The impact of agricultural policy distortions on the productivity gap: Evidence from rice production

Abstract

This study determines how production and trade policy distortions affected rice productivity in thirty-three rice-producing countries. A rice-productivity index for each country is constructed, and a model linking the productivity gap with policy distortions is presented. After controlling for the differences in infrastructure, openness, and human capital, this article shows that high subsidies and protection in developed countries combined with taxation of rice farming in poor countries have widened the gap in rice productivity between rich and poor rice countries. Key words: agricultural policy distortions, trade policies, productivity, rice 2The agricultural sector in many developing countries has suffered from both a set of policy distortions and low productivity, but in all the attempts to find workable solutions the interaction between these two problems has been overlooked. For many commodities including rice, while developed countries have heavily subsidized their production and exports and limited their imports, developing countries have taxed their producers severely in favor of their consumers. Recently, many developing countries have reinforced the taxations of grain production in an attempt to halt the increases in consumer prices. Studies have concluded that these distortions have depressed prices, hurting specifically farmers in small open economies. That the depressed farm prices and revenues are likely to affect farmers' ability to adopt new technology has, however, been forgotten. Indeed, low farm prices and revenues reduce poor farmers' ability to afford investments associated with the adoption of new technology; even if technology is available, productivity will remain low as long as poor farmers do not expect much profit from adopting it. At a time when developing countries still lag far behind in productivity levels, struggle with food insecurity, and suffer from inefficient resource allocation and lack of competitiveness, exploring the link between agricultural policy distortions and productivity is long overdue. 1 The objective of this article is to determine how policy distortions affected productivity in the rice sector for thirty three prominent rice-producing countries during 1 Past studies (e.g. Nin et al. (2003)) often assume that changes in agricultural policies are detached from productivity growth. One of the rare studies on the impacts of government program on productivity in agriculture is Makki, Tweeten, and Thraen (1999), but it was confined only to the US case.3 the period 1961-2002. The specific objectives are to (i) measure the levels and growth rates of total factor productivity (TFP) in rice production for the selected countries, (ii) provide a model linking productivity with production and trade policies, and (iii) estimate the impacts of policy distortion on productivity gaps among these producing countries.The innovation in this article is twofold. First, I use constructed productivity indexes instead of yields. A dynamic panel data model is employed to obt...

The Study of Entrepreneurship and Innovation Adoption by Farmer in Improving Lowland Rice Farming

“…Technology is a strategic thing, that is why developed countries expressly provide production subsidies in rice farming. Ironically, farmers in developing countries, including Indonesia, trade in the factors of production that go along with the market even subject to tax (Rakotoarisoa, 2011).…”

“…Extension workers are also needed to help market access, so farmers are not in a weak position dealing with the middlemen. According to Rakotoarisoa (2011), when farmers receive a fair price and the expected benefits, they will be more eager to adopt new technologies. The substantive role of extension workers, competitive markets and expected profits become incentives for farmers to adopt new technologies.…”

A Time Series Analysis of China’s Foreign Direct Investment on Senegal’s Agriculture

“…Firstly, despite the fact that agricultural FDI accounts for less than 5 per cent of overall FDI in Africa, it has grown on average by 17 per cent during 2003-10 period showing an upward trend [1,2].…”

Agricultural Trade Liberalization and Poverty in Rural Bangladesh

“…However, the distributional impact of this growth can be mixed despite the extensive spread of technological transformation in agriculture. Even where agriculture retains comparative advantage, the liberalization of trade raises questions about the pro‐poor effects of agricultural productivity improvement due to issues related to income distribution (Acharya, , p. 61; Acharya & Cohen, , p. 1057; Gabre‐Madhin, Barrett, & Dorosh, , p. 1; Gerard & Piketty, , p. 2; Keleman, , p. 13; Rakotoarisoa, , p. 147). Therefore, the effect of agricultural trade liberalization on welfare is highly contested in the development economics literature (Cassel & Patel, , p. 6; Keleman, , p. 13; Rakotoarisoa, , p. 147; Sexton, Sheldon, McCorriston, & Wang, , p. 253).…”