National policies and agricultural trade

the term ‘irradiated’ and the harmful effects of ‘radioactivity’. This relation has led many to beheve that trradtated food is radioactive and so could lead to harm. Both of these processes could be beneficial were it not for mistaken beliefs. These two instances should warn manufacturers and innovators that even when all needs for safety, costs and convenience are met. success still depends on the beliefs of the consumer. If these are adverse the facts become Irrelevant. Who would serve sucking pig in blecca. or between

horsemeat steaks at a pony club dinner, no matter how nutritious or hygienic these products might be? W.F. J. Cuthbertson Harefield Middlesex, UK ‘The strength of the UK contrngent (about

70 delegates), tncludtng a substanttal proportton of young food sctentrsts, was greatly augmented by frnancral assrstance from the Royal Society, the UK Councrl for Food Science and Technology and from the Socrety of Chemical Industry. whose help IS gratefully acknowledged.

Book reviews The mutual benefits of reducing agricultural assistance NATIONAL

POLICIES

AGRICULTURAL

AND

TRADE

OECD, Paris, France, 1987, 333 ppg FF 2500 hb, FF 120 pb Fourteen years ago when Professor Timothy Josling outlined the methodology for calculating assistance to agriculture which IS central to Nrrr~~r~rrl Poli&s rml Agm’ultwrrl Trrrtle. it would have been unthinkable that all the OECD governments would have agreed to the publication of this book under the OECD imprint. with a title which directly linked national agrtcultural policies and agricultural trade Even five years ago, when the OECD mmisterial meeting provided the mandate to ‘Analyse the and methods for ;I balapproaches anced and gradual reduction of protection for agriculture, and the fuller integration of agriculture within the open multtlateral trading system .‘, the mandate was still hedged with qualifications about the ‘specificity’ of agriculture and the need for ‘compatabihty between agricultural policies and ‘orderly’ trade. This book is therefore a very signifisince it constitutes cant publicatton,

FOOD POLICY May 1988

first offtctal recognition by all OECD governments ~ albett implicitly by their tactt acceptance of the text that domestic agricultural policies are the direct cause of the agrtcultural trade problem. The agricultural trade problem IS well known and is documented throughout the book. Global productton of most major bulk agricultural commodities has risen to the point where the surpluses avanable for international trade grossly exceed the international market’s capacity to absorb them, even at prices which are heavily subsidized, or all but inadequthe

ate to provide

reasonable

the most efficient

returns

to

exporters.

price signals by increasing production. and consumers by decreasing or holding static consumptton. The taxpayer and/or consumer foots the bill. The resulting imbalance bctwecn consumption and production is cxported. typically with a subsidy, to disrupt such tntrrnattonal markets as do exist, or is stored at htgh cost and wtth the threat of future market dtsruption. The Increases in production are made possible by ;I vast reservoir of agricultural technology whose effects, in my opinion, may defeat attempts to reduce production for many more years than this book appears to anticipate. The heart of the book, in which the agricultural trade problem 1s quanttfied and analysed, IS an I l-country, 14commodtty model of agrtcultural production. demand and trade In this model a complex system of supply and demand elasticities are used to describe demand, supply and effective prices to producer and consumer for the various commodittes tn each country. Countries are linked through trade: again. elasticity esttmates provide the method by which consumers and producers can respond to changes in world prices. Changes in world prices are assumed to be fully to consumers The

key

policy

The root cause of this imbalance lies in the domestic policies of most of the developed - and Increasingly of the developmg - countries where. in an attempt to achieve various strategic, socud and environmental objectives, subsidies are paid to producers. or prices for agricultural produce are set at higher levels than would be necessary tf only economtc considerattons were taken into account. As a result producers respond to the distorted

concept

which

I\

used to trigger changes in world prices and to link domestic cies and agricultural

agricultural

poli-

trade is the PSE -

the Producer

Subsidy

less important

concept 1s the CSE.

Consumer

Subsidy

Equivalent.

A or

The

Equivalent.

CSE is also quantified

and discussed In

the text. Essentially

Footing the hill

back

passed

and producers.

of: (I)

the PSE is a summation

direct

payments

and imphctt

to producers

budgetary

in the

indt-

vidual countries (eg income transfers, input subsidies, tax rebates, substdized R&D, etc): and (2) market price support

to producers

countries.’

The

comprehenstve

PSE

m the various

is. therefore.

