module 3. price incentives and disincentives session 2. methodology for analysis
DESCRIPTION
MODULE 3. Price Incentives and Disincentives SESSION 2. Methodology for analysis. Module objectives:. Presentation of the theoretical and empirical background of price incentive/disincentive analysis Show the data needs for PID calculation Demonstrate the rational using some examples - PowerPoint PPT PresentationTRANSCRIPT
MODULE 3. Price Incentives and DisincentivesSESSION 2. Methodology for analysis
Presentation of the theoretical and empirical background of price incentive/disincentive analysis
Show the data needs for PID calculation
Demonstrate the rational using some examples
Receiving feedback from the participants.
Module objectives:
Farmers are affected by a myriad of agricultural and non-agricultural policies
The total effect can be quantified using one or several simple indicators which are comparable across time and between countries.
One of these indicators measures the support (or discouragement) that farmers face through the price they receive for their products
Due to the law of one price, the difference between domestic market prices and international benchmark price is assumed to be the result of trade and market support policy interventions
Theoretical basis of price analysis (I)
P
Q
World Price
Domestic Price
Transfer from consumers to
farmersOther transfer from consumers
S D
Market Price Differential(DP > WP)
Domestic Supply at world prices
Domestic Supply at domestic prices
Domestic Demand at domestic prices
Graphic representation of a market price differential (imported good)
World Price + Transaction costs
The previous analysis assumes that all markets in the country are free from interventions and takes observed data
Price differentials can be further examined as some of the observed data (i.e. costs, prices) can be considered “excessive” and thus shadow prices can be used.
These “excessive” costs can be the result of poor infrastructure, high processing costs, post-harvest losses or non-competitive market structures.
This allows to revisit the incentive structure and see how that would be without those interventions.
MAFAP considers both analysis and computes indicators, depending on data availability, using both sets of prices
Theoretical basis of price analysis (II)
P
Q
World Price
Domestic Price
S D
Domestic Supply at world prices
Domestic Supply at domestic prices
Domestic Demand at domestic prices
Graphic representation of a market price differential with additional analysis (imported good)
Transfer from consumers to
farmers
World Price + Transaction costs
World Price + TC + Excessive cost Transfer from consumers to Other agents
Other transfer from consumers Observed Price Differential
(DP > WP)
Price wedge(TC > Efficient TC)
The comparisons using observed prices show how market prices in the country compare to international benchmark prices
The differences will be the static wedge equivalent of policies on farmers (or any other point in the value chain) assuming efficient markets
The efficient market assumption might be too strong for an African context and observed incentives or disincentives could be significantly different if markets were efficient
Using data on shadow prices (i.e. efficient prices) allows us to see then impact of ALL policies on farmers and consider how they would be if they were modified
MAFAP focuses on policies affecting exchange rate and access costs
Theoretical basis of price analysis (&III)
DATAObserved Alterantive (shadow)
Prices A B
Access costs A B
CALCULATED PRICESObserved Reference Parity Reference
Wholesale (point of competition) Using A data Using B data
Farm gate (producer) Using A data Using B data
Theoretical basis in practice
Which indicators we will calculate (traded goods)
Price wedges
Differences between OBSERVED domestic and CALCUALTED reference prices
Can be calculated at different points along the value chain
Ratios
Wedge divided by reference price (in %)
OBSERVED PRICE WEDGE
PRICE WEDGE
PROPd Effect of trade and price support policy
PRPPd Effects of overall policy and markets
Imported products: the reference price
World MarketsQ
P(int$)
Pb(int$)
Tanzaniawh
ACwh
ROPwh
ACfg
Q
SBF
D
S
Q
P(int$)
Pb(int$)
Tariff
Tanzaniawh
ACwh
ROPwh
ACfg
Q
SBF
S
Tanzaniafg
Q Q
ROPfg
D
S
ACfgsh
RPPfg
World Markets
Imported products: the reference price
Imported product: the local market
ACfg
Q Q
SBF
Pdfg
D
Pdwh
S
Tanzaniawh Tanzaniafg
Imported product: the whole picture
Q
P(int$)
Pb(int$)
ACwh
ROPwh
ACfg
Q Q
SBF
ROPfg
D
S
S
Pdwh
Pdfg
ACfgsh
RPPfg
Tanzaniawh TanzaniafgWorld Markets
Q
P(int$)
Pb(int$)
ACwh
ROPwh
ACfg
Q Q
SBF
ROPfgD
S
S
Pdwh
Pdfg
ACfgsh
RPPfg
Observed price wedge
Price wedge
Imported product: the whole picture
Tanzaniawh TanzaniafgWorld Markets
SUMMARY & RECALL (import substitute)Benchmark price Exchang
e rateBorder Price
Border Price Access cost to wholesale
Reference parity price at wholesale
Reference price at wholesale
Access cost to farm gate
Reference parity price at farm gate Domestic price at farm gate
Domestic price at wholesale
A
B
Price wedge at farm level
Price wedge at wholesale level
+A
DATA CALCULATED
Quality and/or quantity adjustment factor
Quality and/or quantity adjustment factor
vs
vs
Observed
Shadow
DATA NEEDS
INDICATORS ANALYSIS
Data needs and issues for PID calculation
WORLD PRICE
DOMESTIC PRICE
TRANSACTION COSTS
Observed prices
Shadow prices Alternative transaction costs
Externalities
Alternative exchange rates
Alternative benchmark price
DATA NEEDS: Observed prices (I)World Price: benchmark price Serves as a benchmark as what farmers would get as a reward
for their use of production factors.
