PART II: EVALUATION OF AGRICULTURAL POLICY

III. COMMODITY POLICY

Agricultural policy is most commonly associated with the set of commodity-specific actions that cause domestic prices of agricultural products to differ from their counterpart world prices. Recognizing that farmers respond to profits as well as to output prices, most governments also use instruments to influence the costs of purchased inputs, such as fertilizer and fuel. A central message of the PAM approach is that policy-makers could make more effective policies if they directly considered macroeconomic prices-exchange rates and factor prices (interest, wages, and land rental rates)-in their agricultural decisions. This chapter focuses on the instruments of mainstream agricultural policy the setting of prices for farm products and commodity inputs.

Governments use an array of commodity-specific instruments to influence product prices. The tangible economic objectives for the agricultural sector of most governments, especially those of developing countries, are to promote economic efficiency (and hence higher incomes), to distribute incomes, to provide food price stability and security of food supplies, to create conditions of adequate nutritional status for all, and to contribute to fiscal balance in the public sector. The effects of commodity policies can thus be analyzed by measurement of their influences on each of these objectives.