;I

estimate of the level of

assistance to producers

in the various

countries

be

either or

per

which

as an aggregate

unit

percentage The

can

of production, of producer

CSE,

the

expressed

monetary

other

sum,

or as

;I

values. measure

of

219

assistance, IS a measure of the implicit tax on consumption resulting from various policy measures. net of any consumer subsidy. The PSE’s within the book are calculated m varying degrees of detail. The most thorough estimates are for the EC (treated as one country), the US, Japan, Australia. New Zealand, Canada and Austria. Variations in the level of PSEs under five different scenarios are used to model the effect\ of a reduction m asalstancc to agriculture on world supply, demand and prices of the various commodities. The results of the five ‘runs’ are used to reach the basic conclusion of the hook: that a gradual and balanced reduction in assistance to agriculture through a change in domestic Fupport policies would be mutually beneficial to all OECD member countries provided it were to be carried out on a multilateral, multicommod@ bask

Quibbles It 1seasy but unproductive to criticize some aspects of the model. (1) It is static, and PSE estimates are only applicable: to the years 197%X1; (2) it is enormously complex and dependent on elasticity estimates which may or may not be valid (sensitivity testing does little to reassure the lay-reader); (3) as far as I can tell, it makes no concessions to the likely effects of technological change; and (4) it keeps developing countries’ policies unchanged when, increasmgly. the dev-

eloping countries are becoming protectionist Such criticisms are little more than quibbles. The basic conclusion 15 valid. as other model\ have shown. However, one technical problem does concern me. The measurement of market price support. on which a large part of the PSE calculations depend, 1s itself dependent on the idea of an ‘unsupported’ price. Is there really such a thing in world agriculture’? And what of the effect\ of now rapidly changing exchange rate\? I suspect that these points may be attacked in the present round of GATT negotiations where the PSE concept WIII form part of the new ‘vocabulary’ of negotiation. Despite these points, it IS a commendable book. and I hope It WIII contribute to a real reduction in agricultural protectionism throughout the world. All those involved in agricultural pohcy should have a copy. C. W. Maughan Centre for Agricultural Policy Studies Massey University New Zealand ‘Market pnce support IS an estimate of the amount that the producer receives over and above a notlonal ‘world market’ price, due to the effects to such measures as quantitative restrictlons, two-pnce systems, tariffs, etc It IS measured by calculating the difference between the supported domestlc price of a commodity and an unsupported or external reference pnce - with appropriate adjustments to avold counting any budgetary costs twice

A broad approach to risk management CROP INSURANCE FOR AGRICULTURAL DEVELOPMENT by Peter Hazell, Carlos and Albert0 Valdes

Pomareda

Published for IFPRI by the Johns Hopkins University Press, Baltimore, MD, USA, 1986, 322 pp, f26.50 There is a strange paradox in the literature of agricultural economics. It buzzes with discussion of risk and

measurement of risk aversion. yet it rarelv mentions Insurance. The ten page; of closely packed bibliography prepared by Hazell. Pomareda and Valdc\ make the point perfectly. There are a few citations of offlclal reports. often from the USA, of the I%7 book by P.K. Ray (which ha\ recently been revised): and of OCGsional speclflc articles which. though they \ometlmes have easily recognized authorship, are rather delightfully dated (Halcrow, hurnol of F;lrj71 E‘co-

nom,cs, lY4Y. is a case m point). Tht: many other item\ included are much more general; it is a reading list in the economics of instability. in rural credit and in declslon theory. Through the efforts of the International Food Policy Research Institute (IFPRI). the book’s three editors, and the authors of IS papers (most of them presented at a 1982 conference) we now have a convenient and welcome book-length study. It contains a great deal of informative material on functioning crop insurance schemes (USA, Japan. Brazil. Sri Lanka, Mauritius and Mexico) and a chunk of analysis from which it becomes clear why the and indeed the extent of subject. practical application. can hardly be \uid to have taken off Part of the reason. of course, lies in the fact that ri\k management spreads its tentacles widely: into farmers’ own defensive credit markets, tenancy strategies, arrangements, futures markets and not least into official price stabilization schemes. This largely explains the nature of the bibliography. The specific Issue to be considered. therefore, narrows down to that of insuring against extreme downside variation in crop (or livestock) yield. As Hans Binswangcr remark\ in a contributed paper. this IS relatively uncommon. Specific Insurance (against hall or flood damage) is available through private insurance markets. mainly m developed countries, but general multiple-risk yield Insurance survives only with subsidization. The Impediments arc moral hazard. adverse 5electlon (the difficulty of Gfting out particularly high risks). actuarial informatlon problems. and and Inspection overadmmistratlvc heads. Hence privately ba\ed msurancr markets fail and governments may become obliged to step in, at a budgetary cost. In their general summary the author\ conclude that the outlook is not encouraging and ‘government would be well advised to look carefully before rmbarklng on large and costly multiple rl\k crop in\urancc programmes’. A more useful approach would be to confine Incurante to more easily monitored natural hazards (hails, tlood and hurricane\, for ctxample). They are particularly

FOOD POLICY May 1988