Agriculture Reference
In-Depth Information
does not hinder their day-to-day operations, and public policies do not prevent
them from adopting new risk-mitigating institutions, such as futures markets.
Unless clear signals are sent, private sectors will not evolve and interests groups
will find grounds to delay the reforms of parastatal-centered policies.
Opening up Domestic Markets to International Competition
Many Asian countries continue to restrict international foodgrain trade in one
form or another. Two commonly cited arguments to justify these policies are
(1) world prices are heavily influenced by high agricultural subsidies in the in-
dustrialized countries and (2) although the world grain markets have matured
in terms of size and availability, world prices continue to be more volatile
than domestic prices. There is some truth in these arguments, but the policy re-
sponses do not appear to address them in ways that make economic sense. In-
stead of being strategic, the policy practices appear to be more restrictive. For
instance, governments exercise full monopoly control over grain exports and
imports in the Philippines, wheat imports in Pakistan, and rice exports in Viet-
nam. In India, imports of cereals are heavily influenced by the government in
terms of when and how much to import, and at what import duty. In Indonesia,
rice import restrictions were lifted in 1998, but it resulted in larger volumes of
imports, which triggered demands (including from BULOG) for protection.
The government instituted a temporary ban on imports and allowed only a
select group of expressly licensed traders to import rice.
The unpredictable change of policies is neither the correct response to
world market distortions nor healthy for domestic market development. A more
effective strategic response would be to use variable tariffs, in a transparent and
WTO-compatible way, to guard domestic markets against world price volatil-
ity. There is scope for adopting such policies, as the applied tariffs on cereals
are far lower than bound tariffs in most of these countries, and studies in India
have shown that the these alternatives are more welfare-enhancing than the
existing policies (Jha and Srinivasan 1999; Srinivasan and Jha 2001; Parikh,
Ganesh-Kumar, and Darbha 2003).
Furthermore, globalization offers great opportunities, and there is a con-
sensus that the developing countries can achieve net economic gains by under-
taking reforms in domestic economic policies. Indeed, the complementarities
between changes in the international trade environment and domestic policies
are at the core of the question of how developing countries will be affected by
future international trade negotiations. Improvements in the international trade
environment are not a viable substitute for sound pro-growth policies and struc-
tural changes—a fact that applies to both net importers and net exporters of agri-
cultural goods.
4
4. To take full advantage of trade reforms, countries must adopt many of the policy and in-
vestment decisions that are necessary for development. That is sometimes a big order. One inter-
