Chapter 4


7.1 Objectives of agricultural sector, market and price policies

 Prices of agricultural products strongly influence the performance of the agricultural sector and the
 well-being of consumers. The economic importance of the sector, especially in developing countries,
 and the severity of food and nutritional problems in some countries add to the concern of governments,
 donors and international agencies about agricultural price policies as does the fact that inappropriate
 price policies reduce or nullify the benefits of other development initiatives.
 from FAO, Agricultural Price Policies, 1987

Agricultural price policies are used as instrument to achieve a variety of different objectives.

1. to provide sufficient incentive for the farmers to produce the amount of food which is
 required to satisfy the food needs of the population (condition of "availability"),

2. to keep food prices low, in order to enable also the poorer sections of the population to
 buy the food they need (condition of "access"),

3. to reduce intra- and inter-annual variations in food supplies (condition of "stability"),

4. to increase export earnings by promoting export crop production,

5. to guarantee or stabilise farmers' income,

6. to maintain a balance between rural and urban development, by keeping agricultural
 sector growth in line with growth in other sectors and overall development,

7. to tax the agricultural sector, in order to generate financial resources for promoting other
 development objectives,

8. to achieve geographical integration of remote and low potential areas.

Some of these objectives are in direct conflict with each other, for example the conflict
between producers and consumers (objectives 1 and 2) is generally referred to as the 'food
price dilemma'. Other problems arise from the need to maintain agricultural growth and yet
use the resources of what is often the major productive sector of the economy to fund
investment in other sectors, such as social infrastructure.

Derived from neo-classical concepts, the basic philosophy behind IMF and World Bank
supported adjustment programmes is the assumption that these objectives are best achieved
and the conflicts 'automatically' solved if it is largely (apart from minor corrections of market
failures) left to the market forces to find the solution via getting the prices right. The 'right
prices' are understood as the world market prices (import/export parity prices) in the case of
tradables, and prices determined by supply and demand in the case of non-tradables.
According to this perception, 'good policies' are defined as set of policy measures which aim
at establishing liberal market and pricing conditions. Nevertheless, there is no country in the
world where this philosophy is fully applied. In fact, substantial market and price
interventions in agriculture, in order to achieve various agricultural and other policy
objectives, constitute a major policy approach in most countries, including the developed
countries of the west.

In practice, a feasible way of achieving a bundle of partly conflicting objectives has to be
found. This must be located somewhere in between the extreme cases of a pure market and a


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