Food Price and Trade Policy Biases - The Oxford Topic of Food, Politics, and Society - page 362

Agricultural production also was effectively taxed through requiring farmers to deliver
some of their crop to parastatal agencies that paid them below-market prices. Meanwhile,
agricultural development economists such as Johnston and Mellor (1961) saw the farm
sector's contributions mainly as a market for manufactures and as a supplier of low-wage
labor to nonfarm sectors. This view drew on Arthur Lewis's (1954) closed-economy model,
which assumed unlimited supplies of agricultural labor.
An assumption implicit in much of this early thinking was that farmers were not very
responsive to price incentives. This assumption was first challenged by T. W. Schultz
(1964), who argued that farmers in developing countries were “poor but efficient.”
Schultz believed that farm output would respond positively to improved incentives, and
he suggested there would be high returns from removing price distortions and boosting
public investment in rural public goods, both physical (e.g., transport and communica-
tions infrastructure) and human (e.g., rural health and education, agricultural R&D).
Over time this Schultzian view was embraced, especially as and when economists and
then policymakers came to understand the high cost of an anti-agricultural, anti-trade,
import-substituting industrialization strategy. By the late 1960s, comprehensive empirical
evidence of the huge extent of the distortions to incentives associated with manufacturing
protectionism in developing countries had emerged (Little, Scitovsky, and Scott 1970; Balassa
and Associates 1971). It was already clear that much faster industrial and overall economic
growth was occurring in the few cases where import-substituting industrialization had been
replaced by a more open-economy strategy, notably in East Asia. Development economists
gradually abandoned their former support for intervention in favor of freer trade and flexible
exchange rates, but it took other developing countries a decade or more to heed those policy
lessons—prodded from the early 1980s on by loans from international financial institutions
that were conditional on the adoption of structural adjustment programs.
Meanwhile, the densely populated East Asian economies, like Europe before them, wor-
ried that industrialization was eroding their former agricultural comparative advantages
and causing farm household incomes to lag behind incomes in the rapidly growing cit-
ies. Their policy responses did not focus on ways of boosting farmer productivity; instead,
they focused on increasingly protecting farmers from import competition (Anderson,
Hayami, et al. 1986). This occurred despite the clear arguments and evidence presented
by D. Gale Johnson in his seminal 1973 book, World Agriculture in Disarray, on the costly
national economic folly and the international public “bads”—in the form of lower and
more volatile international agricultural prices—that such a policy development entails.
Evidence of Evolving Distortions to
Agricultural Incentives
To gauge how changes in farmer incentives have evolved over time, a recent World
Bank study compiled evidence from seventy-five countries and five decades of policy