The political economy of systematic government intervention in agricultural commodity markets

The systematic subsidization and exploitation of agriculture by developed and developing countries respectively, has generated a policy paradox for which there is no satisfactory explanation. This study attempts to provide an explanation of this policy paradox. Consequently, the objectives of this study are: first, to develop an analytical framework for agricultural policy analysis with due emphasis on the policy formulation process; and second, to determine empirically the factors underlying the systematic pattern of public intervention in developed and developing agriculture.;The first of these objectives is pursued by developing a simple political economy model which treats an interest group's relative political weight as endogenous. Interest groups compete in the political market to improve their relative political weight. This relative political weight appears as a parameter in the government's political preference function. The government maximizes the value of this function subject to the constraints imposed by the economic market to determine the level of a policy. Comparative statics results are derived from this model to provide a theoretical explanation of the policy paradox.;To achieve the second objective, an empirical political economy model is specified based on the comparative statics results of the theoretical model. The model is then estimated for wheat using data for twelve developed and thirteen developing countries from 1958 to 1987. The estimation results for developed and developing countries provide strong empirical support for the theoretical conjectures. The labour productivity ratio, agriculture's international terms of trade and the share of food in consumers' disposable income appear to be the most important factors influencing the relative political weight of wheat farmers in developed countries while the factor endowment ratio, agriculture's international terms of trade and the share of imports financed by agricultural exports are the most important factors influencing the relative political weights of wheat farmers in developing countries.;The results suggest that sustainable policy reform in agriculture is not possible if the political economy of agricultural price policies in developed and developing countries are ignored.