Beruflich Dokumente
Kultur Dokumente
Adam Smith (1776): It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.
Ricardos (1817) theory of comparative advantage used wine and cloth as the example.
http://www.econlib.org/library/Ricardo/ricP.html Anderson, Kym (2007). Distortions to Agricultural Incentives: A Global Perspective, 1955-2007. The World Bank and Palgrave Macmillan.
This Course
An introduction to the field of agricultural and food policy analysis
Primarily developed for use in the MA Program in Economics at the International School of Economics at Tbilisi State University (ISET) 14 class sessions, 1 hour each
We will assess a variety of topics related to the economics (and political economy) of agricultural and rural development
Courses at ISET
Agricultural Economics: Agricultural Economics I: Additional courses: Cost-Benefit Analysis Agricultural and Food Policy Development Economics Analysis Program Evaluation Agricultural Economics II: Trade Policy Agricultural Product and Factor Transition Economics Market Analysis Agricultural Economics III (planned):
International Agricultural Trade
Incorporation of insights from the literatures on development economics, political economy, new institutional economics, field experimental research methods
Emphasis on the importance of the institutional environment for an economy, for the agricultural and food sector, and for understanding policy formulation
A rich methodology
Neoclassical economic analysis is enriched by insights and tools from the above fields
Acemoglu, Daron (2010). Theory, General Equilibrium, and Political Economy in Development Economics. The Journal of Economic Perspectives, 24(3), 1732.
The rules of the game and their enforcement Organizations as the players of the game
North, Douglass (1990). Institutions, Institutional Change, and Economic Performance. Cambridge University Press, Cambridge UK.
Solid arrows signify that the higher level imposes constraints on the level immediately below.
Source: Williamson, Oliver (2000). The New Institutional Economics: Taking Stock, Looking Ahead. Journal of Economic Literature, XXXVIII: 595-613.
Washington is awash in rumors this week that the White House is planning major changes in the way the U.S. donates food to fight hunger in some of the worlds poorest countries.
It has set off an emotional debate. Both sides say they are trying to save lives.
Americas policies on food aid are singularly generousand also unusually selfish. On the generous side, the U.S. spends roughly $1.5 billion every year to send food abroad, far more than any other country. On the other hand, the rules for this program, known as Food for Peace, ensure that much of the money stays in American hands. Most of the food, which commonly includes wheat, corn, and soy meal, and vegetable oil, has to be bought from U.S. farmers, processed here and delivered to its destination by U.S. shippers.
Listen: http://www.npr.org/blogs/thesalt/2013/04/04/176154775/a-political-war-brews-over-food-for-peace-aid-program
Source: http://www.npr.org/blogs/money/2011/01/26/131192182/cotton
Fundamentally deals with issues related to good governance and the development of good political institutions
Course Goals
Broad goals:
Improve skills in applied economics Improve critical thinking, writing and co-authoring, and presentation skills
Specific goals:
Become acquainted with the effects of agricultural and food policies and programs Assess the role of government in a market economy Understand the importance of institutions and organizations in a market economy Identify potential policy problems related to rural and agricultural development
Course Goals
Specific goals, continued:
Study the transition of the agricultural sector and models of rural and agricultural development Become familiar with the basic concepts and frameworks used in agricultural and food policy analysis Assess how policies are designed, implemented, and evaluated in practice, with a clear understanding of the political economy of agricultural and food policy analysis Become equipped with skills for analyzing agricultural and food policies and monitoring and evaluation of their impacts ex ante and ex post
This Course
For examples and empirical evidence, much focus on the countries of the South Caucasus (Armenia, Azerbaijan, and Georgia) and other former Soviet republics Well also examine the reform experiences of other countries in Central and Eastern Europe
The reading material is meant to widen the scope of analysis beyond the content of the lecture We will discuss the readings in class, in addition to having regular lecture sessions
Section Readings
Ellman, Michael. (1988). Soviet Agricultural Policy. Economic & Political Weekly, 23(24): 1208-1210.
