Agriculture Reference
In-Depth Information
on the world market for their food security because the market is highly volatile
and thin. All three are essentially arguments of market failure. Therefore, there
can be agreement about the justifications for public intervention, if the argu-
ments are empirically well founded.
However, the debate over cost effectiveness, implications for resource al-
locations, and sustainability of price stabilization programs is very much alive.
2
Proponents argue that price stabilization policy has helped farmers to adopt new
technologies, consumers to increase their real incomes, vulnerable people to be
protected, and the countries to enjoy higher overall economic growth. Price sup-
port programs have benefited farmers by protecting them against the risks of in-
novation and prices, helping them form appropriate expectations, and above all
guaranteeing them minimum income. Because farmers in developing countries
operate under highly uncertain weather and market conditions, the proponents
argue, these interventions are not only justifiable but also critical to helping
farmers adopt new technologies—a common argument in the early years of the
Green Revolution. Consumers, particularly the poor (who spend a large share
of their income on food) and the vulnerable, have benefited from stable and
lower food prices, which effectively increase their real wages and their ability
to buy food. Finally, there are empirical studies to suggest that food price sta-
bility contributes to political stability and economic growth. In particular, those
countries most successful in stabilizing prices have also been among the fastest-
growing countries in the world; in countries where price stability has not been
ensured, political stability and economic growth are limited or even threatened
(see Timmer 1992; Pinckney 1993).
The second approach to the question “why” deals with the case for chang-
ing parastatal-centered policies. Opponents of price support programs argue
that such programs are difficult to implement, not worth the costs, and likely to
be captured by special interest groups. Successful implementation of price sta-
bilization programs is difficult, because it critically depends on accurate and
timely market information, which the parastatals, or other government agen-
cies, are unlikely to be able to gather, manage, and apply effectively over time.
It is not worth the costs because the benefits that the program delivers are
smaller than the huge costs involved in setting up the infrastructure and main-
taining the system, and because the resources could be used more effectively to
fund other activities. Not only are the observable costs of running the programs
high, but the hidden costs associated with rent-seeking and corruption can also
be substantial and can adversely affect resource allocation in a country. In ad-
dition, artificially elevating prices of selected commodities interferes with the
market-allocation function so important to economic progress. Taking all these
factors together, the opponents argue, the social benefits of stabilizing food
2. That the debate is alive will be evident in various chapters in the topic. For a detailed dis-
cussion of the conceptual issues, see Timmer (1989, 1996) and references therein.
