MODULE 3. Price Incentives and Disincentives SESSION 4. Analysis and interpretation of indicators.

MODULE 3. Price Incentives and DisincentivesSESSION 4. Analysis and interpretation of

indicators

Understand what the indicators mean Provide a coherent understanding of how to review the

indicators through the policy lens

Module objectives:

The perfect world: law of one priceName of product Type of good import

International currency USD Local currency FCFA

DATA Unit Symbol 2005 2006 2007

1 Benchmark price USD/TON Pb(int$) 100.00

2 Observed Exchange Rate FCFA/USD ER0 10.00

3 Observed acess cost to point of competition FCFA/TON ACwh 100.00

4 Wholesale Price FCFA/TON Pdwh 1,100.00

5 Access cost to farm gate FCFA/TON ACfg 70.00

6 Farm gate price FCFA/TON Pdfg 1,030.00

1b Adjusted benchmark price USD/TON Pbalt

2b Shadow exchange rate FCFA/USD ERsh

3b Shadow access cost to point of competition FCFA/TON ACwhsh

5b Shadow access cost to farm gate FCFA/TON ACfgsh

7 Externalities associated w ith production FCFA/TON E

8 Budget and other product related transfers FCFA/TON BOT

Quantity conversion factor (border - w holesale) Fraction QTwh

Quality conversion factor (border - w holesale) Fraction QLwh

Quantity conversion factor (w holesale - farm gate) Fraction QTfg

Quality conversion factor (w holesale - farm gate) Fraction QLfg

CALCULATED PRICES Unit Symbol 2005 2006 2007

Border Price

9 Observed FCFA/TON Pb(loc$) 1,000.00 - -

10 Parity FCFA/TON Pb(loc$)sh 1,000.00 - -

Reference Price at w holesale

11 Observed FCFA/TON ROPwh 1,100.00 - -

12 Parity FCFA/TON RPPwh 1,100.00 - -

Reference Price at Farm Gate

13 Observed FCFA/TON ROPfg 1,030.00 - -

14 Parity FCFA/TON RPPfg 1,030.00 - -

INDICATORS Unit Symbol 2005 2006 2007

15 Observed price w edge at w holesale FCFA/TON OPWwh - - -

16 Price w edge at w holesale FCFA/TON PWwh - - -

17 Observed price w edge at farm gate FCFA/TON OPWFG - - -

18 Price w edge at farm gate FCFA/TON PWfg - - -

19 Observed rate of protection at w holesale % ORPwh 0.00% #DIV/0! #DIV/0!

20 Nominal rate of protection at w holesale % NRPwh 0.00% #DIV/0! #DIV/0!

21 Observed rate of protection at farm gate % ORPfg 0.00% #DIV/0! #DIV/0!

22 Nominal rate of protection at farm gate % NRPfg 0.00% #DIV/0! #DIV/0!

23 Nominal Rate of assistance FCFA/TON NRA - - -

Distribution of price w edge Unit Symbol 2005 2006 2007

24 International markets w edge FCFA/TON IRW - - -

25 Exchange policy w edge FCFA/TON ERPW - - -

25 Access costs w edge to point of competition FCFA/TON ACWwh - - -

27 Access costs w edge to farm gate FCFA/TON ACWfg -

28 Externality w edge FCFA/TON EW - - -

Total values Unit Symbol 2005 2006 2007

29 Production volume tons 1000

30 Market price support YYY -

31 Alternative price support YYY -

Overview of potential situationsPrice Wedge

>0 <0

Observed Price Wedge

>0 I II

<0 III IV

Case I (OPW>0 & PW>0) [imported]

Price Wedge

>0 <0


>0 I II

<0 III IV

Name of product Example Type of good import











3b Shadow access cost to point of competition FCFA/TON ACwhsh 75.00

5b Shadow access cost to farm gate FCFA/TON ACfgsh 50.00






Data available for shadow access costs both from border to point of competition and from point of competition to farm gate

Case I (OPW>0 & PW>0) [imported]

Price Wedge

>0 <0


>0 I II

<0 III IV

Name of product Type of good import




















Border Price










15 Observed price w edge at w holesale FCFA/TON OPWwh 50.00 - -

16 Price w edge at w holesale FCFA/TON PWwh 75.00 - -

17 Observed price w edge at farm gate FCFA/TON OPWFG 50.00 - -

18 Price w edge at farm gate FCFA/TON PWfg 25.00 - -


20 Nominal rate of protection at w holesale % NRPwh 6.98% #DIV/0! #DIV/0!


22 Nominal rate of protection at farm gate % NRPfg 2.44% #DIV/0! #DIV/0!

23 Nominal Rate of assistance FCFA/TON NRA 25.00 - -

Distribution of price w edge Unit Symbol 2005 2006 2007


25 Exchange policy w edge FCFA/TON ERPW - - -

25 Access costs w edge to point of competition FCFA/TON ACWwh 25.00 - -

27 Access costs w edge to farm gate FCFA/TON ACWfg (50.00)




30 Market price support YYY 50,000.00

31 Alternative price support YYY 25,000.00

The nominal rate of protection at wholesale and farm gate are both positives indicating the overall policy effect is supportive for the commodity. Support at wholesale means a premium of 7% and at farm gate 2.4%

As Incentives are higher at the wholesale level, it seems that policies do not benefit farmers as much as wholesalers

From a farmer point of view Inefficiencies in access from border to wholesale provide an

incentive of 25 FCFA per ton Inefficiencies in access cost from wholesale to farm gate provide

a disincentive of 50 FCFA per ton Overall policy environment (i.e. tariffs, quotas, etc.) support

farmers by 50 FCFA per ton.

