International Food Policy Research Institute
sustainable solutions for ending hunger and poverty
This report provides an analysis of the evolution of agricultural policies and empirical estimates of the degree of protection or disprotection to agriculture for India, Indonesia, China and Vietnam. First, we describe several conceptual and measurement issues that arise in evaluating agricultural protection or disprotection among developing countries, as assessed by producer support estimates (PSEs). In particular, we observe that in the standard PSE analysis market price support measured for covered commodities is usually "scaled up" based on the share of these commodities in the total value of agricultural production. The scaling up procedure magnifies the support estimate, a result that is only appropriate when policies for commodities not covered are similar to those for the covered commodities.
Taking this and other measurement issues into consideration, support estimates for India based on eleven main commodities confirm agriculture was disprotected in the 1990s but has been subsidized more recently. We report less initial disprotection of Indian agriculture, and less protection at the end of the decade, than earlier assessments, largely due to whether or not the scaling up procedure is invoked. For Indonesia, we evaluate agricultural support for four imported commodities and two exported commodities. The PSEs show that, in spite of reforms, the government of Indonesia has consistently subsidized agriculture since 1990, although not uniformly across commodities.
For China, our analysis is limited to the years 1995-2001. Over this short period, China's agricultural policies are estimated to have been nearly neutral. Vietnam has followed China in moving from a centrally-planned towards a market-oriented economic system. Our results for Vietnam cover more than 70 percent of the value of agricultural output and show that most agricultural products were taxed in the mid 1980s until the mid 1990s. Economic reforms have opened the economy since the early 1990s, and there has been a policy shift from an import-substitution strategy towards export promotion with decreasing agricultural disprotection turning to positive protection overall.
For India and China we also evaluate the effects of exchange rate disequilibrium on the PSEs. Our results show that the indirect effect of exchange rate misalignment can either amplify or counteract the direct effect from sector-specific policies. In India, the indirect effects are relatively small. In China, the exchange rate undervaluation has had a greater impact, subsidizing agricultural output prices by about 10 percent during 1995-2001.