The Arena and the Common Heritage, Chapter 2. Lerman, Zvi, Csaba Csaki, and Gershon Feder. (2004). Agriculture in Transition: Land Policies and Evolving Farm Structures in Post-Soviet Countries. Lexington Books, Maryland. Rozelle, Scott and Johan F. M. Swinnen. (2004). Success and Failure of Reform: Insights from the Transition of Agriculture. Journal of Economic Literature, XLII: 404-456. The ISET Economist, October 11, 2012. The Puzzle of Agricultural Productivity in Georgia (and Armenia). http://www.iset.ge/blog/?p=836
4000
6000
Agricultural Productivity
Agricultural Productivity
0
1990
1995
2000 Year
2005
2010
0
1990
Data source: World Bank
1995
2000 Year
2010
Armenia Belarus Georgia Kyrgyz Republic Lithuania Russian Federation Turkmenistan Uzbekistan
The ISET Economist, October 11, 2012. The Puzzle of Agricultural Productivity in Georgia (and Armenia). http://www.iset.ge/blog/?p=836
200
300
400
Ag
0
1990
1995
1995
2000 Year
2000 Year
2005
2005 Azerbaijan Georgia Kyrgyz Republic Moldova Tajikistan Ukraine
2010
2010
0
1990
Data source: World Bank
The ISET Economist, October 11, 2012. The Puzzle of Agricultural Productivity in Georgia (and Armenia). http://www.iset.ge/blog/?p=836
Inputs
Rozelle, Scott and Johan F. M. Swinnen. (2004). Success and Failure of Reform: Insights from the Transition of Agriculture. Journal of Economic Literature, XLII: 404-456.
Irrigation
Lerman, Zvi, and David Sedik. (2010). Rural Transition in Azerbaijan. Lexington Books, UK.
Land Reform
Rozelle, Scott and Johan F. M. Swinnen. (2004). Success and Failure of Reform: Insights from the Transition of Agriculture. Journal of Economic Literature, XLII: 404-456.
Land Reform
Lerman, Zvi. (2007). Land Reform, Farm Structure, and Agricultural Performance in CIS Countries. Hebrew University, Discussion Paper No. 7.07
Considerations
How is value added calculated?
How were agricultural product price data collected and calculated? How valuable are existing inputs to the agricultural production process?
Measurement Error?
6000
Agricultural Productivity
2000
2000 4000 Ag
6000 4000
Agricultural Productivity
0
1990
1995
2000 Year
2005
2010
0
1990
Data source: World Bank
2000 Year
2005 Azerbaijan
2010
The ISET Economist, October 11, 2012. The Puzzle of Agricultural Productivity in Georgia (and Armenia). http://www.iset.ge/blog/?p=836
Rozelle, Scott and Johan F. M. Swinnen. (2004). Success and Failure of Reform: Insights from the Transition of Agriculture. Journal of Economic Literature, XLII: 404-456.
Lerman, Zvi, Yoav Kislev, David Biton, and Alon Kriss. (2003). Agricultural Output and Productivity in the Former Soviet Republics. Economic Development and Cultural Change, 51(4): 999-1018.
Different Calculations
Lerman, Zvi, Yoav Kislev, David Biton, and Alon Kriss. (2003). Agricultural Output and Productivity in the Former Soviet Republics. Economic Development and Cultural Change, 51(4): 999-1018.
Additional Considerations
How efficient are agricultural producers?
Supporting environment
Estonia, Latvia, and Lithuania are members of the EU and agricultural producers benefit from EU support measures
Additional Considerations
The agricultural sector is much more complex than is suggested by macrolevel statistics on productivity or output
A caveat about growth
Source: Paul Samuelsons textbook; Marginal Revolution
An Enabling Environment
Rozelle and Swinnen (2004): our analysis suggests that, above all, success requires two key elements: good rights and an institutional environment within which agents can exchange goods and services and access inputs.
Rozelle, Scott and Johan F. M. Swinnen. (2004). Success and Failure of Reform: Insights from the Transition of Agriculture. Journal of Economic Literature, XLII: 404-456.
Development as Freedom
Sen (1999) argued that real development requires the removal of major sources of unfreedom: poverty as well as tyranny, poor economic opportunities as well as systematic social deprivation, neglect of public facilities as well as intolerance or overactivity of repressive states.
Relational perspectives
Demand for some commodities to function in different societies
Todaro, Michael and Stephen Smith (2012). Economic Development, Addison-Wesley.
Agricultural Productivity
Rising agricultural productivity is often viewed as a key policy goal
Rozelle and Swinnen (2004): Rising productivity through policies that provide better incentives and reduce resource wastewill a.) lead to rising food and non-food agricultural production; b.) contribute to higher income; and c.) make the sector more modern.
XX
0
1990
35
1040
Ag 20 45
30 50
40 55
30
1995
2000 Year
2005
2010
1990
1995
2005 Azerbaijan
2010
XX
60 20 20 0
1990
Ag 40
80
1995
1995
2000 Year
2000 Year
2005
2005
2010
2010
0
1990
Data source: World Bank
4000
6000
Agricultural Productivity
Agricultural Productivity
0
1990
1995
2000 Year
2005
2010
0
1990
Data source: World Bank
1995
2000 Year
2010
Armenia Belarus Georgia Kyrgyz Republic Lithuania Russian Federation Turkmenistan Uzbekistan
The ISET Economist, October 11, 2012. The Puzzle of Agricultural Productivity in Georgia (and Armenia). http://www.iset.ge/blog/?p=836
Source: http://www.geostat.ge/
476.9 1,255.6
Total output by economy, mil. GEL Share of agrobusiness in the output of total economy (%)
Source: http://www.geostat.ge/
20.0
15.0
10.0
5.0
Source: http://www.geostat.ge/
Source: http://www.geostat.ge/
Kan, Iddo, Ayal Kimhi, and Zvi Lerman. (2006). Farm Output, Non-farm Income and Commercialization in Rural Georgia. Journal of Agricultural and Development Economics, 3(2): 276-286.
