 indicates that there is a str ng c nflict between equity and efficiency. H wever,f cusing n the c rrelati n c efficient al ne d es n t adequately capture the directi n rsize f the distributi nal effect f price ref rms. F r example, alth ugh increasing the pr -curement price f rice increases revenue it als increases the s cial welfare f the h use-h ld sect r which is a net seller f rice t the g vernment. But f r 5 the distributi nalcharacteristic f r rice bec mes negative reflecting the higher welfare weight attached tnet c nsumers f rice, i.e. the increased inc me f rice farmers (i.e. net pr ducers f rice)is valued using a relatively l w welfare weight. The high ranking thr ugh ut f r higherrice prices as a s urce f revenue reflects the d minance f efficiency c nsiderati ns. Like-wise, decreasing the price f fertilizer increases revenue and als farmers’ inc mes. Thisensures that decreasing the price f fertilizer remains an attractive ref rm thr ugh ut, inspite f the increasing attractiveness f higher fertilizer prices fr m a distributi nal p int fview. L wer pr curement prices f r sugarcane are attractive using b th efficiency and equitycriteria.
In c ntrast t rice and fertilizer, the ranking f wheat falls dramatically as increases.Decreasing the pr curement price f c tt n als bec mes less attractive at higher levels finequality aversi n. Other g ds which bec me unattractive as s urces f revenue as in-creases are market and rati ned atta and rati ned sugar. The rankings f market sugar, meat,milk, vegetables, edible ils, tea and ther f ds and n n-f ds increase with thus makingthem m re attractive as s urces f revenue. Higher taxes n maize remain an unattractives urce f revenue thr ugh ut since b th distributi nal and efficiency c nsiderati ns suggestl wer taxes.
The results presented in this paper, t gether with previ us w rk, give us three sets f swhich can be c mpared in an attempt t draw s me imp rtant less ns f r the analysis fprice and tax ref rm in LDCs, especially agricultural price ref rms. The results presented inAhmad and Stern (1990—hencef rth AS) assume that t tal c nsumpti n can be taxed, ig-n re h useh ld pr ducti n (which is particularly imp rtant f r agricultural h useh lds), anduse c nsumpti n elasticities. In C ady (1990) we all wed f r the existence f such h use-h ld pr ducti n, intr duced the restricti n that nly net trades can be taxed, and replacedc nsumpti n elasticities with net trade elasticities. H wever, we assumed cr ss-price elas-ticities f demand and supply t be zer . This present paper dr ps this assumpti n. Sincethe main c ntributi n f the present paper c ncerns elasticities, which affect nly efficiencyc nsiderati ns, we f cus n s f r 0 which ign re distributi nal c ncerns. H wever,we als discuss s me implicati ns f r the impact f pricing p licy n inc me distributi n.
4
4
5. Lessons and conclusions
4.3. Equity and efficiency
.l
e l e
e
e
e
e
l
l e
AGRICULTURAL PRICING POLICIES IN DEVELOPING COUNTRIES
o o o oo o o o o
o o oo o o o
o oo o o o
o oo o
oo o o o o o o
o o oo o o o
o o oo o o o
o o o o o o o o o o oo o o o
oo o o o o o o oo o o o
oo o o o o o o oo o oo o
o o oo o o o o o
o o o o oo o o o o
o o o oo o o
o o o o o oo o o o o
o o o o o o oo o o o o o
52
We start by c mparing the results f C ady (1990) and f the present paper with AS.The first thing t emphasize is that the assumpti ns f AS prevent them fr m f cusingn agricultural price ref rms which are f particular interest in Pakistan and in LDCs in
general—essentially, the implicit assumpti n regarding the desirability f pr ducti n ef-ficiency in the agricultural sect r is unwarranted. Sec ndly, we can view the differencebetween the s f r each instrument as indicating the p tential f r welfare gains fr m priceref rms. AS calculated s in the range (1.04, 1.33), C ady (1990) in the range (1.01, 3.53)and the present paper in the range ( 0.28, 1.58), indicating appr ximate differences f 0.3,2.5 and 1.8 respectively (see Table 5). Since the latter tw differences are substantiallylarger than th se f AS they suggest that ign ring the range f and c nstraints n p licy in-struments available t the g vernment when raising and redistributing revenue leads t anunderestimate f the p tential efficiency gains fr m price ref rm. This reflects differencesin wn- and cr ss-price elasticities—in general we expect net surplus elasticities t exceedt tal c nsumpti n elasticities because f relatively high supply elasticities and the smallertax base f the f rmer. N tice als that it is f r c mm dities where h useh ld pr ducti nis imp rtant (i.e. f r agricultural utputs and inputs) that we get the l west and highest s,s me even being negative in the present paper.
