Consequences of a food security strategy for welfare, income distribution and land degradation: the Philippine case Ian Coxhead University of Wisconsin-Madison

Overview n Food policy and trade policy n Models of trade policy and the environment n The APEX model of the Philippine economy n Policy and technical change simulations n Environmental and welfare consequences

Food policy and trade policy n Under GATT/WTO, higher relative protection for ag. in some LDCs n Philippines: state grain trade monopoly (NFA) until mid-’90s u Targets: grain self-sufficiency and defense of price bands u Instruments: international trade QRs and domestic marketing n Rising NPR for corn from 1970s

Trade policy and the environment n Trade policy measures alter net ag. land demand and its allocation to crops n Indirect environmental impact when land degradation rates are crop-specific n Endog. price responses to a shock condition land demand outcomes n Food policy may dampen price responses

Partial equilibrium effects of a price support scheme D* S’S’S p* q q*q* q’q’ D

Land degradation and economic welfare in general equilibrium n “Effective” land endowment for 2 crops: n Derived demand for land: n Aggregate budget constraint: “Weak disposal” assumes  = 0, so environmental damages not counted.

Welfare with food policy and land degradation n Comp. statics of a price increase: n Net government grain purchases n Welfare with food policy and land degradation: n Closures: fix p d and solve D G, or vice versa

The APEX model of the Philippines economy n Designed for ag.policy experiments n Highly disaggregated by sector, subsector and region n Uses econometrically estimated response parameters n Extended to include crop-specific land degradation rates for upland crops

APEX agricultural sector structure

APEX closures n “Unrestricted”: grain import tariffs, but no QRs and no domestic market interventions n “NFA”: QRs fix grain trade at base levels, and NFA buys/sells grain to fix nominal consumer price n Other features: balanced trade and gov’t budget (adjustment through changes in h’hold expenditures)

APEX experiments n Expt. 1: Increase in farm gate support price (NFA closure) n Expt. 2: Technical progress in corn production (unrestricted closure) n Expt. 3: Technical progress in corn production (NFA closure)

Changes in agricultural output

Changes in producer prices

Changes in aggregate sectoral output

Changes in measures of aggregate welfare

Changes in real household expenditures

Changes in land degradation by region

Conclusions n Food security is a desirable goal, but self-sufficiency and price-fixing policies may have welfare and environmental ‘surprises’ n Investments in technical progress have high social rates of return when env. benefits are included; Philippine food policies diminish these

Conclusions n QRs and domestic price-fixing have little effect on producer prices or income distribution, are costly in welfare terms, and may promote ag. land degradation n Design of food, trade and environmental policies should be integrated to minimize unwanted ‘surprises’

For further information... n APEX model and simulation results in full: n Questions & comments to: