Agricultural Market Intervention and Emerging States in Africa

Abstract

It is the domestic price that shows the influence of agricultural policy in the countries whose governments intervene the agricultural markets. Thus, the Nominal Rate of Protection (NRP), a price difference between domestic and international price divided by the international price is often used as an indicator for the level of agricultural protection. The purpose of this chapter is to examine factors to affect the agricultural protection level in Africa by using the data from 1961 to 2010 for 20 African countries. As shown in the past studies, it is generally observed that agricultural protection levels are different between in developing and developed countries. Agriculture is taxed in the early stages of development with lower domestic prices than international prices. But, as the economy develops, agriculture tends to be protected with their prices higher than international prices. This trend is also observed in African countries. However, in comparison to East Asian countries that have been rapidly industrialized, the level of agricultural protection in Africa remains low. In this paper, a theoretical model is presented to explain the mechanism of the growth of agricultural protection level and then a statistical analysis is conducted to test the hypothesis in the model. The results showed that all the variables are statistically significant with expected signs. The determinants of agricultural protection level supposed in the model are effective. While Africa as a whole is still in the process of economic development and the average agricultural nominal rate of protection is not so high, it is assumed that it would experience higher level of agricultural protection if it is developed rapidly. Avoiding market intervention and correcting distortions of farmer’s incentives are necessary even if correcting income disparity is a political priority in Africa. So-called decoupled policies such as direct payments with public investment in agricultural infrastructure should be introduced to promote agricultural growth.