F cusing n t tal c nsumpti n rather than net trade als fails t capture imp rtant distri-buti nal impacts f price ref rms. This fact is highlighted sharply in the case f wheat wherep r h useh lds tend t be net c nsumers and rich net pr ducers s that l wer wheat pricesare simultane usly a subsidy t the p r financed by a tax n the rich. This aspect magni-fies the distributi nal impact in the sense that the range is increased—instead f s me beinghit harder than thers fr m price increases when c nsumpti n data al ne are used, we n whave s me being net l sers (net c nsumers) and thers being net gainers (net pr ducers).The efficiency-equity trade- ff is als magnified since c mm dities f r which net surpluselasticities are high (e.g. wheat) als tend t have this wider range f net surplus acr ssh useh lds with differing inc mes. One can thus argue that the inequalities inherent in landwnership in LDCs can be partly c mpensated f r by appr priate pricing p licy. H wever,ne must als rec gnize that there may be large efficiency l sses ass ciated with such an
appr ach and m re direct p licies (e.g. land ref rm, direct inc me supp rt, r subsidizedrati ns) sh uld remain n the p licy agenda as l ng as p ssible.
2
2
2
2
l
e
Table 5. s
Note
2
ll
l
4
o
o
o o
oo o o o oo o o o oo o o
DAVID P. COADY
Agricultural price ref rms ( ).
Ahmad and Stern (1990) C ady (1990) Present
Wheat 1.24 (8) 3.35 (20) 0.28 (1)Fertilizer — 1.86 (18) 0.12 (3)Rice 1.04 (13) 1.58 (17) 0.23 (2)Sugarcane — 1.33 (12) 0.22 (4)C tt n — 1.34 (13) 0.75 (5)
Range (1.04, 1.33) (1.01, 3.35) ( 0.28, 1.58)
: Numbers in brackets are ranks with 1 indicating m st attractive can-didate f r raising extra revenue. Range is ver all c mm dities c nsidered(i.e. 13 f r Ahmad and Stern, and 20 f r the thers) and n t just ver agri-cultural c mm dities, and f r 0.
o o o o o oo o o o o o o
o o oo o o o o o o
o o oo o o
oo o o o o o
o o o o o oo o o o o o o o
o o o oo o o
o oo o o o o
o o o o o oo o
o o o o o o
o o o o ooo o o o o o o o o
o o o
o o o o o oo o o o oo o o
o o o oo o o o o
o o oo o o
o o o o o oo o o o
o o o o o o o oo
o o o o oo o o o o o
o o o o oo o o o o
o o oo o o o o
o o o oo o o o o
o oo o oo o o o
o o o o o
53
C mparing the results f C ady (1990) with th se f the present paper which dr ps theassumpti n f zer -cr ss price elasticities f r supply and demand, we als bserve substan-tial and imp rtant differences. Firstly, it appears that (f r Pakistan at least) this assumpti nleads t an verestimate f the p tential efficiency gains fr m price ref rm. Sec ndly, in thepresent paper, changing prices f agricultural utputs and inputs rank as the five m st at-tractive candidates f r raising extra revenue, whereas in C ady (1990) many are am ng theleast attractive candidates. This difference in ranking is reflected in a negative rank c rrela-ti n c efficient f 0.22 (which is als significantly different fr m zer at the 95% level).This difference arises because the assumpti n f zer cr ss elasticities ign res the m rec mplex (and imp rtant) relati nships between c mm dities n the pr ducti n side, e.g. ina multiple cr pping system wheat and rice are c mplements in pr ducti n but are substi-tutes in c nsumpti n. The high cr ss-price elasticities generate substantial and ‘unusual’indirect revenue effects which here suggest that agricultural pricing r taxati n was alreadyn the wr ng side f the Laffer curve, with negative s indicating the presence f p ten-
tial Paret impr vements in the aggregate. N te, h wever, that b th sets f results suggestthat higher wheat and rice pr curement prices, and l wer fertilizer prices, are unattractivefr m the viewp int f h useh ld welfare but the present results suggest that they will alsdecrease revenue.
