Agriculture Reference
In-Depth Information
government intervention) with the ones that continue to have a significant para-
statal presence.
Five major conclusions emerge from the synthesis. First, the four com-
monly agreed rationales—poorly integrated domestic markets, technology pro-
motion, thin and volatile world markets, and international liquidity constraints
—for public intervention in foodgrain markets are no longer convincing. Sec-
ond, although rationales have lost their significance, many countries continue
to practice their old set of policies and provide regulatory supports to the para-
statals, including monopoly control over international trade, preferential access
to transportation, restrictions on movement of foodgrains, and cheap or interest-
free credit. Third, the costs of price stabilization, especially as implemented by
parastatals, have been high and are increasing relative to those of the private
sector. Available estimates of food subsidies and the costs of system inefficien-
cies are staggering in all countries that continue to have significant parastatal
presence. Fourth, the food marketing parastatals are being increasingly dictated
by special interests and rent seekers. This influence is manifested in trade-pol-
icy reversals in Indonesia and Pakistan, government's wheat-import decisions
in the Philippines, and manipulation of ceiling and floor prices in India. Finally,
liberalization of grain markets appears to have beneficial effects on the econ-
omy. In Vietnam and Bangladesh, both of which have implemented extensive
reforms over the past 15 years, food subsidies have declined, private markets
have strengthened perceptibly, the number of private traders has increased sig-
nificantly, and more public resources are now available for alternative public
investments (notably for poverty alleviation programs).
The central message of the synthesis is that times have changed: policies
and public agencies that may have been appropriate 30 years ago are not opti-
mal today. Private institutions have strengthened significantly and should now
be entrusted with many of the functions that parastatals or other government
agencies have traditionally performed. However, this conclusion does not im-
ply that there will be no role for the government to play. The legitimate roles
will be protecting that part of the population that is vulnerable to climatic
shocks and resides in resource-poor regions. The Bangladesh experiences sug-
gest that, to accomplish those objectives, parastatals and the regulatory envi-
ronment have to be reformed.
Such reforms will release public funds for alternative investments that have
higher returns—most likely higher than the returns to public price stabilization
as currently practiced. Recent studies have demonstrated that returns to public
investments—such as agricultural research, roads, and education—rank very
high, in terms of increased agricultural productivity or decreased poverty. The
early reformers have demonstrated that reduction of government control can
promote competition in the domestic markets, reduce subsidies, and release
funds for development and antipoverty programs—all without jeopardizing price
stability or food security. Thus, changing the old ways of attaining food secu-
