Agriculture Reference
In-Depth Information
The first set of issues addresses questions of “why” and “when,” and the
second set deals with question of “how.” Both sets of issues have been ad-
dressed, to varying degrees, throughout the topic. The empirics on the first two
questions are strong, but as noted in the postscript to Chapter 6 on Indonesia,
economic policies are adopted through a political process, and that political
process does not always ensure good policies. Furthermore, as a famous U.S.
politician once wisely observed, “all politics is local,”
1
so although the eco-
nomics of a reform agenda are fairly straightforward to articulate and document
with data, the applications are usually unique to particular countries or re-
gions—a contention that is echoed in most of the case studies. Therefore, in ad-
dition to summarizing the key findings in the format of the three questions men-
tioned above, this chapter highlights the challenges of making the policy
reforms work, with especial emphasis on political economy considerations.
2
Why Do Parastatal-Centered Policies Have to Change?
The empirics from the country case studies and cross-country syntheses suggest
that there are three reasons why the parastatals, and the regulatory environments
within which they operate, have to change. First, the rationales for public inter-
vention in foodgrain markets, especially in Asia, have changed over the years.
Four commonly agreed justifications for public intervention—poorly integrated
domestic markets, thin and volatile world markets, risks in technology promo-
tion, and international liquidity constraints—are no longer persuasive. The key
determinants of market integration, infrastructure, and information flow, have
improved dramatically, and recent studies suggest that the domestic markets are
well integrated in all Asian countries. Compared to early years of the Green Rev-
olution, the world markets for wheat and rice are much more robust, the avail-
ability of commodities is much more stable, prices are far less volatile, and real
world prices are exhibiting declining trends. The justification to protect farmers
against technological risks is no longer convincing, because farmers have mas-
tered the technologies and HYVs now cover almost all area sown to rice and
wheat. The international liquidity constraint, which was severe and was one of
the significant food policy drivers 40 years ago, has improved so much that the
value of potential cereal imports now accounts for only a tiny fraction of total
foreign currency reserves in the Asian countries reviewed.
Second, there is much to be gained by changing the current ways of for-
mulating food price policies. Two messages are clear from the country case
studies: (1) the food marketing parastatals are becoming increasingly expensive
and wasteful and (2) the alternative institutional mechanisms for achieving
1. The politician is Thomas P. “Tip” O'Neill, former speaker of the House of Representa-
tives in the U.S. Congress.
2. We are thankful to an anonymous reviewer for making this suggestion.