Transition in Agriculture
Institutional changes:
Property and land use rights
Their definition and enforcement, whether formal or informal
Lerman, Zvi, Csaba Csaki, and Gershon Feder. (2004). Agriculture in Transition: Land Policies and Evolving Farm Structures in Post-Soviet Countries. Lexington Books, Maryland.
Transition in Agriculture
Sectoral policies (LCF 2004: p. 5)
Demonopolized and competitive upstream and downstream industries Rural credit institutions Technological improvements New capital investment patterns in agriculture Rural non-farm job creation
Lerman, Zvi, Csaba Csaki, and Gershon Feder. (2004). Agriculture in Transition: Land Policies and Evolving Farm Structures in Post-Soviet Countries. Lexington Books, Maryland.
Transition in Agriculture
Land reform (LCF 2004: p. 5)
Restructuring of Soviet farms Privatization of state-owned farms
The political environment shapes how land reform and farm restructuring will occur
Lerman, Zvi, Csaba Csaki, and Gershon Feder. (2004). Agriculture in Transition: Land Policies and Evolving Farm Structures in Post-Soviet Countries. Lexington Books, Maryland.
95% of agricultural land publicly controlled Yet the individual sector had a far higher level of land productivity than did the socialized farm sector
Subsidized inputs, financial transfers to loss-making farms, redistribution of funds from profitable to unprofitable farms
Allocation of often interest-free long-term government credits
Lerman, Zvi, Csaba Csaki, and Gershon Feder. (2004). Agriculture in Transition: Land Policies and Evolving Farm Structures in Post-Soviet Countries. Lexington Books, Maryland.
Lerman, Zvi, Csaba Csaki, and Gershon Feder. (2004). Agriculture in Transition: Land Policies and Evolving Farm Structures in Post-Soviet Countries. Lexington Books, Maryland.
Sales
Costs Labor
Choose where =
Cost minimization Adjust labor force to changing production volume/mix Seek best suppliers, control purchase quantities
centrally imposed
Cost overruns covered by state Labor force fixed; workers guaranteed lifetime employment Inputs at state-fixed prices; in quantities determined by production quotas
Inputs
Lerman, Zvi, Csaba Csaki, and Gershon Feder. (2004). Agriculture in Transition: Land Policies and Evolving Farm Structures in Post-Soviet Countries. Lexington Books, Maryland.
Profit
Lerman, Zvi, Csaba Csaki, and Gershon Feder. (2004). Agriculture in Transition: Land Policies and Evolving Farm Structures in Post-Soviet Countries. Lexington Books, Maryland.
Lerman, Zvi, Csaba Csaki, and Gershon Feder. (2004). Agriculture in Transition: Land Policies and Evolving Farm Structures in Post-Soviet Countries. Lexington Books, Maryland.
Agricultural Markets
Section Readings
Binswanger, Hans P. and Klaus Deininger (1997). Explaining Agricultural and Agrarian Policies in Developing Countries. Journal of Economic Literature, XXXV: 1958-2005. Bezemer, Dirk and Derek Headey (2008). Agriculture, Development, and Urban Bias. World Development, 7: 1-40.
Source: Gardner, Bruce (1987). The Economics of Agricultural Policies. Macmillan Publishing Company, New York.
Price
The Market
Supply
Demand
Quantity
Price
Quota
Supply
Demand
Source: Gardner (1987)
Quantity
Price
Quota
Effective Supply Supply
Demand
Source: Gardner (1987)
Quantity
A Quota
Quotas limit how much each farmer can supply to the market A quota reduces quantity supplied from to and increases the market price from to . Producers therefore receive a higher price for each of the units (up to ) supplied to the market.
The total area under the supply curve from to indicates the industrys cost savings from reducing output. However, these units could have been sold at market price and these units therefore would have had marginal revenues exceeding marginal costs, resulting in producer benefits. Therefore the total gain to producers is . The loss in consumer surplus is represented by areas + . From societys point of view, the quotas result in a net loss of + since these units were never produced and traded, whereas they would have been under baseline market conditions. This net loss therefore represents a misallocation of resources.
Source: Gardner, Bruce (1987). The Economics of Agricultural Policies. Macmillan Publishing Company, New York.