M re generally, ur results pr vide useful insights int issues which need t be addressedwhen ch sing appr priate pricing p licies in a dist rted ec n my with restricti ns n g v-ernment p licy instruments. We f cus n efficiency and equity issues in turn:
(i) In devel ping c untries, where g vernments are ften c nstrained in their ability t taxt tal c nsumpti n, it can be very misleading t analyse pricing and indirect taxati np licy in a partial equilibrium framew rk. This is particularly relevant t agriculturalpricing p licy because g vernments can tax nly the net trade f farmers. Since nettrade ( wn- and cr ss-price) elasticities and ther price dist rti ns can be very high ageneral equilibrium appr ach is required. An example f this is the issue f fertilizerpricing. With l w agricultural pr ducer prices fertilizer subsidies are attractive fr m anefficiency p int f view. H wever, as d mestic agricultural pr ducer prices appr achw rld prices efficiency c nsiderati ns w uld suggest reducing these subsidies.
(ii) The high degree f price dist rti ns ften f und in devel ping c untries, when c m-bined with high net trade elasticities, means that substantial efficiency gains fr m re-f rming the system are p ssible. In a sense, ur f cus n individual pricing instrumentsin is lati n (i.e. taking ther price dist rti ns as given) underestimates the p tential ef-ficiency gains fr m ref rm. F r example, we sh uld use the c mplementarity betweenwheat and rice pr ducti n (reflecting the fact that they are s wn in r tati n) when set-ting prices: higher rice prices reduce the efficiency c sts ass ciated with l wer wheatprices and, theref re, als ass ciated with the beneficial distributi nal effects f thelatter.
(iii) Our results highlight the fact that when setting prices the c mm nly bserved c nflictbetween equity and efficiency is magnified when we all w f r the limitati ns n g v-ernment pricing p licy. A g d example is wheat where a l wer pr curement price hadvery beneficial distributi nal c nsequences, reflecting the pattern f net trade acr ssh useh lds, but als appears t be a highly inefficient way f raising revenue, this
2
l
AGRICULTURAL PRICING POLICIES IN DEVELOPING COUNTRIES
o o o o o oo o o
o o o o o o oo o o o o
o o o o oo o o o o
o o o o o oo oo o o o
o o o o o oo oo o o o o
o o o oo o o o o o o
o o o o o o oo o o o o
o o o o oo o o o o o o o o
o o o oo o o o o o
o
54
reflecting the large am unt f pr ducti n c nsumed n-farm which limits the incidencef price c ntr ls.
(iv) F ll wing fr m ab ve, there are als large efficiency gains t be captured by devel pingm re direct (less dist rti nary) inc me transfer mechanisms, the presence f whichwill reduce the need t use pricing p licies in the pursuit f better inc me distributi n.Hence, the devel pment r impr ved design f rati ning schemes, rather than theireliminati n, appears t be a m re appr priate p licy fr m an efficiency perspective. Ifsuch schemes are c nsidered t expensive t extend t rural areas ther schemes, e.g.rural w rk schemes, sh uld be c nsidered (see W rld Bank, 1990, f r discussi n).
