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Rthe Political Economy of Agricultural Pricing Policy Public Disclosure Authorized 10198 ThePolitical Economy of Public Disclosure Authorized AgriculturalPricing Policy VO LUME 3 Africa Public Disclosure Authorized and the Mediterranean Edited by AnneO .Krueger i MaunceScbiff i AlbertoVald& Public Disclosure Authorized A World Bank Comparative Study ?' -i I rThe PoliticalEconomy of Agricultural PricingPolicy VOLUME3 AFRICA ANDTHEM MEDITERRANEAN A World Bank Comparative Study Thne PoliticalEconomy o Agricultural PricingPolicy VOLUME 3 AFRICA ANDlTHE MEDITERRANEAN A World Bank Comparative Study Edited by * Anne 0. Krueger * Maurice Schifff * Alberto Valde' PUBLISHED FOR THE WORLD BANK The Johns Hopkins UniversityPress Baltimore and London (D 1991The International Bank for Reconstruction and Development/The World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. The Johns Hopkins University Press Baltimore, Maryland 21211-2190,U.S.A. All rights reserved Manufactured in the United States of America First printing October 1991 The findings, interpretations, and conclusions expressed in this publication are those of the authors and do not necessarily represent the views and policies of the World Bank or its Board of Executive Directors or the countries they represent. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to Director, Publications Department, at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permissions to photocopy portions for classroom use is not required, though notification of such use having been made will be appreciated. The complete backlist of publications from the World Bank is shown in the annual Index of Publications, which contains an alphabetical title list and indexes of subjects, authors, and countries and regions. The latest edition is available free of charge from Publication Sales Unit, Department F, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from Publications, The World Bank, 66 avenue d'I6na, 75116 Paris, France. Libraryof CongressCataloging-in-Publication Data (Revised for vol. 3) The political economy of agricultural pricing policy. Includes bibliographical references. Contents: v. 1. Latin America-v. 2. Asia-v. 3. Africa and the Mediterranean. 1. Agricultural prices-Government policy-Developing countries- Case studies. 2. Agricultural prices-Government policy-Asia- Case studies. I. Krueger, Anne 0. II. Schiff, Maurice W III, Valdes, Alberto. HD1417.P65 1991 338. 1'8'091724 90-27232 ISBN 0-8018-4030-9 (set) Contents Preface ix Terms and Abbreviations xiii 1 Measuring the Effects of Intervention in Agricultural Prices 1 Anne 0. Krueger,Maurice Schiff, and Alberto ValdWs The Scope of the Project 3 Measuring the Impact of Agricultural Pricing Policies 5 The Quantitative Effectsof Intervention in Agricultural Prices 8 The Political Economy of Agricultural Pricing Policies 8 The International Economic Environment 9 Regional Findings 10 Notes 12 References 13 2 Egypt 15 Jean-JacquesDethier The Origins of Agricultural Price Intervention, 1960-85 15 Agricultural Price Intervention 26 Types of Agricultural Intervention 29 The Impact of Government Intervention on Agricultural Prices 33 The Effect of Price Intervention on Agriculture 40 Political-EconomicInterpretation 66 Recent Reform Attempts 72 Notes 75 References 76 V vi Contents 3 Ghana 79 J. DirckStryker The Evolving Political Economy 80 Economic Performance and Exchange Rate Disequilibrium 89 Government Intervention in Agriculture 93 Measures of Price Interventions and Their Effects 100 The Failure of the Political System 115 Notes 119 References 120 4 Morocco 122 A. HasanTuluy and B. Lynn Salinger Overview 123 Political-EconomicDevelopments 130 Intervention and Its Effects on Moroccan Agriculture 149 The Implications of Intervention for Agricultural Stability and Growth 159 Notes 165 References 168 5 Portugal 171 FranciscoAvillez, TimothyJ. Finan,and TimothyJosling The Economy 171 Agricultural Zones 176 Economic Policymaking 177 The History of Agricultural Pricing Policies 180 The Political Economy of Agriculture 185 Measures of Agricultural Protection 198 Summary 227 References 228 6 Turkey 230 HasanOlgun Overview of the Economy 230 History, Instruments, and Phases of Intervention 235 The Extent of Distortions 241 The Effects of Intervention on Output 245 Intended Objectives, Outcomes, and Market Mechanism 254 The Political Economy of Agricultural Intervention 259 Notes 264 References 266 Contents vii 7 Zambia 268 DorisJ. Jansen Overview of the Economy and Government Policy 268 The History and Objectives of Price Intervention Policies 274 Measures of Intervention 287 The Effects of Price Intervention 299 Policy Reform