Price
Price Supports
Supply
Demand
Source: Gardner (1987)
Quantity
Price Supports
Producers receive price (up to a certain point, say ), which is higher than the market price.
With price supports, producers gain area . Consumers gain area because at the quantity being supplied due to the price support, they pay and demand the quantity . Yet there is a cost! The cost of the price support program to taxpayers. Taxpayers must fund the area which can be rather substantial.
These payments equal + + so net of the producer () and consumer () gains, there is a social net loss of . This area also represents the misallocation of resources that occur since the units are produced at the expense of something else. They choose to produce more than they would under normal market conditions.
Source: Gardner, Bruce (1987). The Economics of Agricultural Policies. Macmillan Publishing Company, New York.
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
Let
= < 0 and
+
= > 0
Then
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
and let
= > 0
Then
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
Thus
So prices for agricultural products will decline more, given an income shock ( < 0), when, ceteris paribus,
The income elasticity of demand is larger The price elasticity of demand is smaller The price elasticity of demand is smaller
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
Large supply overhang for the manufacturing sector Small supply overhang for the agricultural sector
1 0 1
1 1
Yet the percentage change of prices in the agricultural sector is much higher
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
Among the poor in developing countries, this may range anywhere from 0 to 0.5
Depends on region, statistical methods
Banerjee, Abhijit V. and Esther Duflo. (2011). Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. New York: Perseus Books.
Increases in food variety (especially better tasting foods) without a necessary increase in caloric consumption
Income consumption of better-tasting, more expensive calories (rather than calories altogether or more micronutrients)
Banerjee, Abhijit V. and Esther Duflo. (2011). Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. New York: Perseus Books.
What happens?
Banerjee, Abhijit V. and Esther Duflo. (2011). Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. New York: Perseus Books.
Banerjee, Abhijit V. and Esther Duflo. (2011). Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. New York: Perseus Books.
Giffen Good
Classic case of the Giffen good
The price of a commodity decreases and you consume less of it because of the magnitude of the income effect Because the prices of rice and wheat declined, they were able to spend more money on all other commodities and they actually consumed less rice and wheat as a result
Because all Giffen goods are inferior goods, it must be the case that those receiving subsidies for purchases of rice or wheat saw them as inferior to consumption of other types of foods
Banerjee, Abhijit V. and Esther Duflo. (2011). Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. New York: Perseus Books.
Agricultural Markets
Government
R Upstream sectors R
S Downstream sectors
Consumers
Agriculture U L E S
The red arrows affect activities of organisations. The green arrows affect exchange between the organisations. Source: Koester (2012) Lecture
Land markets Heterogeneous labor market arrangements Markets for research and development
Developing new technologies, crop varieties, etc.
Lack of information
What options exist for value chain integration
Asymmetric information
Different information sets for smallholder farmers, wholesalers, input suppliers, etc.
Supply
Illustrates the importance of insights from new institutional economics (e.g., informal norms, the importance of transaction costs, property rights, etc.)
Demand
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
Quantity
Source: http://www.civil.ge/eng/article.php?id=25021
Besley, Timothy (1994). How Do Market Failures Justify Interventions in Rural Credit Markets? The World Bank Research Observer, 9(1): 27-47.
Risk level associated with agricultural credit Geographic dispersion Low average incomes
Koester, Ulrich (2001). Agricultural Finance and Institutional Reforms in Transition Economies: The 1990s and Challenges Ahead. Quarterly Journal of International Agriculture, 40(4): 301-323.
Koester, Ulrich (2001). Agricultural Finance and Institutional Reforms in Transition Economies: The 1990s and Challenges Ahe ad. Quarterly Journal of International Agriculture, 40(4): 301-323.
Koester, Ulrich (2001). Agricultural Finance and Institutional Reforms in Transition Economies: The 1990s and Challenges Ahe ad. Quarterly Journal of International Agriculture, 40(4): 301-323.
Section Readings
North, Douglass (1991). Institutions. Journal of Economic Perspectives, 5(1): 97-112.
Olson, Mancur. (1996). Distinguished Lecture on Economics in Government: Big Bills Left on the Sidewalk: Why Some Nations are Rich, and Others Poor. Journal of Economic Perspectives, 10(2): 3-24. Lindsay, Stace (2000). Culture, Mental Models, and National Prosperity. In Lawrence E. Harrison and Samuel P. Huntington (eds.), Culture Matters: How Values Shape Human Progress, Basic Books, pp. 282295. Williamson, Oliver (2000). The New Institutional Economics: Taking Stock, Looking Ahead. Journal of Economic Literature, XXXVIII: 595613.
Section Readings
Koester, Ulrich (2005). A Revival of Large Farms in Eastern EuropeHow Important Are Institutions? Agricultural Economics, 32(s1): 103-113.