(v) F r many LDCs, especially p rer nes, it may take s me time bef re the instituti nsrequired t implement the appr priate inc me transfers m re directly can be devel-ped. In their absence it is necessary t inc rp rate the inc me distributi nal r le (and
p tential) f pricing p licy. As the appr priate instituti ns are devel ped, pricing p l-icy can c ncentrate m re n raising revenue as efficiently as p ssible. It is imp rtantt rec gnize that many LDCs may have t rely n pricing p licy as a revenue-raisingp licy instrument f r s me time. These c nsiderati ns have bvi us implicati ns f rthe design f structural adjustment pr grams in terms f c ntent and time frame andsuch c ncerns have been ech ed by thers (see, f r example, C rnia, J lly and Stewart,1987, and Demery and Addis n, 1987).
Appendix
Table A1.
Note:Source:
o o o o o o
o o
o o
oo
ooo oo
o
o o o o o o oo
DAVID P. COADY
Acc unting rati s f r vari us (WCF, ACF) c mbinati ns.
C mm dity 1 2 3 4 5 6 7 8 9
(1) Wheat 1.416 1.402 1.388 1.413 1.399 1.386 1.411 1.397 1.383(2) Atta (M) 1.430 1.402 1.375 1.404 1.377 1.349 1.378 1.351 1.323(3) Rice (P) 2.510 2.510 2.510 2.510 2.510 2.510 2.510 2.510 2.510(4) Rice (M) 2.132 2.100 2.068 2.103 2.071 2.039 2.075 2.042 2.010(5) Sugarcane 1.170 1.054 0.937 1.158 1.042 0.925 1.147 1.030 0.914(6) C tt n 2.420 2.420 2.420 2.420 2.420 2.420 2.420 2.420 2.420(7) Fertilizer 1.577 1.553 1.529 1.569 1.544 1.520 1.560 1.536 1.512(8) Sugar (M) 0.682 0.667 0.651 0.680 0.664 0.648 0.677 0.661 0.645(9) Pulses 1.090 1.031 0.971 1.077 1.017 0.958 1.064 1.004 0.944
(10) Maize 0.614 0.598 0.582 0.612 0.595 0.579 0.609 0.593 0.576(11) Meat 1.004 0.997 0.991 1.002 0.996 0.989 1.001 0.995 0.988(12) Milk 0.998 0.991 0.985 0.997 0.990 0.983 0.996 0.989 0.982(13) Veg., Fruit & Spices 0.614 0.598 0.582 0.612 0.595 0.579 0.609 0.593 0.576(14) Edible Oils 0.985 0.970 0.955 0.982 0.967 0.952 0.980 0.965 0.950(15) Tea 0.965 0.959 0.952 0.964 0.957 0.951 0.963 0.956 0.950(16) H using, Fuel & Light 1.109 1.024 0.939 1.071 0.986 0.901 1.034 0.949 0.864(17) Cl thing 1.273 1.266 1.258 1.268 1.260 1.252 1.262 1.254 1.247(18) Other F ds 1.007 0.977 0.947 1.002 0.972 0.942 0.997 0.967 0.937(19) Other N n-F ds 1.020 0.925 0.829 0.990 0.895 0.799 0.960 0.865 0.769(20) Lab ur 1.400 1.150 0.900 1.400 1.150 0.900 1.400 1.150 0.900(21) Capital 1.200 1.200 1.200 1.000 1.000 1.000 0.800 0.800 0.800
C lumn numbers 1–9 c rresp nd t (WCF, ACF) c mbinati ns given by r ws 20–21.C ady (1992, Chapter 5).
55AGRICULTURAL PRICING POLICIES IN DEVELOPING COUNTRIES
22
2
22
22
22
22
22
22
22
22
22
22
22 2
22
22
22
2
22
22
22
2
22
22
22
2
22
22
22
22
22
22
22
2
22
22
22
2
22
22
22
2
22
22
22
2
22
22
22
2
22
22
22
2
22
22
22
2
22
22
22
2
22
22
Tab
leA
2.
oo
oo
o ooo
o
Net
trad
eel
astic
ities
.
