Agricultural Pricing Policies in Developed and Developing Countries: Their Effects on Efficiency, Distribution, and Rural Change

Agriculture is the main source of food for the world, and food is the basic input in the daily sustenance of humans. Yet, in many parts of the world there is insufficient food, which in turn implies inadequate agricultural output. The reasons for inadequate agricultural production are many and varied, ranging from poor distribution and poor production techniques to political intervention at various levels in the global agricultural complex. The most important reason for deficie.nt agricultural output is difficult to ascertain, but Schultz (1977) left no doubt as to his ranking of the causes. He suggested that the level of agricultural production depends not so much on technical considerations, but in large measure "on what governments do to agriculture." Schultz has long been the most ardent and eloquent spokesman of this position. See, for example, Schultz, 1964, 1977, and 1978. Export taxes on agricultural products provide government revenue and keep domesitc prices low, product price supports in developed countries maintain farm incomes and provide surpluses which in turn find their way to developing country markets to further depress domestic farm prices, and agricultural inputs are frequently either taxed or subsidized. Yet, the magnitude of these effects on agricultural output, income distribution between producers and consumers, efficiency, and on rural-urban migration is often not fully appreciated. This paper discusses government intervention in agricultural price determination, drawing on welfare theory to quantify the economic impacts on the previously mentioned variables. In this study, we examine France, Federal Republic of Germany, United Kingdom, Japan, Yugoslavia, Argentina, Egypt, Pakistan, and Thailand. The general theme of the paper is that the agricultural policies pursued by developing countries produce effects which are diametrically opposite to those produced by the policies of many developed countries, and that the policies of both are costly in terms of global welfare. Peterson addresses the developing country side of this question in a somewhat different manner