Measurement of Agricultural Protection Given the numerous changes that have taken place around the world in the form and level of support granted to farming, it has become difficult for farmers, economists and policy makers to comprehend fully how, over the years, the distribution of support between different production activities has altered. It is, however, important to be able to understand how levels of protection vary over time between, say, beef production and poultrymeat. Such policy changes have important implications for the allocation of resources within agriculture. This study, focusing on British experience, attempts first to demonstrate the confusion that can arise in agriculture as a result of policy makers' decisions. It is not at all clear that makers of agricultural policy are really aware of the net effects of their actions. In the search for a measure of support that allows a quantitative comparison of support levels for different products, the theoretical analysis involves discussion of Nominal Tariff Rates, Subsidy Rates, Adjusted Nominal Rates and Effective Rates of Protection. There are particular theoretical and practical problems associated with the calculation of rates of protection for agricultural prod ucts. The relevance of these problems to the validity and inter pretation of the different measures of support is discussed in detail. Particular attention is given to the effect of calculating Effective Rates of Protection under different assumptions about substitution between inputs and the traded/non-traded input content in value-added in agriculture. Commercial Policy Issues No. 6 'This is the latest study in the Trade Policy Research Centre's Commercial Policy Issues series, the general editors of which are Professor Gerard Curzon, of the Institut Universitaire d'Hautes Etudes Internationales, and Dr Victoria Curzon Price, of the Institut Universitaire d'Etudes Europeennes, both institutes being at the University of Geneva. The first contributions to the series were published for the Centre and the Institut Universitaire d'Hautes Etudes lnternation ales (Graduate Institute of International Studies) by Sijthoff, Leiden. Copies may be obtained from the Centre. The titles that have already been published in the Commercial Policy Issues series are: 1 Trade Negotiations and the New International Monetary System by Harry G. Johnson 2 Export Subsidies by Developing Countries by Bela Balassa and Michael Sharpston 3/4 Evaluation of the Effects of Trade Liberalisation by Robert E. Baldwin, Robert M. Stern and Henryk Kierzowski 5 Market Access for Semi-manufactures from Developing Countries by Deepak Lal Measurement of Agricultural Protection JOHNSTRAK M for the TRADE POLICY RESEARCH CENTRE London © John Strak and the Trade Policy Research Centre 1982 Softcover reprint of the hardcover 1st edition 1982 978-0-333-32480-6 All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, without permission First published 1982 by THE MACMILLAN PRESS LTD London and Basingstoke Companies and representatives throughout the world ISBN 978-1-349-06223-2 ISBN 978-1-349-06221-8 (eBook) DOI 10.1007/978-1-349-06221-8 Typeset by STYLESET LIMITED Salisbury, Wiltshire Trade Policy Research Centre The Trade Policy Research Centre in London was established in 1968 to promote independent analysis and public discussion of trade and other international economic policy issues. As a non profit organisation, which is privately sponsored, the institute has KENNETH DURHAM Chairman PROFESSOR JOHN ASHTON MATTHEW J. MARKS JAMES A. CLAY FRANCO MATTEI PROFESSOR W. M. CORDEN HANS L MERKLE PROFESSOR GERARD CURZON MICHAEL O'DOWD DIRK DE BRUYNE PETER OPPENHEIMER RODNEY DE C. GREY PROFESSOR THEO PEETERS LYDIA DUNN ALAN F. PETERS WILLIAM D. EBERLE M. A. RANGOONW ALA ROWLAND C. FRAZEE JOHN J. ROBERTS SIR REAY GEDDES T. M. RYBCZYNSKI PROFESSOR HERBERT GIERSCH LUC SMETS SIDNEY GOLT PROFESSOR LIONEL STOLERU PROFESSOR HELMUT HESSE PAUL STREETEN PROFESSOR ASSAR LINDBECK JAN TUMLIR IAN MacGREGOR PETER WALLENBERG ROBERT S. McNAMARA DOREEN WEDDERBURN HARALD B. MALMGREN CARL-HENRIK WINQWIST HUGH CORBET Director been developed to work on an international basis and serves as an entrepreneurial centre for a variety of activities, including the publication of a quarterly journal, The World Economy. In general, v vi Trade Policy Research Centre the Centre provides a focal point for those in business, the univer sities and public affairs who are interested in the problems of international economic relations - whether commercial, legal, financial, monetary or diplomatic. The Centre is managed by a Council headed by Mr Kenneth Durham. The members of the Council, set out above, represent a wide range of international experience and expertise. The principal function of the Centre is the sponsorship of research programmes on policy problems of national and inter national importance. Specialists in universities and private firms are commissioned to carry out the research and the results are published and circulated internationally in government, business and academic circles. Conferences, seminars, lectures and dinner meetings are also encouraged from time to time. 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Contents Trade Policy Research Centre v Ust of Tables X Ust of Figures xii Preface xiii Biographical Note XV Abbreviations xvi GOVERNMENT INTERVENTION IN AGRICULTURE 1 Alternative Views of the Decision-making Process 2 Policy Impact Zones 6 Some Historical Evidence for the Existence of a Problem 7 2 RATES OF PROTECTION FOR BRITISH LIVESTOCK FARMERS 17 The Calculation of Nominal Tariff Rates 18 Nominal Tariff Rates for British Imports of Uvestock and Feedgrain Products 19 The Calculation of Subsidy Rates 25 The Calculation of Adjusted Nominal Rates 32 The Calculation of Effective Rates and the Relative Scale of Protection 37 vii viii Contents 3 THE IMPORTANCE OF SUBSTITUTION 45 Substitution between Traded Inputs 4 7 Substitution between Traded Inputs and Primary Factors 52 Substitution between Traded and Non-traded Inputs and Other Complications 57 Some Concluding Observations 60 APPENDIX I - SOME ASPECTS OF THE THEORY OF PROTECTION 64 Protection: Some Theoretical Models 64 The Nominal Tariff Rate 64 The Effective Price and Value-added 67 The Effective Rate ofP rotection 68 The Affiliation ofN ominal and Effective Rates 70 The Algebra of Effective Protection 71 Negative Value-added and Negative Effective Protection 76 The Assumption ofF ixed Coefficients and its Relevance to the Interpretation of the Relative Scale ofP rotection 78 The 'Substitution' Problem 80 Traded and Non-traded Goods 82 APPENDIX 2 - THE PRACTICAL PROBLEMS OF MEASURING PROTECTION 88 Value-added in Agriculture 88 Prices and Assumptions used in Calculating Rates of Protection 99 Poultrymeat 99 Mutton and Lamb 103 Eggs (in shell) 104 Bacon (carcases and sides) 107 Beef (bone-in, fresh or chilled carcases) 108 Cereals (the feedgrains: wheat, barley, maize) 111 The Role of Different Feedgrains in Livestock Rations 113 Contents ix A Note on the Total Amount of Levy Payments on British Imports ofM aize and (Hard} Wheat, 1977-79 114 Bibliography 117