in Zambia 315 Notes 325 References 326 Appendix 328 Anne 0. Krueger,Maurice Schiff, and Alberto Valdes The Impact of Policies on Incentives 328 The Effect of Policies on Economic Variables 333 Government Investment and Expenditure Index 338 Price Variability 339 Notes 340 References 340 Preface This is the third of five volumes summarizing the results of the World Bank research project A Comparative Study of the Political Economy of Agricultural Pricing Policies. The project consisted of eighteen country studies that employed a common analytical framework and entailed close collaboration between the investigators and the project's three codirectors. This volume deals with six countries in Africa and the Mediterranean region: the Arab Republic of Egypt, Ghana, Morocco, Portugal, Turkey, and Zambia. The remaining countries are also orga- nized by region in two other volumes, which examine Latin America (Volume 1) and Asia (Volume 2). Volumes 4 and 5 present a synthesis and comparative analysis of the findings from each country study. The purpose of the project was threefold: to provide systematic esti- mates of the degree of price discrimination against agriculture within individual countries and to explain how it changed over time; to deter- mine how this intervention affected such key variables as foreign ex- change earnings, agricultural output, and income distribution; and to gain further insight into the political economy of agricultural pricing policy through a study of the motivations of policymakers, the eco- nomic and political factors determining the degree of agricultural inter- vention, and the attempts to reform unsuccessful policies. Until recently, analysts were primarily concerned with the direct effect that agricultural pricing policies might have on agricultural prod- uct and input prices. According to international trade theory and gen- eral equilibrium analysis, however, a policy that protects one particular sector of the economy (in this case, industry) is essentially imposing a tax on other sectors of the economy (in this case, agriculture). The tax is likely to raise the real exchange rate, which will then lower the real return to exportables and unprotected import-competing sectors, which account for most of agriculture. Indeed, a country's general economic policies may have far greater indirect effect on agricultural incentives than its agriculture-specific or direct pricing policies do. That is why this project proceeded on the premise that it is impossi- ix x Preface ble to judge the impact of a developing country's policies without an understanding of the relative importance of direct and indirect inter- vention. This approach also provides an effective means of evaluating the political economy of agricultural pricing policies across a number of countries, as explained in the final volumes of this series. The system- atic examination of the impact of these policies on output, consump- tion, government budgets, foreign trade, intersectoral transfers, and income distribution in itself contributes a great deal to our understand- ing of the workings of these policies in developing countries. Economic growth is such a complex process that it is extremely diffi- cult to interpret accurately. Because it consists of many phenomena changing simultaneously, the effects of particular policies are hard to isolate, especially if the policies have been in place for a long time. To deal with this problem, we asked the researchers to test three hypoth- eses in each country study: (a) agricultural pricing policies elicit eco- nomic responses (in the market, for example) and political responses (among pressure groups, bureaucratic organizations, and voter blocs) that affect the evolution of those policies; (b) the results of the policies may differ significantly from-and in some cases be opposite to-what was intended when they were adopted; and (c) the costs of price intervention are usually underestimated and tend to rise over time. Several criteria were used to select the countries for the project. A foremost concern was to represent a reasonable range of country expe- rience. Therefore, some countries in the group are exporters of food, others are exporters of agricultural (but nonfood) commodities, and still others are importers of food. An effort was also made to achieve some balance between low-income and middle-income countries, as well as among geographic regions. The task would have been impossi- ble without able researchers willing to participate in the project and to prepare the country reports (published as individual volumes in the World Bank Comparative Studies series). The countries included
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