Should reflect the equilibrium price in international markets for the commodity under study.
If the product is exported by the country under consideration it should be the FOB price received by exporters
If the product is imported by the country under consideration it should be the CIF price paid by importers
Exchange rate to transform benchmark price into a border price
Border price is the benchmark price in local currency
Border price = benchmark price times exchange rate
Observed prices
CIF Price(USD/Ton)
Exchange rate (TZSH/USD)
Border Price (TZSH/Ton)
Assuming entrance via Dar es Salaam
Is it realistic to assume imports coming via Dar for all Products?
NEED: Identify data sources for CIF prices
NEED: Identify data sources for FOB prices
DATA ISSUES: Observed prices (I)
1. Non-traded: alternative approaches Is a product really not traded? Calculating wedges and indicators:
Consider a substitute product as a reference price (i.e. cassava and maize) accounting for potential quantity and quality differences
Assuming a zero wedge Calculate cost to price ratio for product and
compare to potential substitute Undertake a value chain analysis
Observed prices
World Price: benchmark price
DATA ISSUES: Observed prices (I)
1. Non-tradables: alternative approaches
2. Different entry points for imports Spatial differentiation [weighted averages / multiple
estimates]
3. Different prices during the year [seasonal variability] Temporal differentiation [weighted averages / multiple
estimates]
Observed prices
World Price: benchmark price
DATA NEEDS: Observed prices (II)Domestic Price
Reflects the price received by farmers in the country
Ideally should be a farm gate price
Obtained from national statistics, agricultural census or national panel surveys
Observed prices
Producer Price (TZSH/Ton)
Maize Production in Tanzania
Observed prices
CIF Price(USD/Ton)
Exchange rate (TZSH/USD)
Border Price (TZSH/Ton)
DATA ISSUES: Observed prices (II)Domestic price
1. Lack of Farm Gate Price:
a. Use wholesale price as close to production area as possible corrected for access costs to the wholesale market
Farm Gate Price (FCFA/Ton)
Wholesale Price (FCFA/Ton)
Access costs farm gate – wholesale (FCFA/Ton)Minus
Calculated Farm Gate Price (FCFA/Ton)
Observed prices
DATA ISSUES: Observed prices (II)Domestic price
1. Lack of Farm Gate Price:
a. Use wholesale price as close to production area as possible corrected for access costs to the wholesale market
b. If no access cost data is available undertake calculation at wholesale level
Observed prices
DATA ISSUES: Observed prices (II)Domestic price
1. Lack of Farm Gate Price
2. Multiple producing areas:
a. Specific calculation for different areas
b. For aggregation use a weighted average according to production shares
Observed prices
DATA ISSUES: Observed prices (II)Domestic price
1. Lack of Farm Gate Price
2. Multiple producing areas
3. Seasonal variability of prices:
weighted average of prices by marketed volume
time specific calculation of indicators
Selection of the most relevant marketing period
Observed prices
DATA NEEDS: Observed prices (&III)Transaction costs: access costs
Border price and farm gate price are not directly comparable as the commodity is in a different position along the value chain.
Transaction costs are named as “access costs” in MAFAP terminology and cover all costs that are involved with taking the product from one point in the value chain to another.
