Chapter 4


state regulated economy, incorporating elements of both.. The 'art of policy' consists in
finding the 'golden' middle course, by compromising but also by setting priorities as far as
the objectives are concerned, and by allowing as much free market movement as possible,
with only as much intervention as necessary to correct market failures and to emphasise
certain political priorities

What is possible and necessary, depends on the specific socio-economic conditions of a
country, on the policies applied in the past, on the political priorities pursued by the present
government, and, in the case of debtor countries, on what the foreign donors and financial
institutions consider as 'good' or 'bad' policies. All these factors are reflected in adjustment
programmes and have to be considered when the impacts of such programmes are analysed.

In order to do such an analysis for the agricultural sector and the food economy, the
following factors need to be taken into account:

* the natural resource endowment with its specific constraints and potentials for
 agricultural and food production,
* the human factor and resources,
* the prevailing physical, technical and social patterns of agriculture and food production.
* the existing agricultural and food marketing system,
* the food situation (including structure of prevailing food deficits, see Annex 1).
* the macro-economic and sector policies pursued in the past with their consequences,
* the political mainstream as reflected in the objectives of adjustment programmes.

7.2 Price policy instruments

The major pricing policy instruments and their principal effects are listed in the following
table:

Table 4.15: Major pricing policy instruments and effects

Policy type Major instrument Principal economic effect
Trade policies subsidy/tax on imports/exports prices of traded goods change; indirect effect
 on potential tradables
 import/export quota indirect effect on prices of tradables
Exchange rate policies nominal exchange rate prices of traded goods change; may lead to
 pressures on prices of non-tradables, e.g.
 labour
Market system policies subsidies/taxes prices of affected goods change
 administered prices rationing; black-market transactions: or
 budgetary costs
Production input policies minimum wage; land tax; interest changes allocation of domestic resources;
 rate or other import subsidies affect labour/capital mix of production

Adapted from FAO, 1991, Economic analysis of agricultural policies, Training materials for agricultural
planning No. 30


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