.' oflwwcpo-hv- 1'9... 9. - -%Q.‘- . V—“\-...p—~M" .. ought-0". 0O WELFARE COSTS OF ALTERNATIVE AGRICULTURAL POLICIES IN AUSTRIA Thesis for the Degree of M. S. MICHIGAN STATE UNIVERSITY WERNER KIENE 1971 LIBRARY Michigan State University ABSTRACT WELFARE COSTS OF ALTERNATIVE AGRICULTURAL POLICIES IN AUSTRIA By Werner Kiene Austria - a member country of EFTA - has been adjusting her agricultural policy over the last decade to facilitate I an association with the EEC. Farm prices and surpluses, however, have dominated recent discussions in the European Communities Council of Ministers which indicate the evidence of some doubt regarding the Common Agricultural Policy. A comparison of Austria's current agricultural policy with other alternatives could suggest new directions, especially. in a period when the cho sen model (the EEC agricultural policy) might undergo some changes. The objectives of this study were to define a suitable analytical model for determining the welfare costs of agri- cultural protection and to apply this model in contrasting the welfare cost of thezexisting policy versus a hypothetical deficiency payment system. -Austria's current policy is characterized by a variable levy which is combined with direct payments for several commodities. Werner Kiene A partial equilibirum model was used to determine the production cost of protection and the consumption cost of protection. Under a variable levy policy, total welfare cost of protection consists of both production-and consumption costs. Under a deficiency payment policy no consumption cost can occur since there is no tariff valid at the demand curve. It was necessary to expand the basic model in order to accomodate for substitution and input-output relationships. The equations obtained indicated that the welfare costs of protection depend on the values of domestic production and consumption, the height of the tariff and the price elasticities of demand and supply. To provide a useful estimate of the costs of total agricultural protection, eleven major commodities were examined over a period of four years. A ”One Import Good'l model was applied individually to wheat, rye, sugar, butter and cheese. To take account of the inter-dependence between feedgrains and livestock, a "Final and Intermediate Goods” model was utilized. A ”More than One Good" model was uSed to take care of the existing substitution in the consumption of pork, poultry and eggs. Each model showed that the costs of protection under a deficiency payment system are considerably less than under the existing variable levy policy. Werner Kiene Various computational methods led to a high and a low alternative for each cost estimate. The total annual welfare costs of protection of all eleven commodities were between 353 and 6AA million Austrian Schillings under the existing policy. Under a deficiency payment system, however, annual welfare costs of protection vary only between lh6 and 382 million Austrian Schillings. Past experience has shown that the absolute welfare cost figures have little meaning for the policy maker. Welfare costs of protection constituted only a small fraction of National Income. The values gained significance, however, when they were compared with the income transferred to producers due to the protective measure. The analysis indicated a considerably lower average welfare cost per unit of income transferred under the deficiency payment policy than under the current policy. The average welfare cost of saving one unit of foreign exchange was found to be the same for both policies. The study suggested that a marginal cost analysis of the two alternatives would result in the recommen- dation of a mix of both policy alternatives - a stage which Austria has been trying to leave during recent years. WELFARE COSTS OF ALTERNATIVE AGRICULTURAL POLICIES IN AUSTRIA By Werner Kiene A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Department of Agricultural Economics I97] ACKNOWLEDGMENT The author wishes to express sincere appreciation to Dr. Dale E. Hathaway for his help and encouragement as major professor and thesis advisor. The author is also grateful for the helpful suggestions . given by Professors Vernon L. Sorenson and Lester V. Manderscheid. Appreciation is expressed to the Department of Agricultural Economics at Michigan State University for the financial assistance provided and to those individuals and institutions which enabled the author to prepare this study. TABLE OF CONTENTS Page LIST OF TABLES LIST OF APPENDICES - CHAPTER I INTRODUCTION . . . . . . . . . . . . . . I Austria's Existing Policy and a Deficiency Payment Policy. . . . . . 2 A Short Review of Existing Studies on Cost of Protection. . . . . . . - “ Significance and Objectives of the Study. . . . . . . . . . . . . . . . II AUSTRIA'S AGRICULTURE . . . . . . . . . StrUCture O O O O O O O O O O O O PrOdUCt ion 0 O O O 0 O O O O O O O I [0&0me Consumption. . . . . . . . . . . . . l Agricultural Policy. . - . - . . - . ‘6 Post World War II History- . - - . 15 Existing Policy. . . . . . . . . . l8 Market Regulation. . . . . . . . . 2| Foreign Trade. .‘. . . . . . . . . 27 Ill ANALYTICAL FRAMEWORK. . . . . . . . . . 29 Partial Equilibrium. . . . . . . . . 29 Tariffs . . . . . . . . . . . . . . 30 Price and Quantity Quotations at Different Marketing Levels . . . . . 