MAFAP: Policy Context Analysis

1. MAFAP: Policy ContextAnalysis Module 2 Day 1 : Sessions 3 and 4

2. Outline of country report • Part 1: Background and contextanalysis • Description of the national and agricultural economies • Food and agricultural policy description and politicaleconomy of decisionmaking • Analysis of developement and performance indicators and linkages • Part 2: Conclusions based on analyses of food and agiculturalpolicies and public expenditures in agriculture • Analysis of agricultural priceincentives and disincentives and degree of marketdevelopment • Analysis of public expenditures and aid to agriculture • Part 3: Specificpolicy questions of particular relevance or interest to the country • Conclusions • Consequences of analyses carried-out and for policy dialogue • Lessonslearned and wayforward

3. Pillar 2 : Measuringpriceincentives/disincentives and marketdevelopment gaps Pillar 3: Level and composition of public expenditures and aid to agriculture Pillar 1 : Context and institutionalframework The three pillars of the MAFAP methodology Measurement of incentives and disincentives for a selection of keycommodities Analysis of public spending in support to agricultural sector Main characteristics of the food and agricultural economy

4. Objectives of the policy review • Global and country reports willbeusedto improvepolicy dialogue in dedicated fora at 3 levels • national • subregional • Panafrican • Policy reviewshould : • Describe the context of ouranalysis • Providekeyinformation to easeinterpretationof measurementresults

5. Description of policy context • Brief description of the policyenvironmentincludingpoliticaleconomyanalysis • what – key issues , drivers of change • who – keyplayers, leaders, policy champions, • how and where – policyspace, interactions, • when – time, timing, timeliness, etc. • Indicators of development and performance in variousdomains • Indicators to help interpretindicators on incentives/disincentives to production/consumption and public spending

6. Development and Performance Indicators • DPIsbased on secondary data • To inform questions on national policy objectives • Food security, Economicgrowth, Povertyreduction , etc. • To show linkages betweenpolicyenvironment and sectoral performances • To provide quantitative information on the contexte to better analyse and understand • Incentives /Disincentives AND Public Expenditures • Simple but relevant indicators • Available and reliableover time • Common or comparable across countries • Desaggregatedto the extent possible

7. What are the suitableDPIs • Examples of DPI : Percentage of rural roadspavedhelps the analysis on • Disincentives due to high transport costs • Public spending on infrastructure • Indicatorsclassified in 9 thematiccategories • Preliminarylistthatcanevolve and beupdated over time

8. The 9 categories of DPIs • Sectoral performances and market structure • Costs in out put markets • Costs in input markets • Poverty, equity, foodsecurity, etc. • Labor and employment • Heath • Education • Demography and population • Environment and naturalresources

9. Work in Groups • What Food and Agricultural policies (measures) to consider ? National? Regional? • What projects and programmes, past or current, on value chain analysis or policy analysis should be considered? • What are the sources of information and data for DPI ? National ? Regional? (1 to 4) • What are the sources of information and data for DPI ? National ? Regional? (5 to 9)

10. Overview of the MAFAP Methodology Day 1, session 3 and 4

11. Commodity Price Analysis and Government Policies The goal of the this presentation is to briefly: • Review the rational/goals of government policies. • Review key policies and discuss their likely impacts on commodity price incentives. • Stress the tradeoffs in policies (between various objectives such as efficiency, equity, etc.).

12. Commodity Price Analysis and Government Policies MAFAP Objectives: • Examine commodity market price incentives • Examine public expenditure AND • Analyze/evaluate the linkages of government policies including government investment policies to commodity price incentives

13. Rationale for government policies • Belief that government intervention can accelerate growth • PP can correct market failure/imperfection: • credit market in rural areas, market power, etc. • PP can reduce the impacts of externalities • environmental pollution, over utilization of resources creating soil erosion, etc.  

14. Impacts of government policies • The impacts depend on: • Objectivesor goals of policy makers • They are subject to constraints of the economic realities • Depend on the instruments that governments use • Note: • There are always tradeoffs in meeting different and often competing policy goals (we discuss the issue at the end of this session)

15. General goals of government policies (1/2) • Efficient resource allocations to improve agricultural productivity • Efficiency of production to get a sizeable market share in the highly competitive global trade market (comparative advantage in production) • Equity of the income distribution (targeted policies toward special groups)

16. General goals of government policies (2/2) • Equity goal: governments like to reduce the gap between low and high income population to reduce poverty and maintain social harmony. • Security goal aims at providing economic stability and in the case of food security refers to food availability at affordable and stable prices for all. Question: What are the key policy goals in Tanzania?

17. Key constraints limiting impacts of agricultural policies • Supply: domestic production is limited by resources, technologies, relative input prices, and management capabilities • Demand: domestic consumption is limited by population, income, tastes, and relative product prices • World Prices limit imports to increase domestic supply and to export to increase markets for domestic production.  Question: What are the key constraints in agricultural production in Tanzania?