Koester, Ulrich and Martin Petrick (2010). Embedded Institutions and the Persistence of Large Farms in Russia. In Imre Ferto, Csaba Forgacs, Attila Jambor (eds.), Essays in Honour of Professor Csaba Csaki, Budapest, pp. 57-76. Swinnen, Johan F. M., Anneleen Vandeplas, and Miet Maertens. (2010). Liberalization, Endogenous Institutions, and Growth: A Comparative Analysis of Agricultural Reforms in Africa, Asia, and Europe. World Bank Economic Review, 24(3): 412-445. Problems Related to the Protection of Property Rights The Case of Mestia. Available at: http://transparency.ge/en/post/report/problemsrelated-protection-property-rights-case-mestia-july-2011.
The rules of the game and their enforcement Organizations as the players of the game
North, Douglass (1990). Institutions, Institutional Change, and Economic Performance. Cambridge University Press, Cambridge UK.
Formal rules
Constitutions, codified laws, recorded and enforced property rights
North, Douglass (1990). Institutions, Institutional Change, and Economic Performance. Cambridge University Press, Cambridge UK.
Kasper, Wolfgang and Manfred E. Streit (1999). Institutional Economics: Social Order and Public Policy. Edward Elgar Publishing.
Focusing on Institutions
Two broad views of economics:
Economics as the study of the allocation of resources Economics as the study of coordination and exchange
Buchanan, James (1964). What Should Economists Do? Southern Economic Journal, 30(3): 213-222.
Solid arrows signify that the higher level imposes constraints on the level immediately below.
Source: Williamson, Oliver (2000). The New Institutional Economics: Taking Stock, Looking Ahead. Journal of Economic Literature, XXXVIII: 595-613.
Big Bills Left on the Sidewalk: Why Some Nations are Rich, and Others Poor.
Mancur Olsen 1996
Journal of Economic Perspectives
North Korea
South Korea
Henderson and Storeygard (2012). Measuring Economic Growth From Outer Space. American Economic Review, forthcoming.
Easterly, William (2008). Institutions: Top Down or Bottom Up? American Economic Review, 98(2): 95-99.
A Rights-Based Approach
Property rights -- 2012
According to information obtained by Transparency International Georgia, government representatives pressured land owners in Anaklia into giving up their lands during the period 2009-2010. While this information was previously known to the public, now for the first time the victims have been openly discussing the alleged cases. A video shows government officials threatening landowners with arrest or the dismissal of family members from their work if they failed to relinquish their property.
Source: http://transparency.ge/en/blog/property-seizure-officials-case-anaklia
Transaction Costs
Transaction costs
The time, effort, and other resources needed to search out, negotiate, and complete an exchange (Gwartney, Stroup, Sobel, and Macpherson, 2011: 31)
Suggests the importance of brokers who bring buyers and sellers of agricultural products together and arrange trades
Help to reduce transaction costs
Gwartney, James D., Richard L. Stroup, Russell Sobel, and David A. MacPherson (2011). Microeconomics: Private and Public Choice, South-Western, Cengage Learning.
Transaction Costs
Transportation infrastructure
Internal transaction costs
For example, managing and monitoring workers and enforcing labor contracts
Evaluating agricultural productivity levels among different farmers
Transaction Costs
These transaction costs are then added to the transformation costs
Transformation costs: the pure costs of production (transforming inputs into final output)
Farm Size
Yet the actual development was relatively few family farms, super large corporate and cooperative farms, and extended family farms
Some agroholdings have more than 50,000 hectares
Koester, Ulrich and Martin Petrick (2010). Embedded Institutions and the Persistence of Large Farms in Russia. In Imre Ferto, Csaba Forgacs, Attila Jambor (eds.), Essays in Honour of Professor Csaba Csaki, Budapest, pp. 57-76.
Embedded Institutions
These are the first level institutions identified in Williamson (2000)
They are deeply ingrained, based on tradition, religion, and culture
The informal institutions are informal rules of the game and their enforcement
Koester, Ulrich and Martin Petrick (2010). Embedded Institutions and the Persistence of Large Farms in Russia. In Imre Ferto, Csaba Forgacs, Attila Jambor (eds.), Essays in Honour of Professor Csaba Csaki, Budapest, pp. 57-76.
Koester, Ulrich (2005). A Revival of Large Farms in Eastern EuropeHow Important Are Institutions? Agricultural Economics, 32(s1): 103-113.
Koester, Ulrich (2005). A Revival of Large Farms in Eastern EuropeHow Important Are Institutions? Agricultural Economics, 32(s1): 103-113.
Koester, Ulrich and Martin Petrick (2010). Embedded Institutions and the Persistence of Large Farms in Russia. In Imre Ferto, Csaba Forgacs, Attila Jambor (eds.), Essays in Honour of Professor Csaba Csaki, Budapest, pp. 57-76.
