THE LEVEL OF PROTECTION OF UK AGRICULTURE
| Published date | 01 November 1984 |
| Author | C. J. Black,J. K. Bowers |
| DOI | http://doi.org/10.1111/j.1468-0084.1984.mp46004002.x |
| Date | 01 November 1984 |
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 46, 4 (1984)
0305 -9049 3.00
THE LEVEL OF PROTECTION OF UK
AGRICULTURE
C. J. Black and J. K. Bowers
The paper presents measures of the levels of nominal and effective pro-
tection for the major traded products of UK agriculture for the
calendar years 1 977-79. The period covers the final years of the transi-
tional arrangements for the entry of the UK into the EEC and the first
year of the full operation of the Common Agricultural Policy (CAP) for
all the products considered. These constitute 75 per cent by value at
home market prices of UK agricultural output in 1981. The last
attempt at a comprehensive measurement of nominal protection for
UK agriculture is for the early 1970's (Josling, 1973, 1975). Apart from
a recent work by Strak (1982a, b)1 for livestock products but excluding
dairying, there are no comparable attempts to measure effective pro-
tection rates at the same level of disaggregation.
A knowledge of the levels of protection for individual commodities
is useful for a proper appraisal of national agricultural policy. Cmnd.
7458, 'Farming and the Nation' (1979), proposed a continued expan-
sion of home agriculture within the CAP without any appraisal of the
cost; substantially a hidden transfer from the consumer to the farmer.
The official paper was anticipating only a marginal increase in self-
sufficiency and this allows pertinent calculations of the opportunity
cost to society of the additional diversion of resources to agriculture.
Indeed a recent study suggests that failure to allow for protection in
cost-benefit analyses has led to a considerable over-investment in
agricultural drainage (Bowers, 1982).
Our calculations follow from the considerable theoretical and
empirical developments in recent decades on the measurement of
protection elaborated by Balassa (1971), Corden (1971, 1975), and
Grubel (1971). Measurement of protection in agriculture poses par-
ticular problems arising from the complexity of the support system.
Ideally we required input-output tables for agriculture as well as
industry. From necessity we accepted partial equilibrium analysis
which, on balance, results in some underestimation of effective protec-
tion. Following the analytical techniques of Josling (1973), we calculate
the nominal protection rates valuing the volume of agricultural output
Strak's methodology is similar to that used here, except that, as explained below, his use
of c.i.f. world market price will understate the level of protection of products lfl surplus.
291
2Quotas are a minor element of support as a whole but could be significant in some
products, e.g. sugar.
292 BULLETIN
at market prices and net of trade measures, the identifiable cost of
applying them and identifiable direct subsidies. We assume that the
average tariff equivalent thereby estimated is also a marginal equivalent.
With Josling, we ignore the impact of support measures which are
specific to the agricultural industry but which cannot be attributed to
specific products, e.g. free farm management advice, husbandry
research, zero rating of agricultural land and capital and land improve-
ment grants. The presence of these elements means that the protection
levels for the industry as a whole is greater than the weighted sum of
levels for specific products.
We also make no allowance in our calculations for the protective
effect of import or production quotas. In this we are again follovdng
Josling but it might be thought that, since these are a growing item in
the support package, while he could reasonably ignore them, we cannot.2
The tariff equivalent effect of quotas may nomially be estimated given
knowledge of the relevant elasticities of demand and supply. However,
the CAP system of support relies upon target prices maintained by
variable import levies and export refunds. Production quotas should
have no effect on producer prices but instead change the cost of main-
taining target prices. If the imposition of a quota does not alter world
market prices then support costs will fall and by our methodology so
will measured protection rates! For many agricultural products the
EEC is a major source of world market demand as well as supply and
an import quota may well depress world prices. In this case the savings
on support are offset by increased costs of export subsidy and by
increased levies on imports. The impact of a quota on support costs is
thus difficult if, in practice, not impossible to measure, and in any
case the change in support costs is not an appropriate measure of its
protective effect; this remains its tariff equivalence given the schedules
of consumer demand and EEC and third country supply. We do not
believe that quotas have much of an impact on our estimates of pro-
tection levels. Insofar as they exist our estimates are probably too low.
The cakulation of a nominal equivalent tariff permits the imputation
of a world price for a commodity, pw from knowledge of the market
price pM pW(1 + t). In most circumstances this implied pW could be
treated as the opportunity cost of domestic supply. This will not be
so, however, if the tariff level is set so as to blockade imports. Consider
a commodity where domestic supply is sufficient to clear the market
in the absence of imports at a price P. Assume imports are available
in any required quantity at a constant world price Pr'. Then if the
authority sets its tariff such that P( 1 + t) > Pf" the market will clear
at P, no imports will enter, and hence no tariff revenue will be
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