A Value Chain Approach to Measuring Distortions to Incentives and Food Policy Effects (with Application to Pakistan's Grain Policy)

Abstract

We develop an extended Nominal Rate of Assistance (NRA) methodology to disentangle the welfare impacts of policies for various interest groups along the value chain (to disaggregate effects within the "producer" and "consumer" umbrellas). We apply our value chain NRA methodology to the case of Pakistan's price and trade policy. We analyse the welfare implications for various agents in the wheat-flour value chain from 2000 to 2013, a period characterized by major global price volatility and by regular adjustments of domestic policies. We find that the wheat price policy has generally benefitted flour consumers and wheat traders at the expense of wheat farmers and to a lesser extent flour millers. Our findings illustrate that the welfare implications of policies can be quite different within the "producer" and "consumer" umbrellas, which has potentially important implications for economic and political economy analyses and for the design of policies that aim to target the poorest groups along value chains.We thank Paul Dorosh for the provision of data and for many invaluable comments. Bekzod Shamsiev and Garry Christensen also contributed many helpful comments. The research received financial support from the KU Leuven (Methusalem), the World Bank and the European Commission (FoodSecure Project). The authors are solely responsible for the views expressed in this paper.Corresponding author: Elena Briones Alonso at elena.brionesalonso@kuleuven.be. IntroductionBoth economic policy and political economy models often consider "producers", "consumers", and "taxpayers" as the main agents in the economy to study the welfare impacts of policies, their incentive effects, and rent (re-)distribution. It is well known that the "real economy" is much more complicated and that many more agents are affected -and also play a role in lobbying governments to introduce or remove certain policies. In agricultural and food policies "other agents" include input suppliers (such as land owners, seed and agro-chemical companies, and rural banks) on the upstream side of the value chain and traders, food processors and retail companies on the downstream side of the value chain. These agents may be differently affected by policies, depending on the nature of the policy (e.g. whether the policy is targeted to the (raw) agricultural commodity (such as price support for grain) or to a processed commodity (such as import tariffs on bread or cheese). 1 As a consequence, these different agents have sometimes joined forces ("political coalitions") with farmers or with final consumers to influence policy makers in setting public policies.One of the reasons for simple producer-consumer models is of course its didactic use in theory, i.e. to avoid unnecessary complications in economic models to derive policy effects and identify equilibria. Another reason is empirical: the absence of detailed empirical information on policy impacts on various agents. A major contribution to empirical agricultural and food policy analysis in recent years is the...

The distortions to incentives in South African agriculture: a case study of the wheat industry

“…Hier word die aggregaat sowel as die gedisaggregeerde verwringings in 'n vertikale waardeketting in die Suid-Afrikaanse konteks geskat. Die metodologie wat deur Briones v Alonso en Swinnen (2015) ontwikkel is, is op die Suid-Afrikaanse koring-waardeketting toegepas vir die bemarkingsjare wat in Oktober 2000 begin het en in September 2014 geëindig het.…”

“…internationally comparable, such a decomposition -as has been undertaken by Briones Alonso and Swinnen (2015) for the Pakistani wheat flour value chain -is indeed possible when limited to a specific country and commodity or group of commodities.…”

“…The results of the update will enable the latest 10-year trend of agricultural producer distortion estimates to be analysed for South Africa per agricultural commodity, in contrast to the trends available from the Kirsten et al (2009) study. The fourth objective was to apply the disaggregated nominal rate of assistance approach of Briones Alonso and Swinnen (2015) to the South African wheat industry in order to determine the policy welfare impacts for three key individual agents along the value chain. The time period of this coverage included the marketing years from October 2000 to September 2014.…”

“…As discussed in Section 3.3.1.2, the disaggregated NRA methodology assumes that the price linkages in the vertical value chain are such that the price paid by the subsequent agent handling the traded commodity is equal to the price received by the previous agent who sold the commodity (Briones Alonso & Swinnen, 2015). In the case of the farmer-miller agent linkage, this intuition is plausible.…”

“…In addition to the aggregate application, the iii disaggregated approach to measuring distortions to individual agents' incentives in a vertical value chain is seminally applied in the South African context. The methodology developed by Briones Alonso and Swinnen (2015) is applied to the South African wheat value chain for the marketing years starting in October 2000 and ending in September 2014.…”