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

Historically, earnings from farming in many low-income countries have been depressed by a prourban bias in own-country price and trade policies, as well as by governments of richer countries favoring their farmers with import barriers and subsidies. Both sets of policies reduce national and global economic welfare. Over the past two decades numerous developing country governments have reduced their sectoral and trade policy distortions, while some high-income countries also have begun reforming their farm protectionist policies. Drawing on results from a new multi-country World Bank research project, this paper summarizes evidence on the changing extent of distortions to prices of farm products nationally, regionally and globally. In particular, it examines the extent to which later-emerging economies of Asia and elsewhere are following the policy trajectory of Northeast Asia’s more-advanced economies as revealed by Anderson, Hayami and Others (1986), whereby economic development tended to be accompanied by a gradual reduction in anti-agricultural policies and eventual transition to proagricultural pricing. This new evidence is not inconsistent with that past pattern of earlier developers, so the final section focuses on what might be done to avoid a further spreading of agricultural protection growth.