18. Types of policies affecting agricultural commodities: • Agricultural price policies tend to be commodity specific, either targeted to one or more commodities or to agricultural inputs • Macro-economic policies are country-wide policies and tend to affect all sectors of the economy • Government investments are expenditures from the public budget and can affect on diverse agricultural groups depending on the specific areas where the investment occurs • Foreign government policies through aid and technical assistance

19. Impacts of Agricultural Price Policies • Agricultural price policies will affect producers, consumers, and the government budget. • Depending on the type of policy, there will be transfers between two or all three groups. • This means there are losersand winners! Question: What are the key recent agricultural policy initiatives in Tanzania?

20. Taxes and subsidies • result in transfers between the budget producersconsumers • Taxes = transfer resources to the government • Subsidies = transfer resources away from the government • Example of fixed producer price policy (higher than the international prices): • gain for producers • loss for consumers • increase in budget outlay that should be compensated by higher taxes

21. Price stabilization policies • Due to high production variation causing market prices to fluctuate substantially from one production cycle to the next and include • trade restrictions • price fixing • rationing • storage schemes • Crop insurance and futures and options markets are institutions that reduce the uncertainty of prices and income but these institutions are not adopted by most developing countries.

22. International trade restrictions • Taxes or quotas that limit either imports or exports • change domestic price levels • impacts on both producers and consumers • Import restrictions raise domestic prices above world prices • Export restrictions lower domestic prices /world price Question: What are the main trade measures? What are the current policy tradeoffs?

23. Factor price policies: traded and non-traded • directly affect agricultural costs of production. • For traded inputs such as fertilizer use is straight forward • domestic prices are compared with international prices to estimate taxes/subsidies • For non-traded inputs including land, labor, and capital. • Land and labor costs account for a large share of the production costs • Policies to consider include: • land rental rates, control of land use, water use/cost policies • minimum wage, interest rates

24. Question and discussion • Question: what are the key policy goals of the government? • Question: what are the key constraints in agricultural production? • Question: what are the key recent agricultural policy initiatives? Price policy initiative? • Question: what are the main trade policy measures ? What are the main policy tradeoffs?

25. Macro-economic Policies • Three categories of macro-economic policies affect agriculture: • Monetary policies • Fiscal policies • Exchange rate policies

26. Monetary and fiscal policies • influence all sectors of the economy. • key is their impacts on the rate of price inflation (consumer or producer prices). • Monetary policies that increase supply of money lead to faster demand growth for goods thus put pressure on inflation • Similarly, inflationincreases when government deficits are covered by expanding supply of money.

27. Exchange rate policies • Exchange rates affect agricultural prices and costs of tradable goods (imports and exports) • domestic price (in local currency) of a tradable commodity = world price (in foreign currency) X exchange rate (the ratio of domestic to foreign currency). • In the estimations of price incentives, exchange rate misalignment needs to be estimated

28. Public Expenditure Policies Influencing Agriculture • Government budget is spent directlyor indirectly to • improve incomes, • increase productivity • reduce transaction costs • Most common direct expenditures: • production and input subsidies • direct payments • investments in infrastructure (on and off farm) • investment in human capital (agricultural education and training, etc.) • Investment in agriculture research and technology (and extension) • Most common indirect expenditures include rural development measures (rural infrastructure, education, health).

29. Public expenditures on input subsidies • Objective: to enable farmers to use inputs and technologies • Constraint:difficult problems of developing input markets and associated financial services to small farmers • Quick analysis of inputs subsidies: • treat the symptoms rather than origins of market failures • distort resource allocation • are often costly and difficult to sustain without cutting expenditures on important public goods. Question: what are the policy to support access to inputs? How are these measures implemented?

30. Public investments in research and technology (R&D) • Such investments benefit both producers and consumers. • Very important investments for production growth • Tend to have strong long-term impacts although difficult to • measure in terms of return to specific commodity in a given year. Question/discussion: What are the public investments in R&D and technology ?

31. Public investments in infrastructure • To improve returns to producers • To lower costs of production • includes investment in roads, ports, and irrigation networks (and can be on and off farm) • tend to be targeted and benefit mostly the producers and consumers who live in those regions   Question/discussion: what the key government policies on investments ? What investments in irrigation network?

32. Public investments in human capital • include wide variations of policies • All investments to improve the skill levels and health of producers and consumers • Investments in formal schools, training and extension centers • Investments in public health facilities, and clinics and hospitals • very important investments for long-term development • Their short-terms impacts on prices difficult to measure. Question/discussion: What are the investments on human capital (education, extension service, health care, etc.)?

33. Discussion on Policy Tradeoffs • Often gains for one policy goal result in losses for another (example of price subsidy and budget deficit or consumer and producer price subsidy). • Assigning weights to objectives of government policies are value judgments but the goal of analysis is to identify the appropriate tradeoffs between policies. • Quantitative analyses are critical for policymakers to examine the impacts of their policies (producers, consumers, budget, efficiency, equity, etc.).

34. Question and discussion: • Question/discussion: what are the policy to support access to inputs? How are these measures implemented? • Question/discussion: What are the public investments in R&D and technology ? • Question/discussion: what the key government policies on investments ? What investments in irrigation network? • Question/discussion: What are the investments on human capital (education, extension service, health care, etc.)?

35. Thank you!