They are added or subtracted to the border price depending on the type of trade status of the product and where the competition between domestic and international products take place
Observed prices
CIF Price(USD/Ton)
Exchange rate (TZSH/USD)
Border Price (TZSH/Ton)
Producer Price (TZSH/Ton)
Transaction costs Import substitute
Point of competi
tion
Access costs (TZSH/Ton)
Access costs (TZSH/Ton)
Reference observed Price
(TZSH/Ton)
Observed prices
Assuming point of competition in Dar
FOB Price(USD/Ton)
Exchange rate (TZSH/USD)
Border Price (TZSH/Ton)
Producer Price (TZSH/Ton)
Transaction costs Exported Good
Point of competi
tion
Access costs (TZSH/Ton)
Access costs (TZSH/Ton)
Reference observed Price
(TZSH/Ton)
Observed prices
Assuming point of export in Dar
DATA ISSUES: Observed prices (&III)Transaction Costs
1. Data sources:
a. Bottom-up: existing value chain analysis
Add transport costs, storage costs, handling costs and margins
b. Top-down: using domestic prices along the value chain
CIF Price – Wholesale price = access cost import port to point of competition
Wholesale price – farm gate price = access cost point of competition to farm gate
Observed prices
Transaction costs: access costs
SUMMARY DATA NEEDS: Observed prices
Observed prices
Once data is inserted the excel spreadsheet calculates three year averages for the different options
Year 2005 2006 2007 2008 2009 2010 Notes
DATA Unit Symbol trade status x x x x x x insert x for exports / m for imports
1 Benchmark price USD/TON Pb(int$) FOB Price
2 Observed Exchange Rate TZSH/USD ER0
3 Observed acess cost to point of competition TZSH/TON ACwh
4 Wholesale Price 0 Pdwh
5 Observed access cost to farm gate 0 ACfg
6 Farm gate price 0 Pdfg
DATA UNIT SYMBOL 2005 2006 2007 2008 2009 2010 Notes 2005-2007 2006-2008 2007-2009 2008-20101 Benchmark price USD/TON Pb(int$) 10.00 12.00 12.00 15.00 11.00 10.00 CIF/FOB 11.33 13.00 12.67 12.00
2 Observed Exchange Rate TZSH/USD ER0 2.00 2.50 2.50 1.50 3.00 2.50 2.33 2.17 2.33 2.33
3 Observed acess cost to point of competition TZSH/TON ACwh 4.00 3.50 3.00 3.50 3.00 2.50 3.50 3.33 3.17 3.00
4 Wholesale Price 0 Pdwh 25.00 40.00 38.00 34.00 40.00 35.00 34.33 37.33 37.33 36.33 5 Observed access cost to farm gate 0 ACfg 2.00 1.50 2.00 2.50 1.00 1.50 1.83 2.00 1.83 1.67 6 Farm gate price 0 Pdfg 20.00 38.00 35.00 30.00 35.00 32.00 31.00 34.33 33.33 32.33
Data needs and issues for PID calculation
WORLD PRICE
DOMESTIC PRICE
TRANSACTION COSTS
Observed prices
Shadow prices Alternative transaction costs
Externalities
Alternative exchange rates
Alternative benchmark price
But are markets efficient? The former analysis builds on OECD experience assuming markets are
functioning more or less efficiently. This might not be the case in many African countries.
Results based on observed data is not consistent with theoretical measures of opportunity cost nor does it show the impacts of all policies.
For this, the analyst has to have evidence that some of the data used might not be reflecting a functioning market either due to explicit policies or uneven market power distribution along the value chain and then:
Identify the alternative data source for the concept where an issue exists
Collect the data from these sources for the selected concepts for the same years that the observed data has been obtained
Shadow prices
DATA NEEDS: Shadow prices (I)Alternative benchmark price
WHEN? Benchmark price is not valid as an indicator of the price farmers would get in competitive international markets
WHY? Market power by importers of exporters of the commodity for the country leads to higher (lower) prices for imports (exports)
HOW? Imports: obtain FOB price for main source of imports and add
standard insurance and freight costs
Exports: compare to FOB prices for other countries and check for differences
Other ideas?
Shadow prices
DATA NEEDS: Shadow prices (II)Alternative exchange rate
WHEN? there is an explicit exchange rate policy in the country that means that the exchange rate is not the result of a currency free market. There is a higher (lower) price for foreign currency in secondary markets
WHY? Some countries want to have an over or under-valued currency for political reasons (i.e. control monetary flows, promote exports, etc.)
