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Interview with Kym Anderson on agricultural policy in developing countries - Transcript

Kristin Agard: Welcome to the Applied Economic Perspectives and Policy Podcast, a production of Oxford Journals and the Agricultural & Applied Economics Association. I'm Kristin Agard, Executive Director of the Agricultural & Applied Economics Association. Recently, I spoke with Kym Anderson, professor of economics at the University of Adelaide about his article, "Krueger/Schiff/Valdes Revisited, Agricultural Price and Trade Policy Reform in Developing Countries Since 1960". This featured article is published in the second issue of volume 32 of AEPP. Thanks for joining us, Professor Anderson.

Kym Anderson: My pleasure.

Kym Anderson: That was a seminal study done by the World Bank two decades ago. It focused on what effectively was the first 25 years of independence of many developing countries and looked at their agricultural and trade policies and found them to be hugely negative towards farmers. That became the conventional wisdom then of what had been happening for those 25 years and I think helped the international financial institutions in their resolve to try and encourage countries to adopt more efficient policies, particularly as they affected farmers who made up about three-quarters of the population.

Kristin Agard: Your current study is based on the World Bank's new database of agricultural distortions. Could you explain the significance of this database?

Kym Anderson: Well, it's a revisit of that issue that Krueger/Schiff/Valdes looked at so it's updating, providing an extra 20-odd years of data but it does a lot more than that. It involves many more countries than their original 18 developing countries, including economies in transition from socialism. It involves many more commodities, the whole livestock sector is included, for example, and it therefore is able to cover about 70% of each country's agricultural production. That agricultural production accounts for about 90% of world agriculture so it's a very comprehensive study because, as well as having developing and transition economies; it has the high income countries in there. OECD had been providing, as it continues to provide, distortion estimates for high income countries but they only started in 1986 so we took that database back to 1955.

Kristin Agard: In your paper, you mention most of the agricultural policies in developing countries from 1960 to 1984 were somehow harming their farmers. In what way were these policies harming the farmers and why were they implemented if they were actually damaging?

Kym Anderson: Good question. The harm came in several ways. It came directly from production or export taxes, either explicit or implicit. For example, some farmers had to provide so much of a crop in-kind to the government as in China, for example. But, in addition to those direct negative policies, there were policies in place that indirectly harmed agriculture. For example, there were multiple exchange rates so that farmers didn't get a fair exchange rate when converting to the local currency. There was also a great deal of manufacturing protectionism in place and that attracted resources out of agriculture and into the industrial sector and so made it harder for farmers to compete for mobile resources like labor.

Kristin Agard: Worldwide, what are the dominant types of agricultural policy intervention?

Kym Anderson: Currently, there are import taxes. They are the most important, by far, of the distortions that remain. But, back in the Krueger/Schiff/Valdes days, almost as important for developing countries were export taxes so they were harming the exporters directly. In addition, there were a number of domestic distortions but they are relatively small. They could have been production or consumption taxes or subsidies. It's a mixture of all of those. But predominantly it's trade measures. While we typically think of that as import restrictions, in fact, also important in the past were export restrictions for developing countries. They did become important in times when world prices rise, as in 2008, where we saw export restrictions again being used by a number of food exporting developing countries.

Kristin Agard: Lastly, you concluded the world has moved three-fifths of the way towards global free trade in goods over the last 25 years. What is needed to attain those remaining two-fifths?

Kym Anderson: Well, it's so much harder, I think, to get rid of that last bit because most of it now is, as I just suggested, import restrictions. We've seen those export taxes and a lot of production taxes no longer apply but import restrictions remain and they've been, in fact, growing in developing countries. So, unilaterally, it's an encouragement for that by the international financial institutions is clearly one way in which countries could reform but that's always politically difficult. It's made a little bit easier if the reform is done in a multilateral setting and, of course, that's what the WTO, the World Trade Organization, seeks to encourage its members to do, to negotiate and agree to liberalize simultaneously and the Doha round of WTO negotiations is expressly trying to do that but it's finding even that is a difficult political process at the moment. But, amongst the unilateral moves, we have seen some reform already. For example, the Europeans have moved to re-instrument. They support away from import restrictions towards more direct payments that are untied to production and are therefore able to target government objectives much more easily. If food security is a concern, and it certainly is in many parts of the world after the shock of the food price spike in 2008, then investments in research and development are one way of easing that concern that is more directly addressing the concern than using trade measures. So we're hoping

Kristin Agard: Thank you, Professor Anderson, for your responses. It was a pleasure speaking with you today.

Kym Anderson: Thank you.

Kristin Agard: That was Professor Kym Anderson from the University of Adelaide. Look for his featured article on agricultural price and trade policy in volume 32, issue 2, of AEPP. If you have any feedback or follow-up questions for Professor Anderson, please send an email to podcasts@oxfordjournals.org. If you are interested in learning more about AEPP or signing up for free AEPP content alerts, visit www.aepp.oxfordjournals.org. For more information about the Agricultural & Applied Economics Association, visit www.aaea.org. I'm Kristin Agard. Thanks for listening.