The document summarizes findings from the World Bank's DAI (Distortions to Agricultural Incentives) project led by Kym Anderson. Some key findings include: (1) As countries develop economically, they tend to switch from taxing to assisting farmers relative to other producers. (2) Many developing countries still maintain anti-agricultural import protection policies. (3) Global distortions to agricultural incentives have decreased but still exist in some countries and commodity sectors. The project aims to better measure the trade and welfare costs of agricultural price distortions.

1. World Bank’s DAI (Distortions to
Agricultural Incentives) project
Kym Anderson
University of Adelaide and Australian National University
kym.anderson@adelaide.edu.au
Seminar on Monitoring Agricultural Incentives: A Global Perspective,
IFPRI, Washington DC, 18 November 2016

2. Outline
Key hypotheses
Methodology
Sample
Findings
Lessons

3. Key hypothesis
As countries develop economically, they
tend to switch from taxing to assisting
farmers relative to other producers
At least until agric. sector becomes very
small and begins to lose support
• Cassing, J.H. and A.L. Hillman, ‘Shifting Comparative Advantage and Senescent
Industry Collapse’, American Economic Review 76(3): 516-23, June 1986

4. Additional hypothesis
Countries transmit international food
price changes only partially so as to
reduce domestic price fluctuations, esp.
when prices suddenly spike up or down
Loss aversion literature

5. Methodology
Based primarily on annual comparison
of domestic and border prices
to capture NTBs, as well as trade taxes
that may be a mix of specific & ad valorem
Nominal rate of assistance (NRA)
and consumer tax equivalent (CTE)
Similar to OECD’s PSE and CSE, except
expressed as % rise in undistorted prices

6. Methodology (continued)
Also estimated NRA for non-ag tradables
so as to be able to calculate a relative
rate of assistance to farmers (RRA)
in spirit of Symmetry Thm. of Lerner (1936)
Simple criterion for anti-agricultural
bias in policy in year t: Is RRAt< 0, where
RRAt = [(1+NRAagt)/(1+NRAnonagt) – 1]

7. Sample: 80 x 80 x 50
Countries: 82 included, covering >90%
of global popn, GDP, agric trade, …
Products: as with OECD, enough to cover
>70% of national value of agric prodn
Total of almost 80, av. of 11 per country
Years: Almost 50 years per country
(except for ECA), from 1955 to 2004-7,
then updated to 2011

8. Findings
As countries develop economically, they:
(1) do indeed tend to switch from taxing to
assisting farmers relative to other
producers
(2) … and at the same rate in DCs as
previously in HICs during 1955-2004

9. RRA rises with per capita income
-100
0
100200300400
-1 0 1 2 3
Ln real GDP per capita
HIC RRA obs HIC fitted values
DC RRA obs DC fitted values

10. Findings
As countries develop economically:
(3) the strong anti-trade bias in DC agric
policies persists

11. In DCs: NRA ag export taxation disappearing,
but ag import-competing NRA is >0 & growing
-60
-50
-40
-30
-20
-10
0
10
20
30
40
50
1955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
percent
Covered import-competing agriculturalproducts
Covered exportable agriculturalproducts

12. Findings
(4) Rise in RRA in DCs was due as
much to reductions in manuf.
protection as in taxation of farming

13. RRA for all DCs: moved from very
negative to slightly positive after 2000
13

14. Findings
(5) In some cases, removal of
overvalued exchange rates played a
non-trivial role, e.g. China
1981-84 1985-89 1990-94 1995-99
RRA -61 -50 -31 -3
RRA (ignoring
exchange rate
distortion)
-52 -41 -26 -3

15. Findings
(6) Much year-to-year fluctuation in
NRAs around longer-run trends
… NRAs are negatively correlated with int’l
price fluctuations, aimed at insulating
domestic markets

16. Rice NRA, global wted. av. 1970-2010
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
0
100
200
300
400
500
600
700
NRA(%)
Intern.Price
Intern. Price in USD
NRA all countries

17. Agric NRA for DCs (%)

18. Ups & downs of ag NRA for HICs

19. Findings
(7) With agric RRAs in HICs & DCs
converging toward zero during
1985-2011, global disarray in ag and
food markets at end of DAI project
was much less than at end of K/S/V
project

20. Proportions of global farm
population facing various RRAs:
1980-89 2000-09
-100
-50
0
50
100150200
RelativeRateofAssistance(%)
0 20 40 60 80 100
Cumulative share in agricultural population (%)
-100
-50
0
50
100150200
0 20 40 60 80 100
Cumulative share in agricultural population (%)

21. Findings
(8) However, some emerging economies
are not stopping at neutral RRA=0 point
Rather, they are following NE Asia, in now
increasingly assisting their farmers

22. RRAs to 2004: would RRAs for
China and India keep rising?
-50
0
50
100150200
7 8 9 10
Ln real GDP per capita
China Japan Korea Taiwan India

23. Agric NRAs (%): China & Indonesia
already exceed average for EU countries
Sources: Huang et al. (2009), Warr (2009) and OECD (2016)

24. Findings
(9) World is still a long way from being
free of agric distortions, because:
Still very wide cross-country dispersion
of NRAs within HIC and DC country groups
Still very wide cross-product dispersion
of NRAs within each country’s agric sector

25. NRAagric trends for DCs, 1955-2009
(%, 5-year averages, and spread in 2005-09)
-30
-20
-10
0
10
20
30
40
50
60
1955-59 1965-69 1975-79 1985-89 1995-99 2005-09