Koester, Ulrich and Martin Petrick (2010). Embedded Institutions and the Persistence of Large Farms in Russia. In Imre Ferto, Csaba Forgacs, Attila Jambor (eds.), Essays in Honour of Professor Csaba Csaki, Budapest, pp. 57-76.
Koester, Ulrich and Martin Petrick (2010). Embedded Institutions and the Persistence of Large Farms in Russia. In Imre Ferto, Csaba Forgacs, Attila Jambor (eds.), Essays in Honour of Professor Csaba Csaki, Budapest, pp. 57-76.
Mental models of large farm managers, policy makers, and bureaucrats orienting them toward viewing large farms as having a comparative advantage
Also with regard to ensuring food security
Distrust of markets in ensuring food security
Facing soft budget constraints, still Managers feeling partly obliged to provide social services
Low willingness to rely on credit among farmers; issues with ascertaining credit-worthiness of potential clients among banks
Koester, Ulrich and Martin Petrick (2010). Embedded Institutions and the Persistence of Large Farms in Russia. In Imre Ferto, Csaba Forgacs, Attila Jambor (eds.), Essays in Honour of Professor Csaba Csaki, Budapest, pp. 57-76.
Koester, Ulrich and Martin Petrick (2010). Embedded Institutions and the Persistence of Large Farms in Russia. In Imre Ferto, Csaba Forgacs, Attila Jambor (eds.), Essays in Honour of Professor Csaba Csaki, Budapest, pp. 57-76.
Economic Implications
Sectoral production is fairly high, but
Distorted markets
High unemployment in rural areas
Koester, Ulrich and Martin Petrick (2010). Embedded Institutions and the Persistence of Large Farms in Russia. In Imre Ferto, Csaba Forgacs, Attila Jambor (eds.), Essays in Honour of Professor Csaba Csaki, Budapest, pp. 57-76.
Prospects
With market-driven structural change, the situation may change
Yet this requires better functioning land, credit, insurance markets Better information and training
Along with economies of scale arising from technological change, the return of the family farm is unlikely
Will drive down internal transaction costs due to new monitoring technologies Will drive down transformation costs External transaction costs are biased in favor of large farms
Think about political economy considerations here
Koester, Ulrich and Martin Petrick (2010). Embedded Institutions and the Persistence of Large Farms in Russia. In Imre Ferto, Csaba Forgacs, Attila Jambor (eds.), Essays in Honour of Professor Csaba Csaki, Budapest, pp. 57-76.
Prospects
With policy driven structural change, the situation may change
Yet mental models are sticky over time Path dependence in agricultural organizational arrangements, institutional arrangements, and economic behavior Political influence of large agroholdings
May have unintended consequences, high transition costs in the short run with policy driven structural change
Koester, Ulrich and Martin Petrick (2010). Embedded Institutions and the Persistence of Large Farms in Russia. In Imre Ferto, Csaba Forgacs, Attila Jambor (eds.), Essays in Honour of Professor Csaba Csaki, Budapest, pp. 57-76.
Section Readings
Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
Food Security
Food security, as defined at the World Food Summit in 1996:
Food security as existing when all people at all times have access to sufficient, safe, nutritious food to maintain a healthy and active life.
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
Food Insecurity
Food insecurity exists, as defined in Cafiero (2013):
(a) When people cannot access food, simply because food is not physically available where and when it is needed; (b) When people do not have economic access to food, meaning they lack the means to acquire the food even if the food would be at their physical reach; (c) When people can only afford to procure and eat combinations of foods that do not meet their preferences, are not safe, or are nutritionally unbalanced; (d) When any one of the above conditions holds even occasionally.
Source: Cafiero, Carlo (2013). What Do We Really Know About Food Security? NBER Working Paper No. 18861.