The Policy analysis

Price Wedge

>0 <0


>0 I II

<0 III IV

Case II (OPW>0 & PW<0) [imported]

Price Wedge

>0 <0


>0 I II

<0 III IV

Name of product Example Type of good import










2b Shadow exchange rate FCFA/USD ERsh 11.00








Exchange rate in the country is overvalued

Case II (OPW>0 & PW<0) [imported]

Price Wedge

>0 <0


>0 I II

<0 III IV





















Border Price










15 Observed price w edge at w holesale FCFA/TON OPWwh 50.00 - -

16 Price w edge at w holesale FCFA/TON PWwh (50.00) - -

17 Observed price w edge at farm gate FCFA/TON OPWFG 50.00 - -

18 Price w edge at farm gate FCFA/TON PWfg (50.00) - -


20 Nominal rate of protection at wholesale % NRPwh -4.17% #DIV/0! #DIV/0!


22 Nominal rate of protection at farm gate % NRPfg -4.55% #DIV/0! #DIV/0!

23 Nominal Rate of assistance FCFA/TON NRA (50.00) - -

Distribution of price wedge Unit Symbol 2005 2006 2007


25 Exchange policy w edge FCFA/TON ERPW (100.00) - -






30 Market price support YYY 50,000.00

31 Alternative price support YYY (50,000.00)

The nominal rate of protection is negative, meaning that farmers are not supported by the overall policy environment.

In this case there are no differences along the value chain thus there is no specific market power.

This negative support due to an overvalued exchange rate shows that existing trade policies do not compensate the impact of the exchange rate.

The Policy analysis

Price Wedge

>0 <0


>0 I II

<0 III IV

Case III (OPW<0 & PW>0) [imported]

Price Wedge

>0 <0


>0 I II

<0 III IV



















Exchange rate is overvaluedAccess costs are very high in the country (i.e. bad infrastructure, bribes, market power by wholesalers...)

Case III (OPW<0 & PW>0) [imported]

Price Wedge

>0 <0


>0 I II

<0 III IV





















Border Price










15 Observed price w edge at w holesale FCFA/TON OPWwh (50.00) - -

16 Price w edge at w holesale FCFA/TON PWwh 50.00 - -

17 Observed price w edge at farm gate FCFA/TON OPWFG (50.00) - -


19 Observed rate of protection at w holesale % ORPwh -4.17% #DIV/0! #DIV/0!

20 Nominal rate of protection at wholesale % NRPwh 4.55% #DIV/0! #DIV/0!

21 Observed rate of protection at farm gate % ORPfg -4.55% #DIV/0! #DIV/0!






25 Access costs w edge to point of competition FCFA/TON ACWwh 150.00 - -

27 Access costs w edge to farm gate FCFA/TON ACWfg (95.00)




30 Market price support YYY (50,000.00)


The nominal rate of protection is positive meaning that the overall policy environment is supportive of farmers

The overvalued exchange rate is providing a disincentive for farmers (implicit tax) of 50

Inefficiencies in access from border to wholesale provide an incentive of 150 FCFA per ton

Inefficiencies in access cost from wholesale to farm gate provide a disincentive of 45 FCFA per ton

There is some kind of import subsidy that is also dis-incentivising production for a value of 50.

The Policy analysis

Price Wedge

>0 <0


>0 I II

<0 III IV

Case IV (OPW<0 & PW<0) [imported]

Price Wedge

>0 <0


>0 I II

<0 III IV



















Exchange rate in the country is overvaluedAccess costs are ineffcient

Case IV (OPW<0 & PW<0) [imported]

Price Wedge

>0 <0


>0 I II

<0 III IV





















Border Price










15 Observed price w edge at w holesale FCFA/TON OPWw h (50.00) - -

16 Price w edge at w holesale FCFA/TON PWw h (150.00) - -

17 Observed price w edge at farm gate FCFA/TON OPWFG (50.00) - -


19 Observed rate of protection at w holesale % ORPw h -4.17% #DIV/0! #DIV/0!

20 Nominal rate of protection at wholesale % NRPwh -11.54% #DIV/0! #DIV/0!

21 Observed rate of protection at farm gate % ORPfg -4.55% #DIV/0! #DIV/0!











30 Market price support YYY (50,000.00)


The nominal rate of protection is negative and thus farmers are dis-incentivsed.

Most of the disincentive comes from an overvalued exchange rate (100).

However there seems to be also some kind of import subsidy that is further depressing prices that could be obtained by farmers.

The Policy analysis

Price Wedge

>0 <0


>0 I II

<0 III IV

Aggregation

The final figure can cancel out incentives in one commodity and disincentives in another Aggregation by incentivized and dis-incentivized commodities

(mentioning share of total output) can avoid this Commodity specific analysis to complement the aggregated

indicator

Using the production figures and the wedges and aggregated indicator for the whole agricultural sector can be obtained (total market price support)

ni

ifgiag i

OPWOutputMPS1

ni

ifgni

ii

iag i

OPWOutput

OutputORP

1

1

Thank you!

Date post:	31-Mar-2015
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MODULE 3. Price Incentives and Disincentives SESSION 4. Analysis and interpretation of indicators.

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