International Farm Prices and the Social Cost of Cheap Food Policies: Comment

Peterson's original paper (see WAERSA 21, 5621) supports the increasingly popular belief in the agricultural economics profession that government policies have reduced agricultural production in LDCs. Policy implications are that LDCs could raise production by improving domestic agricultural incentives, especially output prices. McIntire argues that this view, as quantified in Peterson's paper, can be seriously misleading (in terms of evidence from sub-Saharan Africa) because (a) it is based on a misinterpretation of the price data, (b) it obscures the market structure of many countries, (c) it groups African countries with others where agricultural supply functions are probably more price elastic; (d) it obscures the role of foreign trade. He argues also that actual prices received by farmers in LDCs are higher than those reported by FAO and used by Peterson. In reply Peterson restates his plea that countries would be better served if policy makers regarded the long run aggregate agricultural supply elasticity to be elastic rather than inelastic in making policy decisions