Source: http://www.geostat.ge/
50.0
100.0
150.0
250.0
300.0
350.0
200.0
0.0
(FAO, 2002-2004=100)
Source: http://www.fao.org/worldfoodsituation/wfs-home/foodpricesindex/en/
1/1990 7/1990 1/1991 7/1991 1/1992 7/1992 1/1993 7/1993 1/1994 7/1994 1/1995 7/1995 1/1996 7/1996 1/1997 7/1997 1/1998 7/1998 1/1999 7/1999 1/2000 7/2000 1/2001 7/2001 1/2002 7/2002 1/2003 7/2003 1/2004 7/2004 1/2005 7/2005 1/2006 7/2006 1/2007 7/2007 1/2008 7/2008 1/2009 7/2009 1/2010 7/2010 1/2011 7/2011 1/2012 7/2012 1/2013
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
0.0
(FAO, 2002-2004=100)
Food Price Index
Source: http://www.fao.org/worldfoodsituation/wfs-home/foodpricesindex/en/
1/1990 7/1990 1/1991 7/1991 1/1992 7/1992 1/1993 7/1993 1/1994 7/1994 1/1995 7/1995 1/1996 7/1996 1/1997 7/1997 1/1998 7/1998 1/1999 7/1999 1/2000 7/2000 1/2001 7/2001 1/2002 7/2002 1/2003 7/2003 1/2004 7/2004 1/2005 7/2005 1/2006 7/2006 1/2007 7/2007 1/2008 7/2008 1/2009 7/2009 1/2010 7/2010 1/2011 7/2011 1/2012 7/2012 1/2013
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
0.0
(FAO, 2002-2004=100)
Food Price Index
Source: http://www.fao.org/worldfoodsituation/wfs-home/foodpricesindex/en/
9/2006 11/2006 1/2007 3/2007 5/2007 7/2007 9/2007 11/2007 1/2008 3/2008 5/2008 7/2008 9/2008 11/2008 1/2009 3/2009 5/2009 7/2009 9/2009 11/2009 1/2010 3/2010 5/2010 7/2010 9/2010 11/2010 1/2011 3/2011 5/2011 7/2011 9/2011 11/2011 1/2012 3/2012 5/2012 7/2012 9/2012 11/2012 1/2013
Can the FAO Food Price Index Be Seen as a Measure of Food Security?
Perhaps not.
as more evidence is gathered on actual food availability and food consumption worldwide, there appears to be very limitedif anyrelationship between the time evolution of the FAO Food Price Index and the dynamics of supply and demand, what should be considered the fundamentals of price formation and food security (Cafiero, 2013)
Source: Cafiero, Carlo (2013). What Do We Really Know About Food Security? NBER Working Paper No. 18861.
Food Security
Roles played by transaction costs, market integration, and information flows
Focus on understanding the policy and institutional environment
Specific factors (e.g., extractive political and economic institutions) may be hindering trade flows across regions or investments in stockpiling
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
Source: http://www.fastcoexist.com/1680400/100-years-ago-french-artists-predicted-the-future-with-eerie-accuracy#4
Let
= = 1; =
and
then we have
+
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
Letting = 1, + = +
we also have
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
If the rate of technological change is larger than the sum of the growth rate of income per person (times the income elasticity of demand) plus the growth rate of the population, then the price of the agricultural product will decrease
(This is because < 0)
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
( )
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
May aid growth by providing cheap food, raw materials, labour, savings, and demand for non-agricultural goods (Bezemer and Headey, 2008).
Bezemer, Dirk and Derek Headey (2008). Agriculture, Development, and Urban Bias. World Development, 7: 1-40.
What Are Some (But Not All) Potential Sources of Agricultural Growth?
Improvements in the institutional environment
Importance of the absence of political violence The rule of law Constraints on the executive Protection of property rights Unbiased contract enforcement
Market access
Import bans or regulated and protected markets distort the prices seen by farmers in developing countries for their agricultural products
Reduction of transaction costs Information flows, research and development, extension Development of rural markets for credit (e.g., micro-finance, rural banks, training of those working in these institutions to assess creditworthiness, etc.), insurance, inputs, and outputs
Rodrik (2005)
Policies that promote growth tend to be context specific and context appropriate
Rodrik, Dani (2005). Growth Strategies. In Philippe Aghion and Steven Durlauf, eds. Handbook of Economic Growth, Amsterdam: North-Holland.
Rodrik, Dani (2005). Growth Strategies. In Philippe Aghion and Steven Durlauf, eds. Handbook of Economic Growth, Amsterdam: North-Holland.
Lets think about the behavior of subsistence farmers and what policies may help reduce poverty among such farm households
Efficiency in Agriculture
Importance of information about new technologies, production methods
Research and extension
May be market challenges with respect to markets for land, rural credit, and insurance as a result of the general institutional environment, which may reduce the efficiency of the agricultural sector
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
Price Stability
Consider a simple closed economy case in which supply is perfectly price inelastic. Suppose there is no storage and that all which is produced in the current period must be consumed at the same time:
=
Let = such that = 1 With = then =
Here, the percentage change in the price with a 1 percent change in quantity supplied will be larger when the price elasticity of demand is lower (in absolute terms) Of course, in the real world there will also be storage, so that market demand will be a function of current demand and of demand for storage
The latter is a function of expected agricultural prices in future periods, storage costs
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
Price
S1
2 GEL
<
Price ceiling
1 GEL
D1
Q1
Q2
Q3
Quantity
(khachapuris)
Food Safety
Most farm products are experience goods (quality is revealed upon consumption) or credence goods (neither the quality nor the production process are known ex ante) rather than search goods (quality is known at the time of purchase)
Incentives to create and preserve trust among producers, traders, especially with brand name products Yet there may be issues related to water quality, failures in supply chains, principal-agent problems, etc.
