The contributions of Australian economists to evaluating agricultural policies

What is it about?

The comment provides a critique of the perfectly competitive framework that was used in the World Bank study on trade-distorting agricultural policies that was headed by Kym Anderson. There are two principal elements in this critique. First, there is the importance of imperfect competition in affecting price movements along supply chains and, therefore, the subsequent welfare effects of these price changes which are related to the removal of policy instruments. The second element is the importance of producers' attitudes to risk and their consequent effects on the policy conclusions that emerge from a welfare analysis of policy instruments. Both of these elements have a bearing on how to interpret "distortion" as it appears in the title, where there, it is assumed that the distortion is measured in the context of perfectly competitive markets.

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Why is it important?

Imperfect competition in supply chains and producers' attitudes to risk/uncertainty are important empirical characteristics of markets of agricultural products, markets which are typically described and analysed as if they were perfectly competitive. These two characteristics can alter the policy conclusions which emerge from assuming the latter form of market structure.