Chapter 4


Table 4.3 presents the effects of currency overvaluation on agricultural prices received by
farmers in various countries, recorded in a World Bank study (A. Krueger, 1992). Estimates
are given of the average annual percentage deviation of prices received by the farmers
compared with those that likely would have prevailed without exchange rate interventions.
The latter estimates are based on two sets of conditions: (1) access by agricultural producers
to international prices and (2) an equilibrium exchange rate permitting a foreign trade
balance in the absence of protection to domestic industrial goods. Negative values of
protection rates signify dis-protection or, in other words, taxation (for more on protection
rates see section 7 of this chapter and Annex 2D).


 Table 4.3: Indirect protection rates for agriculture due to overvaluation
 Selected countries, selected years, average for period, in percent


 Country and period Indirect protection due to overvaluation
 Zambia, 1966-84 -50.6
 Ghana, 1958-76 -38.1
 Pakistan, 1960-86 -31.0
 C6te d'lvoire, 1960-82 -29.6
 Morocco, 1963-84 -21.0
 Dominican Republic, 1966-85 -19.8
 Philippines, 1960-86 -19.3
 Colombia, 1960-83 -18.8
 Egypt, 1960-84 -17.4

 Source: Krueger, A., The Political Economy of Agricultural Pricing Policy, Vol. 5.1992

 3.3 Effects of a devaluation on the food economy

 3.3.1 Main channels of impact on food supply and demand

 As to the exchange rate policy, which plays a prominent role in most adjustment
 programmes, the main conclusion is clear: adjust the exchange rate to its real value by
 effecting a substantial devaluation of the nominal exchange rate, or by introducing a flexible
 exchange rate regime which will automatically lead to a devaluation. What are the
 consequences of an exchange rate adjustment on the food economy and food security? In
 order to be able to answer this question, we have to trace the channels of impact of an
 exchange rate devaluation through the meso-economy down to the factors determining food
 supply and food demand on the household level. Figure 4.3 marks the main linkages and
 critical components of the macro-meso-micro framework that are influenced by an exchange
 rate intervention and have crucial effects on the food situation. The issues are discussed in
 detail in the following sections.


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