Whe
atA
tta(M
)A
tta(R
)R
ice
S’c
ane
Ctt
nF
ert’r
Sug
ar(M
)S
ugar
(R)
Pul
ses
Whe
at2.
350
0.00
00.
000
0.22
40.
015
0.42
11.
364
0.01
30.
007
0.01
0A
tta(M
)0.
000
0.27
70.
012
0.00
50.
000
0.00
00.
000
0.00
80.
009
0.00
4R
ice
(P)
0.64
10.
000
0.00
01.
920
0.00
00.
462
1.70
20.
000
0.00
00.
000
Ric
e(M
)0.
005
0.01
90.
012
0.76
80.
011
0.02
90.
028
0.00
90.
003
0.01
1S
’can
e0.
090
0.00
00.
000
0.12
94.
383
0.65
21.
742
0.00
00.
000
0.02
6C
ttn
0.00
00.
000
0.00
00.
616
0.00
01.
339
0.72
20.
000
0.00
00.
000
Fer
t’r0.
640
0.00
00.
000
0.35
00.
200
0.37
01.
239
0.00
00.
000
0.00
0S
ugar
(M)
0.05
30.
012
0.00
60.
017
0.01
40.
015
0.04
30.
549
0.00
90.
008
Pul
ses
0.01
00.
008
0.00
40.
009
0.00
70.
015
0.02
30.
006
0.00
70.
398
Mai
ze0.
010
0.00
80.
004
0.00
90.
007
0.01
50.
023
0.00
60.
007
0.00
6M
eat
0.02
90.
040
0.01
90.
007
0.02
10.
042
0.06
50.
031
0.03
30.
019
Milk
0.02
10.
025
0.01
20.
016
0.01
50.
030
0.04
70.
015
0.01
70.
012
Vege
t.0.
026
0.02
90.
014
0.02
00.
018
0.03
70.
057
0.02
20.
025
0.01
5E
dOil
0.01
70.
026
0.01
30.
013
0.01
20.
026
0.03
80.
016
0.01
80.
011
Tea
0.01
00.
022
0.01
10.
005
0.00
70.
014
0.02
20.
013
0.01
40.
008
Hus
ing
0.02
40.
027
0.01
70.
018
0.01
60.
034
0.05
30.
024
0.02
60.
014
Cl
thin
g0.
019
0.02
50.
012
0.01
40.
013
0.02
70.
042
0.01
70.
019
0.00
7O
th.F
d0.
015
0.02
70.
013
0.00
90.
010
0.02
20.
033
0.01
40.
015
0.01
1O
th.N
F0.
032
0.03
80.
021
0.02
50.
023
0.04
60.
072
0.03
00.
033
0.01
9La
bur
0.25
80.
000
0.00
00.
147
0.16
90.
219
0.11
40.
000
0.00
00.
000
56 DAVID P. COADY
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
2
22
22
22
2
22
22
22
22
2
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
22
2
Tab
leA
2.
Co
ntin
ue
d
No
te:
oo
oo
o o
o
oo
Net
trad
eel
astic
ities
.()
Mai
zeM
eat
Milk
Vege
tE
dOil
Tea
Hus
ing
Cl
thin
gO
thF
dO
thN
F
Whe
at0.
010
0.00
80.
012
0.00
80.
018
0.00
80.
001
0.02
40.
020
0.04
4A
tta(M
)0.
004
0.00
30.
010
0.00
50.
006
0.00
20.
004
0.00
90.
002
0.00
6R
ice
(P)
0.00
00.
000
0.00
00.
000
0.00
00.
000
0.00
00.
000
0.00
00.
000
Ric
e(M
)0.
011
0.00
90.
018
0.00
10.
017
0.00
70.
004
0.02
30.
