Price Policy Graphs

A set of PAMs for the country's principal representative agricultural systems provides analysts and polcy-makers with informative pictures of the existing structure of policies affecting agriculture and with a useful analytic tool for investigating the effects of future policy change. However, in most countries, there is no information base to permit construction of historical PAMs that would show changes every two or three years as trends in world or factor prices and technologies changed. Budget data might be available at best for a few systems during scattered years. But informed policy analysis requires an understanding of the recent history of policy changes as well as the detailed array of profitabilities in a given base year. This need can be met at least partially by the construction of price policy graphs.

A price policy graph is a device to permit easy visual comparisons of year-to-year movements in three price series-world prices (cif import or fob export, adjusted to a domestic wholesale market level), domestic market prices (at both the wholesale and farm levels), and domestic policy prices (guaranteed floor prices to producers and announced ceiling prices to consumers). Price policy graphs, based on annual data for fifteen to twenty years in the recent past, can be constructed for the principal agricultural commodities produced and for the main tradable inputs into agriculture. They allow a quick visual review of the pattern of price levels and price stability. If historic price policy graphs are continuously updated, they can serve as particularly useful complements to PAMs in the presentation of policy analysis.