The following is an excerpt from the chapter Five Decades of Distortions to Agricultural Incentives by Kym Anderson, of the book Distortions to Agricultural Incentives A Global Perspective 1955-2007, Edited by Kym Anderson, published by Palgrave MacMillan and the World Bank, 2009.
For advanced economies, the most common reason for farm trade restrictions in the past two centuries has been to protect domestic producers from import competition as they come under competitive pressure to shed labor in the course of economic development. But in the process, those protective measures hurt not only domestic consumers and exporters of other products but also foreign producers and traders of farm products, and they reduce national and global economic welfare. For decades, agricultural protection and subsidies in high-income (and some middle-income) countries have been depressing international prices of farm products, which lowers the earnings of farmers and associated rural businesses in developing countries. The Haberler (1958) report to the General Agreement on Tariffs and Trade (GATT) contracting parties forewarned that such distortions might worsen, and indeed they did between the 1950s and the early 1980s (Anderson and Hayami 1986), thereby adding to global inequality and poverty because three-quarters of the world’s poorest people depend directly or indirectly on agriculture for their main income (World Bank 2007).
At the same time, many developing countries have chosen also to pursue an import-substituting industrialization strategy, predominantly by restricting imports of manufactures, and to overvalue their currency. Together, those measures indirectly taxed producers of other tradable products in developing economies, predominantly farmers (Krueger, Schiff, and Valdés 1988, 1991). Thus, the price incentives facing farmers in many developing countries have been depressed by agricultural price and international trade policies in both their own and other countries.
This disarray in world agriculture, as Johnson (1991) described it in the title of his seminal book, means there has been overproduction of farm products in high- income countries and underproduction in more-needy developing countries. It also means there has been less international trade in farm products than would be the case under free trade, thereby thinning markets for these weather-dependent products and thus making them more volatile.