012
0.02
9S
’can
e0.
026
0.02
30.
026
0.02
10.
042
0.02
30.
002
0.05
40.
047
0.10
0C
ttn
0.00
00.
000
0.00
00.
000
0.00
00.
000
0.00
00.
000
0.00
00.
000
Fer
t’r0.
000
0.00
00.
000
0.00
00.
000
0.00
00.
000
0.00
00.
000
0.00
0S
ugar
(M)
0.00
80.
006
0.01
40.
001
0.01
20.
005
0.00
30.
017
0.00
90.
021
Pul
ses
0.00
60.
004
0.00
80.
000
0.00
80.
003
0.00
20.
011
0.00
60.
015
Mai
ze0.
398
0.00
40.
008
0.00
00.
008
0.00
30.
002
0.01
10.
006
0.01
5M
eat
0.01
91.
123
0.04
00.
012
0.02
90.
011
0.01
20.
043
0.01
50.
041
Milk
0.01
20.
010
0.85
70.
001
0.01
90.
008
0.00
50.
027
0.01
40.
034
Vege
t0.
015
0.01
20.
030
0.95
50.
023
0.00
90.
008
0.03
30.
013
0.03
4E
dOil
0.01
10.
010
0.02
20.
004
0.78
80.
007
0.00
90.
025
0.01
10.
028
Tea
0.00
80.
006
0.01
80.
005
0.01
30.
569
0.00
50.
019
0.00
70.
018
Hus
ing
0.01
40.
011
0.03
10.
011
0.02
10.
007
0.88
20.
031
0.00
90.
027
Cl
thin
g0.
007
0.01
00.
023
0.00
40.
019
0.00
70.
006
0.79
70.
018
0.02
9O
th.F
d.0.
011
0.00
90.
019
0.00
20.
017
0.00
70.
005
0.02
30.
745
0.02
8O
th.N
F0.
019
0.01
50.
039
0.01
00.
030
0.01
10.
012
0.04
30.
017
1.16
1La
bur
0.00
00.
000
0.00
00.
000
0.00
00.
000
0.00
00.
000
0.00
00.
000
The
seel
astic
ities
wer
eca
lcul
ated
usin
gde
man
del
astic
ities
frm
Ahm
adan
dLu
dlw
(198
7).
o o o o o oo o o o o
o o
57
I w uld like t thank participants in the micr ec n mics seminar series at UCL, and an ny-m us referees, f r c mments. Special thanks t Nick Stern and Michael Keen f r detailedc mments and advice. All remaining err rs are mine.
Acknowledgments
References
Journal of Public Economics
PakistanDevelopment Review
Oxford Economic Papers
The Theory and Practice of Tax Reform in Developing Countries.
Review of Economic Studies
Lectures on Public Economics.Journal of Economic Literature
Pakistan Journal of AppliedEconomics,
Adjustment with a Human Face: Protecting the Vulnerable and Pro-moting Growth.
The Alleviation of Poverty Under Structural Adjustment.
Handbook of Public Economics,Micro-Nutrient Survey 1976/77.Agricultural Statistics of Pakistan.
Indus Basin Survey.
Project Appraisal and Planning for Developing Countries.The Theory of Taxation for Developing Countries.
o o o
o o o
o o o
o o o o o o oo o o o o oo o o oo
o oo o
o o o o o
o o o oo o oo o o o o o o
o o o o o o oo o o o o o o oo o o o
o oo o
o oo
o o oo o o
o o o oo o oo o o o o
o oo o
o
AGRICULTURAL PRICING POLICIES IN DEVELOPING COUNTRIES
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Ahmad, E., and S. Ludl w (1987). “Aggregate and Regi nal Demand Resp nse Patterns in Pakistan.”26(4), 645–655.
Ahmad, E., and N.H. Stern (1990). “Tax Ref rm and Shad w Prices f r Pakistan.” 42,135–159.
Ahmad, E., and N.H. Stern (1991). CambridgeUniversity Press.
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