MODULE 3. Price Incentives and Disincentives SESSION 4. Analysis and interpretation of indicators.

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Presentation transcript:

MODULE 3. Price Incentives and Disincentives SESSION 4. Analysis and interpretation of indicators

Understand what the indicators mean Provide a coherent understanding of how to review the indicators through the policy lens Module objectives:

The perfect world: law of one price

Overview of potential situations Price Wedge >0<0 Observed Price Wedge >0III <0IIIIV

Case I (OPW>0 & PW>0) [imported] Price Wedge >0<0 Observed Price Wedge >0III <0IIIIV Data available for shadow access costs both from border to point of competition and from point of competition to farm gate

Case I (OPW>0 & PW>0) [imported] Price Wedge >0<0 Observed Price Wedge >0III <0IIIIV

The nominal rate of protection at wholesale and farm gate are both positives indicating the overall policy effect is supportive for the commodity. Support at wholesale means a premium of 7% and at farm gate 2.4% As Incentives are higher at the wholesale level, it seems that policies do not benefit farmers as much as wholesalers From a farmer point of view Inefficiencies in access from border to wholesale provide an incentive of 25 FCFA per ton Inefficiencies in access cost from wholesale to farm gate provide a disincentive of 50 FCFA per ton Overall policy environment (i.e. tariffs, quotas, etc.) support farmers by 50 FCFA per ton. The Policy analysis Price Wedge >0<0 Observed Price Wedge >0III <0IIIIV

Case II (OPW>0 & PW<0) [imported] Price Wedge >0<0 Observed Price Wedge >0III <0IIIIV Exchange rate in the country is overvalued

Case II (OPW>0 & PW<0) [imported] Price Wedge >0<0 Observed Price Wedge >0III <0IIIIV

The nominal rate of protection is negative, meaning that farmers are not supported by the overall policy environment. In this case there are no differences along the value chain thus there is no specific market power. This negative support due to an overvalued exchange rate shows that existing trade policies do not compensate the impact of the exchange rate. The Policy analysis Price Wedge >0<0 Observed Price Wedge >0III <0IIIIV

Case III (OPW 0) [imported] Price Wedge >0<0 Observed Price Wedge >0III <0IIIIV Exchange rate is overvalued Access costs are very high in the country (i.e. bad infrastructure, bribes, market power by wholesalers...)

Case III (OPW 0) [imported] Price Wedge >0<0 Observed Price Wedge >0III <0IIIIV

The nominal rate of protection is positive meaning that the overall policy environment is supportive of farmers The overvalued exchange rate is providing a disincentive for farmers (implicit tax) of 50 Inefficiencies in access from border to wholesale provide an incentive of 150 FCFA per ton Inefficiencies in access cost from wholesale to farm gate provide a disincentive of 45 FCFA per ton There is some kind of import subsidy that is also dis-incentivising production for a value of 50. The Policy analysis Price Wedge >0<0 Observed Price Wedge >0III <0IIIIV

Case IV (OPW<0 & PW<0) [imported] Price Wedge >0<0 Observed Price Wedge >0III <0IIIIV Exchange rate in the country is overvalued Access costs are ineffcient

Case IV (OPW<0 & PW<0) [imported] Price Wedge >0<0 Observed Price Wedge >0III <0IIIIV

The nominal rate of protection is negative and thus farmers are dis- incentivsed. Most of the disincentive comes from an overvalued exchange rate (100). However there seems to be also some kind of import subsidy that is further depressing prices that could be obtained by farmers. The Policy analysis Price Wedge >0<0 Observed Price Wedge >0III <0IIIIV

Aggregation The final figure can cancel out incentives in one commodity and disincentives in another Aggregation by incentivized and dis-incentivized commodities (mentioning share of total output) can avoid this Commodity specific analysis to complement the aggregated indicator Using the production figures and the wedges and aggregated indicator for the whole agricultural sector can be obtained (total market price support)

Thank you!