HOW? Check for exchange rate in the secondary market
Use this alternative exchange rate for calculations
Shadow prices
DATA NEEDS: Shadow prices (III)Alternative access costs
WHEN? Observed access costs are considered too high as compared to other countries in the region, transport time increases post-harvest losses, transport market is not efficient, non-transport costs are substantial. It can happen at any stage in the value chain (port to wholesale, wholesale to farmgate) and for any concept of access cost (transport, handling, storage, processing)
WHY? Lack of infrastructure, lack of competition, lack of rule of law.
HOW? Check literature for analysis of transport costs in the country
Obtain data from ad-hoc studies or compare with costs in neighboring countries.
Shadow prices
CIF Price(USD/Ton)
Exchange rate (TZSH/USD)
Border Price (TZSH/Ton)
Producer Price (TZSH/Ton)
Transaction costs Import substitute
Point of competi
tion
Access costs (TZSH/Ton)
Access costs (TZSH/Ton)
Reference Parity Price (TZSH/Ton)
Observed prices
Assuming point of competition in Dar
FOB Price(USD/Ton)
Exchange rate (TZSH/USD)
Border Price (TZSH/Ton)
Producer Price (TZSH/Ton)
Transaction costs Exported Good
Point of competi
tion
Access costs (TZSH/Ton)
Access costs (TZSH/Ton)
Reference ParityPrice (TZSH/Ton)
Observed prices
Assuming point of export in Dar
DATA NEEDS: Shadow prices(&IV)Externalities
WHEN? The production technology of the commodity is directly related to a negative or positive effect outside the farm (i.e. increased water pollution, enhanced biodiversity).
WHY? Equivalent to a quality difference between the domestic and the reference product.
HOW? Identify if there are any major externalities associated with the
production of the commodity in the country which are not present in the areas which set the benchmark price.
Obtain from the literature a monetary estimate of the externality.
Shadow prices
Year 2005 2006 2007 2008 2009 2010
DATA Unit Symbol trade status x x x x x x
1 Benchmark price XXX/TON Pb(int$)
2 Observed Exchange Rate YYY/XXX ER0
3 Observed acess cost to point of competition YYY/TON ACwh
4 Wholesale Price YYY/TON Pdwh
5 Observed access cost to farm gate YYY/TON ACfg
6 Farm gate price YYY/TON Pdfg
1b Adjusted benchmark price XXX/TON Pbalt
2b Shadow exchange rate YYY/XXX ERsh
3b Shadow access cost to point of competition YYY/TON ACwhsh
5b Shadow access cost to farm gate YYY/TON ACfgsh
7 Externalities associated w ith production YYY/TON E
SUMMARY DATA NEEDS: Shadow prices
Shadow prices
As for observed data, once data is inserted the excel spreadsheet calculates three year averages
OTHER ISSUESAssuring that same is compared to same Quality: if domestic commodity is not directly comparable to
internationally traded good there needs to be a quality adjustment for the calculation of the reference price (i.e. if local quality is lower the reference price needs to be reduced).
When: there is a different price in the market for local and imported commodity.