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
Environmental Concerns
May be positive and negative externalities with agriculture Rapid transformation of the agricultural sector may induce environmental damage unless handled properly
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
Additional Objectives
Agricultural development and rural development Solely supporting the former may not have the intended poverty alleviation effects Importance of investments in rural infrastructure, health, and education as well (Bezemer and Headey, 2008)
Even more pronounced for ex-ante policy evaluation than for ex-post policy evaluation
Identification of Effects
How can we evaluate the causal claims of policy statements?
Policy statement: The EUs Common Agricultural Policy (CAP) has contributed to the productivity objective as productivity in agriculture has increased more than in the overall economy over the last 20 years.
Issues:
1. One must know how productivity would have changed without the CAP. What is the counterfactual? 2. One has to take into account the costs of the policy if it is inefficient.
Cost of CAP
Time
If the diagnosis is true, the CAP is ineffective and inefficient with respect to the productivity objective. The policy could have been effective, but inefficient.
Rodrik, Dani (2005). Growth Strategies. In Philippe Aghion and Steven Durlauf, eds. Handbook of Economic Growth, Amsterdam: North-Holland.
Rodrik, Dani (2005). Growth Strategies. In Philippe Aghion and Steven Durlauf, eds. Handbook of Economic Growth, Amsterdam: North-Holland.
Project Evaluation
GTZs sequence of evaluation criteria: Relevance Impact Effectiveness Efficiency Sustainability
(Discussion in class)
Source: GTZ
Strategy Papers
Help to reduce uncertainty about future activities and policies (may prevent crowding out or may facilitate crowding in)
Helps to identify main problems or policy areas Informing the private sector on the previous process
Impact Evaluation
Source: http://xkcd.com/552/
Gerber and Green (2012): Randomized studies that are conducted in realworld settings are often called field experiments, a term that calls to mind early agricultural experiments that were literally conducted in fields.
List, John (2011). Why Economists Should Conduct Field Experiments and 14 Tips for Pulling One Off. Journal of Economic Perspectives, 25(3): 3-16.
Scott, James A. (1998). Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed. Yale Agrarian Studies, Yale University.
Political Economics
Insights for thinking about agricultural and food policy, agricultural and rural development:
Rent seeking and protectionism
Assessment of the objectives of policymakers and interest groups
How well-organized are farmers? Corruption
What are some examples of positive and normative economic statements related to agricultural and food policies?
Knowledge Limitations
Specific rules adapted to local circumstances and context Ostrom (2005: 223) challenges the assumption frequently made by policy analysts that it is routinely feasible to conduct complete analysis of a problem and develop the optimal set of rules for solving that problem.
Ostrom, Elinor (2005). Understanding Institutional Diversity. Princeton University Press, Princeton and Oxford.
Unintended Consequences
A lack of knowledge of how people behave or how they will respond to certain policies can result in the development of policies that have unintended consequences
Source: http://www.georgiatimes.info/en/articles/88339.html
Incentives
Are policies that are being implemented compatible with the incentives faced by specific actors?
Interest Groups
Individuals and groups seek privileges through the political process
Favorable legislation, regulation, tax breaks, subsidies, monopoly rights, etc.
Concentrates benefits in the hands of a few well-connected people, while dispersing the costs across everyone else
Interest Groups
Such interest groups are politically wellorganized, much more so than general voters or citizens Politicians often have strong incentives to favor the views and policy preferences of special interest groups, even if such policies are wasteful
The Economist, Eastern Approaches blog. Georgias Wine Industry: What Doesnt Kill Us Makes Us Stronger. September 21, 2010.
Source: Koester, Ulrich and Ali El-Agraa (2003). The Common Agricultural Policy. In Ali El-Agraa (ed.), The European Union: Economics and Policies. Seventh Edition. Pearson Education Limited. Harlow, Essex, UK, pp. 354-390.
Dethier, Jean-Jacques and Alexandra Effenberger (2011). Agriculture and Development: A Brief Review of the Literature. World Bank Policy Research Working Paper No. 5553.
Acknowledgements
This is the first edition of this set of lecture notes. The course materials were primarily developed for use in the MA Program in Economics at the International School of Economics at Tbilisi State University (ISET). These lecture notes were prepared by Adam Pellillo, with extensive and helpful input from Professor Ulrich Koester, who delivered a model course on Agricultural and Food Policy Analysis at ISET in 2012, and Lasha Labadze. The views herein are those of the instructor and they do not necessarily represent those of Professor Koester, Mr. Labadze, ISET, or ISET-PI. These lecture notes are made possible by the generous support of the American people through the United States Agency for International Development (USAID). The contents are the responsibility of the instructor and do not necessarily reflect the views of USAID, EWMI, or the United States Government.