Chapter 4


Most of the instruments listed in the table have already been discussed in the relevant
sections of this module on exchange rate, fiscal and trade policies. Further policies which
belong to the category of administered prices deserve special mention. These are:

1) pan-territorial pricing,
2) pan-seasonal pricing,
3) floor and ceiling prices.

1) Pan-territorial pricing:

In order to achieve geographical integration of remote areas and/or to increase overall food
supplies by encouraging food production in remote and low potential areas (see the list of
agricultural sector objectives above), the governments of many countries have established a
system of nation-wide equal producer prices. As the Zambia case perfectly illustrates (Box
4.5), this approach implies two specific problems (apart from the general problems
associated with regulated prices; rigidities and market imbalances) that hamper overall
efficiency of the food production and marketing system:

* production of the price-regulated crops expands in areas which are, due to natural or
 economic reasons, not necessarily suitable for their production (possibly at the cost of
 crops in which the areas have comparative advantages),

 additional, sometimes excessive, haulage costs from remote production areas to the areas
 of consumption.

 As a result, either the consumers are charged higher prices than they would have to pay in
 the absence of a pan-territorial pricing regime (with adverse effects on their real income), or
 the government has to compensate (through subsidies or by covering the losses of marketing
 agencies) the additional costs involved. The latter means additional fiscal expenditures,
 contradicting the efforts to reduce budgetary deficits.

 2) Pan-seasonal pricing:

 Another commonly applied pricing regime consists in keeping the prices of food crops
 unchanged throughout the season or year. This is intended to give the producers a reliable
 basis for calculation, and/or the to ensure that the consumers are provided with food at stable
 prices.

 Without government intervention, food prices would normally move according to the
 following pattern (see also Figure 4.9): dropping from a pre-harvest peak to the lowest level
 during harvest or shortly after harvest, then rising gradually afterwards until they reach a
 new peak level just before the next harvesting season, before they drop again.
 There are three main factors responsible for this "normal" price movement:

 the changing supply and demand situation during the course of the year (abundant
 supplies and low market demand after harvest, scarce supplies and increased market
 demand later in the year),


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