Concluding Comments

Several practical lessons for practitioners emerge from this study of agricultural policy analysis. Approaches to issues and the policy agenda can be organized within the objectives-constraints-policies framework, and diagrammatic analysis can be used to identify the general direction of policy effects. Historical perspective can be provided through a compilation of price policy graphs for the most important agricultural products and inputs. Much insight is gained from using the PAM approach to the quantitive analysis of agricultural systems. The construction of PAMs, complemented by historical price graphs, provides essential baseline information for the analysis of agricultural policy.

The standard approach to agricultural policy analysis relies on estimated elasticities of supply and demand. When policies raise or lower market prices, use of the elasticities permits the analyst to quantify changes in amounts produced and consumed; income transfers among producers, consumers, and the government treasury; and efficiency losses or gains. The PAM calculations usually are based on budget data, not elasticities. A strength of the PAM method is the disaggregation of supply in terms of technology and agroclimatic zone. Such disaggregation permits a detailed understanding of constraints on systems and provides a basis for the analysis of investment and technological change influencing the dynamic comparative advantage of agricultural systems. The principal weakness of the PAM approach is that empirical applications may not correctly specify all the marginal adjustments to alterations in output and input prices. Without sufficient information (such as elasticities of output supply and input demand), exact PAMs cannot be constructed, and approximations must be made. Unless this is done, the empirical researcher will be left with nothing more than a numberless diagram, little understanding of how the many divergences affecting agricultural systems offset one another, and no input into the policy-making process. Budget-based PAMs fill this gap in agricultural policy analysis.