From Prices to Incomes: Agricultural Subsidization without Protection?

Abstract

Drawing from the experience of the direct income support programs recently introduced in the European Union, Mexico, and the United States, this article highlights problems that may arise when the agricultural sector of a developing economy moves from price-based subsidization to less distorted income support. Such programs are a step in the right direction, but as currently implemented, they have many shortcomings. Moreover, developing countries may lack the necessary supporting arrangements needed to make such programs effective. The article argues that the programs should not restrict the use of land, that the programs should last for a stipulated period of time, and that the fiscal costs should be contained by linking income support payments to world prices.