Trade Policy
Agricultural protection

While rich countries protect their farm sectors, poor countries tend to protect infant industries at the expense of agriculture, but political power is typically distributed with the opposite sectoral bias. Most attempts to resolve this paradox focus on the vested interests of producers and consumers of the good whose price is distorted. In Discussion Paper No. 789, Research Fellow Kym Anderson develops a computable general equilibrium model in which producers are also consumers and taxpayers, with farm (tradable) and non-farm (tradable and non-tradable) sectors and various forms of capital plus labour and intermediate inputs.

His simulations reveal that protectionist policies exert vastly different distributional effects in archetypal poor agrarian and rich industrial economies. A 10% relative rise in industrial prices in the poor country reduces farmers' incomes by 2% and raises capitalists' by 45%; the same relative rise in farm prices in the rich country it raises farmers' incomes by 23% and reduces capitalists' by 3%. Anderson attributes these differences to the effects of industrialization: farm products account for much greater proportions of household expenditure in poor countries; poor countries employ higher proportions of workers in agriculture; and agriculture uses more inputs of intermediate goods and physical capital (relative to other sectors) in rich countries. The costs of collective lobbying also decline for farmers by more than for urban capitalists as differences between urban and rural education, transport and communications infrastructure narrow with development.

Anderson maintains, however, that agricultural protection need not rise indefinitely in the advanced industrial economies: even if individual farmers are prepared to spend more on lobbying, support for farm protection will fall with the farm sector's share of these economies. The costs of further support for products that are in surplus and require export subsidies, production quotas and set-asides are increasingly apparent, while justifications on grounds of food security now look hollow. High food prices and set-asides that encourage increased use of chemical fertilizers and pesticides also lead to environmental damage that will further erode urban populations' tolerance of farm protection.

Lobbying Incentives and the Pattern of Protection in Rich and Poor Countries
Kym Anderson

Discussion Paper No. 789, June 1993 (IT)