Quantity & Processing: if good purchased to the farmer and good traded internationally is not exactly the same (i.e. sugar cane – sugar) there needs to be a quantity adjustment for the calculation of the reference price (i.e. two units of sugar cane per unit of sugar) plus access costs need to consider processing margins:
When: farm gate price and reference price do not refer to the same product
OTHER ISSUESIntroducing commodity specific public expenditure MAFAP also will study the public expenditure in agriculture
Some of the public expenditure will be commodity specific
This expenditure can be added to the monetary measure of incentives or disincentives provided by prices
Avoiding the impact of inflation Different inflation rates in world and domestic markets influence calculations
For ratios this is not an issue as this effect is cancelled out
However for wedges and overall price support the difference between nominal and real terms does affect results
Annual results are reported as three year averages in nominal terms, comparisons across time are done in real terms or using relative indicators
SUMMARY DATA NEEDS
Shadow prices
The Excel sheet is now ready for computing the indicators
If observed prices are considered efficient or there is no alternative data source data does not need to be inputted
Year 2005 2006 2007 2008 2009 2010 Notes
DATA Unit Symbol trade status x x x x x x insert x for exports / m for imports
1 Benchmark price XXX/TON Pb(int$) 197.00 1,480.05 248.00 1,565.11 358.00 FOB Price
2 Observed Exchange Rate YYY/XXX ER0 1,251.90 178.37 1,196.31 158.23 1,409.27 3 Observed acess cost to point of competition YYY/TON ACwh
4 Wholesale Price YYY/TON Pdwh 251,137.50 201,386.00 345,386.67 407,404.17 340,965.00 5 Observed access cost to farm gate YYY/TON ACfg 49,046.67 36,530.17 69,815.83 114,328.33 43,280.83 6 Farm gate price YYY/TON Pdfg 202,090.83 164,855.83 275,570.83 293,075.83 297,684.17
1b Adjusted benchmark price XXX/TON Pbalt
2b Shadow exchange rate YYY/XXX ERsh
3b Shadow access cost to point of competition YYY/TON ACwhsh
5b Shadow access cost to farm gate YYY/TON ACfgsh 38,247.77 28,487.10 54,444.07 89,155.99 33,751.44 7 Externalities associated w ith production YYY/TON E8 Budget and other product related transfers YYY/TON BOT 20.00 From PE Analysis
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
INDICATORS
ANALYSIS
Reference observed and parity prices With the inputted data we can calculate 3 main prices:
Border price: Benchmark price in local currency [Pb(int$) * ER]
Reference price at point of competition: border price plus or minus access costs to point of competition
IMPORT: Pb(loc$) + Acwh
EXPORT: Pb(loc$) - Acwh
Reference price at farm gate: reference price at point of competition plus or minus access costs to farm gate
IMPORT & EXPORT: RPwh – Acfg
Depending whether observed or shadow data is used these prices are labeled OBSERVED or PARITY.
If no data is available for shadow concepts Excel sheet uses observed data
Indicators (I) Wedges are the difference between the observed prices and the reference
(observed or parity) prices
If observed data is used the are called observed wedges while if shadow data is used the are just called wedge
At wholesale level (point of competition): Pdwh - RPwh
At farm gate: Pdfg – RPfg
The ratios between the wedge and the reference price are:
If using observed data: OBSERVED RATE OF PROTECTION
If using shadow data: NOMINAL RATE OF PROTECTION
Nominal Rate of Assistance: price wedge plus budget and other transfers.
fg
fgdfg
ROPROPP
fg
fgdfg
RPPRPPP
Indicators (II) The difference between the “observed wedges” and the “wedges” can be split into
the different components for which shadow data is inputted:
These decomposition considers the difference between observed and shadow access costs, benchmark price and exchange rate
A. Access cost wedge to point of competition (impacts of market structure between wholesale markets and point of export or import)
Imported good: observed access costs minus shadow access costs
Exported good: - (observed access costs minus shadow access costs)
B. Access cost wedge to farm gate (impacts of market structure between wholesale markets and farm gate)
- (Observed access costs minus shadow access costs )
Indicators (III) Exchange rate and benchmark price have a combined effect thus the direct
difference does not allow an additive decomposition of the difference in wedges.
International markets wedge: covers the impact of distorted benchmark price isolated from the potential impacts of exchange rate policy
Exchange policy wedge: covers the impact of exchange rate policy isolated from the potential impacts of distorted benchmark price
Externality wedge: the value inputted for externalities with changed sign
whwhsh
bbalt QLQTERERPP
2
0$)(int
whwhbbalt
sh QLQTPP
ERER
2$)(int
0
Indicators (IV)
fgfgwhwhfgwhfgfg QLQTROPRPPEWACWACWERPWIRWOPWPW 1