26. Global NRA averages by product, 2005-09
(%)
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0

27. Lessons

28. To avoid exaggerating av. NRA/CTE:
Expand product coverage to also cover 70%
of value of consumption of farm products
Assume something about NRAs and CTEs for
the missing 30% of products
Improve price comparisons by estimating
price transmission along the value chain
back to farm, forward to consumer

29. To provide better indicators of the welfare and trade
reductions associated with price distortions
(using no more than the data needed to estimate NRAs/CTEs)
… also estimate partial equil. variants of
TRIs pioneered by J. Anderson/P. Neary
Welfare (or Trade) Reduction Index
= that uniform agric. trade tax rate which, if
applied to all goods in place of all actual ag.
producer and consumer price distortions,
would result in the same reduction in national
economic welfare (or in value of trade)

30. NRA global av. understate true welfare-
and trade-reducing effects of policies
0
10
20
30
40
50
60
70
80
1960-64 1970-74 1980-84 1990-94 2000-04
NRA WRI TRI

31. Databases and books
All Agric Distortions Research Project working papers, regional
and poverty e-books, and global distortions database are
freely available at: www.worldbank.org/agdistortions
BOOKS:
Anderson, K and A. Valdés (eds.), Distortions to Agricultural Incentives in Latin
America, World Bank, 2008
Anderson, K and J. Swinnen (eds.), Distortions to Agricultural Incentives in Europe’s
Transition Economies, World Bank, 2008
Anderson, K and W. Martin (eds.), Distortions to Agricultural Incentives in Asia, World
Bank, 2009
Anderson, K and W.A. Masters (eds.), Distortions to Agricultural Incentives in Africa,
World Bank, 2009
Anderson, K. (ed.), Distortions to Agricultural Incentives: A Global Perspective, 1955-
2007, Palgrave Macmillan, 2009
Anderson, K., J. Cockburn and W. Martin (eds.), Agricultural Price Distortions,
Inequality and Poverty, World Bank, 2010
Anderson, K. (ed.), The Political Economy of Agricultural Price Distortions, Cambridge
University Press, 2010

32. Summary journal articles
Anderson, K. “Reducing Distortions to Agricultural Incentives: Progress, Pitfalls and Prospects” (AAEA
Fellows Address), American Journal of Agricultural Economics 88(5): 1135-46, December 2006.
Anderson, K., M. Kurzweil, W. Martin, D. Sandri and E. Valenzuela, “Measuring Distortions to
Agricultural Incentives, Revisited”, World Trade Review 7(4): 675–704, October 2008.
Anderson, K. “Policy Reform Affecting Agricultural Incentives: Much Achieved, Much Still Needed”,
World Bank Research Observer 25(1): 21-55, February 2010
Anderson, K. “Krueger/Schiff/Valdés Revisited: Agricultural Price and Trade Policy Reform in
Developing Countries Since 1960”, Applied Econ Perspectives and Policy 32(2): 195-231, Summer 2010
Anderson, K., J. Cockburn and W. Martin, “Would Freeing Up World Trade Reduce Poverty and
Inequality? The Vexed Role of Agricultural Distortions”, The World Economy 34(4): 487-515, April 2011
Anderson, K., G. Rausser and J.F.M. Swinnen, “Political Economy of Public Policies: Insights from
Distortions to Agricultural and Food Markets”, Journal of Economic Literature 51(2): 423-77, June 2013
Anderson, K. “Agricultural Price Distortions: Trends and Volatility, Past and Prospective”, Agricultural
Economics 44(S): 163-71, November 2013

33. TRI/WRI journal articles
Croser, J.L., P.J. Lloyd and K. Anderson, “How Do Agricultural Policy Restrictions to Global
Trade and Welfare Differ Across Commodities?” American Journal of Agricultural Economics
92(3): 698-712, April 2010
Lloyd, P.J., Croser, J.L. and K. Anderson, "Global Distortions to Agricultural Markets: New
Indicators of Trade and Welfare Impacts, 1960 to 2007" Review of Development Economics
14(2): 141-60, May 2010
Anderson, K. and J.L. Croser, “New Indicators of How Much Agricultural Policies Restrict Global
Trade, Journal of World Trade 44(5): 1109-26, October 2010
Anderson, K. and J.L. Croser, “Novel Indicators of the Trade and Welfare Effects of Agricultural
Distortions in OECD Countries”, Review of World Economics 147(2): 269-302, June 2011
Croser, J.L. and K. Anderson, “Changing Contributions of Different Agricultural Policy
Instruments to Global Reductions in Trade and Welfare”, World Trade Review 10(3): 297-323,
July 2011
Croser, J.L. and K. Anderson, “Agricultural Distortions in Sub-Saharan Africa: Trade and Welfare
Indicators, 1961 to 2004”, World Bank Economic Review 25(2): 250-77, 2011

34. Food price insulation articles
Martin, W. and K. Anderson, “Export Restrictions and Price Insulation During Commodity Price
Booms”, American Journal of Agricultural Economics 94(2): 422-27, January 2012
Anderson, K. and S. Nelgen, “Agricultural Trade Distortions During the Global Financial Crisis”,
Oxford Review of Economic Policy 28(2): 235-60, Summer 2012
Anderson, K., M. Ivanic and W. Martin, “Food Price Spikes, Price Insulation, and Poverty”, Ch.
8 in The Economics of Food Price Volatility, edited by J.-P. Chavas, D. Hummels and B.D.
Wright, University of Chicago Press for NBER, 2014