Food Pricing Policy in Developing Countries: Bias against Agriculture or for Urban Consumers?

Abstract

Price policy discrimination against agricultural producers, in order to provide cheap food for urban consumers, has been widely cited in development forums as a cause of agricultural stagnation. Evidence is presented that suggests no consistent pattern of discrimination against producers for a major food commodity, wheat. However, consumer subsidies and trade policies have reduced bread prices to urban consumers in many countries. Price data from the early 1980s are assembled for thirty-one developing countries. Nominal protection coefficients for producers and consumers at official and corrected exchange rates and wheat-fertilizer price ratios are estimated for each country.

Household food demand in Burkina Faso: Implications for food policy

“…Combining this with rising (urban) per-capita income has resulted in sharp increases in food staple imports. Byerlee and Sain (1986) present evidence of a widespread and consistent bias in government policy toward providing low prices to urban consumers and that low consumer prices rather than low producer prices appear to have caused the rise in food grain imports in developing countries. Among the policy concerns are overvalued currencies which encourage food imports, subsidized staple food prices (of imports) which favor consumers, and an artificially taxed agricultural sector.…”

On the measurement of agricultural protection: How price uncertainty and limited substitution matter

“…Sources: Own computations with data from Byerlee/Sain (1986), A-l and the sources cited in Appendix 1. …”

“…The urban population is believed to be favoured at the direct expense of the rural population. The study of Byerlee/Sain (1986) tests this hypothesis within a crosscountry analysis. Nominal protection coefficients are computed for the wheat sector in 1980-82 and consumer and producer prices -3 -are distinguished.…”

“…His empirical analyses suggest that these costs matter for the magnitude of the measured level of protection, especially in developing countries. Byerlee/Sain (1986) show that the measured subsidization of or discrimination against agriculture is strongly affected when overvalued exchange rates are taken into account. Furthermore, they argue that heavily fluctuating world prices distort the measured degree of protection and vote for the use of normal instead of actual world prices in the calculation of protection rates.…”

“…We focus on two aspects which have been widely ignored in the literature: price uncertainty and limited substitution. In the first part, we start from the important findings of Byerlee/ Sain (1986). These authors tried to cope with world price uncertainty and derived for the wheat sector the challenging and unexpected result that developing countries do not systematically discriminate against agriculture.…”