If all data is only available as observed or the different markets are assumed to be efficient then:
fgfg OPWPW
Name of product Type of good importInternational currency USD Local currency TZSH
DATA Unit Symbol 2005 2006 2007 2008 2009 2010 Notes1 Benchmark price USD/TON Pb(int$) CIF Price
2 Observed Exchange Rate TZSH/USD ER0
3 Observed acess cost to point of competition TZSH/TON ACwh
4 Wholesale Price TZSH/TON Pdwh
5 Access cost to farm gate TZSH/TON ACfg
6 Farm gate price TZSH/TON Pdfg
1b Adjusted benchmark price USD/TON Pbalt
2b Shadow exchange rate TZSH/USD ERsh
3b Shadow access cost to point of competition TZSH/TON ACwhsh
5b Shadow access cost to farm gate TZSH/TON ACfgsh
7 Externalities associated w ith production TZSH/TON E8 Budget and other product related transfers TZSH/TON BOT From PE Analysis
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 2008 2009 2010 Formula
Border Price9 Observed TZSH/TON Pb(loc$) - - - - - - [1]*[2]
10 Parity TZSH/TON Pb(loc$)sh - - - - - - [1]*[2]Reference Price at w holesale
11 Observed TZSH/TON ROPwh - - - - - - [9]+[3]12 Parity TZSH/TON RPPwh - - - - - - [10]+[3]
Reference Price at Farm Gate 13 Observed TZSH/TON ROPfg - - - - - - [11]-[5]14 Parity TZSH/TON RPPfg - - - - - - [12]-[5]
INDICATORS Unit Symbol 2005 2006 2007 2008 2009 2010 Formula
15 Observed price w edge at w holesale TZSH/TON OPWwh - - - - - - [4]-[11]16 Price w edge at w holesale TZSH/TON PWwh - - - - - - [4]-[12]17 Observed price w edge at farm gate TZSH/TON OPWFG - - - - - - [6]-[13]18 Price w edge at farm gate TZSH/TON PWfg - - - - - - [6]-[14]19 Observed rate of protection at w holesale % ORPwh #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! [15]/[11]20 Nominal rate of protection at wholesale % NRPwh #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! [16]/[12]21 Observed rate of protection at farm gate % ORPfg #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! [17]/[13]22 Nominal rate of protection at farm gate % NRPfg #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! [18]/[14]23 Nominal Rate of assistance % NRA #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! [18]+[8]
Distribution of price wedge Unit Symbol 2005 2006 2007 2008 2009 2010 Formula24 International markets w edge TZSH/TON IRW - - - - - - - 25 Exchange policy w edge TZSH/TON ERPW - - - - - - - 25 Access costs w edge to point of competition TZSH/TON ACWwh - - - - - - - 27 Access costs w edge to farm gate TZSH/TON ACWfg - - 28 Externality w edge TZSH/TON EW - - - - - - -
Total values Unit Symbol 2005 2006 2007 2008 2009 2010 Formula
29 Production volume tons 100030 Market price support YYY - [17]*[29]31 Alternative price support YYY - [18]*[27]
SUMMARY & RECALL (import substitute)Benchmark price Exchang
e rateBorder Price
Border Price Access cost to wholesale
Reference parity price at wholesale
Reference price at wholesale
Access cost to farm gate
Reference parity price at farm gate Domestic price at farm gate
Domestic price at wholesale
A
B
Price wedge at farm level
Price wedge at wholesale level
+A
DATA CALCULATED
Quality and/or quantity adjustment factor
Quality and/or quantity adjustment factor
SUMMARY & RECALL (export good)Benchmark price Exchang
e rateBorder Price
Border Price Access cost to wholesale
Reference parity price at wholesale
Reference price at wholesale
Access cost to farm gate
Reference parity price at farm gate Domestic price at farm gate
Domestic price at wholesale
Domestic price at port of export
A
B
Price wedge at farm level
Price wedge at wholesale level
+A
Price wedge at border
+B
DATA CALCULATED
Quality and/or quantity adjustment factor
Quality and/or quantity adjustment factor
ANALYSIS
What do the indicators mean If price wedge is positive
Farmers are receiving a price that is higher than the one that they would receive in international markets
The overall policy context incentivizes production If the price wedge is negative
Farmers are receiving a price that is lower than the one they would receive in international markets
The overall policy context dis-incentivizes production BUT we have two sets of indicators......
Potential situationsPrice Wedge
>0 <0
Observed Price Wedge
>0 I II
<0 III IV
Session 4 will deal with how to interpret these cases
TAKE AWAY MESSAGE Incentives and disincentives are calculated using international
prices as benchmarks Data is needed for two main concepts: prices and access costs Observed data assumes markets are efficient, shadow data tries to
reflect the effect of potential inefficiencies All data has to be documented [source, assumptions, etc] The analysis is done after you know the value chain through a
Value Chain Analysis. This provides the necessary information to understand how to
correctly implement the methodology
AN EXAMPLE: A) IMPORT SUBSTITUTE
EXAMPLES
AN EXAMPLE: B) EXPORTED GOOD
EXAMPLES
AN EXAMPLE: C) NON-TRADED
EXAMPLES
Thank you!