Agricultural Policy Measures adressing Non-Trade Concerns

by Jaeok Lee,
Korean Rural Economics Institute
Republic of Korea

CLARIFICATION OF CONCEPTS
To reduce confusion surrounding theconcepts related to multifunctionalities

-Externalities:
market failure, internalisation

-Public Goods:
understatement of preference, free riders

-Joint Production:
relationships among jointly produced products

To strengthen the rationale to emphasise multifunctionalities and to design appropriate policy sets

EXTERNALITIES
Characteristics

-Externalities usually occur in ways that are not taken into account by the operation of market

-Distortion of resource allocation

Positive and Negative Externalities

-Sub-optimal level of production in case of positive externalities

Problems of Internalisation

-Externalities with private goods aspects;

bargaining, merger

-Externalities with pure public good aspects as in agriculture;

market failure without governmental intervention

PUBLIC GOODS
Characteristics of Public Goods

-Non-exclusivity: Difficulties to exclude individuals from benefiting from the good once it is produced

-Non-rivalry: If additional consumption involves zero marginal costs of production

Problems of Free Rider

-This fact makes more difficult to internalise externalities

Problems of Understatement of Preference

Address collectively through political decision making process

JOINT PRODUCTION
Definition

-If several products are produced and inputs cannot be assigned separately to each output

-Non-separable production function

-Variable combination of outputs

Cheaper solution to secure public goods

Food Security; Figure 2(2)

Viability of Rural Areas; Figure 2(2)

Protection of the Environment; Figure 2(3)

Other elements of Multifunctionalities;

Flood control of rice paddy; Figure 2(2)

SYNTHESIS OF THE CONCEPT
Externalities and Public Goods

-Both depict market failure situation and the necessities of government intervention

-Reasons of market failure are different;

internalisation, free riders

-NTCs of agriculture have both concepts

-One of the two is redundant for the rationale of government intervention

Externalities and Joint Products

-Intentions to produce NTCs are different

-NTCs are not unintended side-effects or simple externalities in agriculture

-Recoupled measures are required in case of joint production

Joint Products and Public Goods

-Sub-optimal agricultural production

-Simultaneity of NTCs production

-Inefficiences of targeted and decoupled measures addressing simultaneously for various NTCs

POLICIES FOR MULTIFUNCTIONALITES
1.Recoupling Measures

-Concepts of recoupling; Just coupling private and public goods? or supports tied to price and input uses?

-Effects of direct payments of NTCs

-Inefficiency of targeted and decoupled policies

-Tremendous requirement of information and administration costs of direct payments

2.Differentiated Price Support

-Feasibility of policy implementation

-Any efficiency losses compared to uniform price supports?

3."Blue Box" as an Alternative Measure

4.Trade Policy and Environment