3| Consumers' Surplus and Producers' surplus. O O O O O O O O C 0 O O O O 32 CHAPTER ' IV A.) Welfare Cost of Protecting Domestic Production Through Indirect Price Support. i) One Import Good. Algebraic representation of welfare costs. . . . . . . . ii) More Than One Import Good. iii) Final and Intermediate Goods Determination of the net tariff on the final good . Effective tariff and the final and intermediate goods-model. . . . . . . . . B.) Welfare Cost of Protecting Domestic Production Through Direct Price Support. . . . . . One Import Good . . . . . More Than One Import Good . Final and Intermediate Goods. PROCEDURE AND RESULTS OF COST ESTIMATION Comparison of Costs Between the Two Policies. . . . . . . . . ' Domestic Production and Consumption Tariffs . . . . . . . . . . . . Price Elasticities of Supply and Demand. 0 O O O O O I O I O O O 0 Cost of Protection of Wheat, Rye, Sugar, Butter and Cheese. . . . . Cost of Protection of the Feed Grain-Livestock Sector. . . . . Page 33 33 35 37 no Ah AS A6 A6 A7 A7 #8 A9 50 52_ 53 56 CHAPTER i) The Livestock Sector . . ii) The Feed Grain Sector. . . Total Cost of Protection of All Commodities Under Consideration . Welfare Cost of Protection as Economic Indicator . . . . . . . . . . . . . . i) Welfare Cost of Protection and Income Transfer. ii) Welfare Cost of Protection and Exchange Saving. SUMMARY AND CONCLUSIONS . Problem . Methodology . . . . . . . . . . . . Results . . . . . . . . . . . . Conclusions . . . . . . . . . . . . BIBLIOGRAPHY . APPENDICES A 8 Cl C2 C3 Ch C5 C6 Conversion Rates Used . . . . . *Sources of Statistical Data . . . . . Sources of Statistical Data in Tables C2-Ch Coded According to Appendix B . . Quantities and Values of Production, Consumption and Trade . . . . . . . . Imports, Exports and Import Prices for Pork and Poultry. . . . . . . . . . . DOmestic and Import Prices. . . . . . Calculated Tariffs. . . . . . . . . . Marketing Margins and Price Ratios Between Marketing Levels. . . . . . Page 57 6I 62 63 .63 67 _70 70 7I 73 7t. 77 80 BI 83 8h 85 86 87 89 APPENDICES C7 C8 'C9 Price Elasticities of Supply. Price Elasticities of Demand. Cross Elasticities of Demand. Page 90 9I 92 Table IO ll l2. LIST OF TABLES Page Percentage distribution of holdings in agriculture and forestry according to soil utilization and size . . . . . . . . l0 Food consumption per head in Austria, selected years. . . . . . . . . . . . . . l3 Estimates of per capita national income, selected years, selected countries. . . . lh Funds used in accordance with the Green Plan. . . . . . . . . . . . . . . . 22 Costs of protection of wheat, rye, sugar, butter and cheese . . . . . . . . . . . . 5“ Price supports financed from the Federal budget. 0 O O O 0 O O O O O O O O O O O O 55 A Percentage of grains used for feeding . . 56 Calculation of share of feedgrain in costs of pork, poultry, eggs without tariff. . . . . . . . . . . . . . . . 58 Costs of protection of the feed grain- livestock sector. . . . . . . . . . . . . S9 Welfare costs of protection of all commodities under consideration . .‘. . . 62 Welfare costs of protection of all commodities under consideration as percentage of national income . . . . . . 63 Calculation of costs of protection as percentage of the change in producers' surplus due to protection or average wel- fare cost of income transfer to ‘ producers . . . . . . . . . . . ._. . . . 65 Figure LIST OF FIGURES Level of self-sufficiency of total agriculture . . . . . . . . . . . . . Level of self-sufficiency of agricul- tural commodities for l966-67 . . . . . Consumers' surplus and producers' surplus 0 O O O O I O O O O O O O O O 0 Cost of protection in a one import good mOde] O O O O O O O O O O O O O O O 0 Cost of protection in a final and inter- mediate good model. . . . . . . . . . Cost of protection under a deficiency payment system. . . . . . . Welfare cost and exchange saving. Page 19 20 32 3h no #6 67 CHAPTER I Introduction Over the past years Austria, like several other European countries, has been adapting her economic policies to the standards set by the European Economic Community with the ultimate goal of joining the "Inner Six” at some later date.I One of the main problem areas in this adaption process is agriculture and the necessary policy to guide Austria's agricul- ture through this process. Most attention has been given to structural improvements in order to create the physical conditions necessary for joining the Common Market. To assimilate to the EEC agricultural price policy, the Austrian Government decided to cut direct payments to farmers for food grains, milk and milk products, and fertilizers beginning with I967. Farm prices and surpluses, however, have dominated recent agricultural discussions in the European Communities Council of Ministers which indicate the evidence of some doubt regarding the existing Common Agricultural Policy.2 IErich P. Hochleitner, "Zwischenbilanz der Bemuehungen Oesterreichs um einen Vertrag mit der EWG," Oesterreichische Zeitschrift fuer Aussenpolitik, Vol. 7, Heft 575, I567, p. 773. 2European Community, March 1969, p. l5. In recent meetings EEC farmers' unions discussed possi- bilities of moving to direct payment schemes to support EEC agriculture.3 I A comparison of Austria's existing agricultural policy with other alternatives could suggest new directions, especially in a period when the chosen model (the EEC agricultural policy) might undergo some changes. Austria's Existing Policy and a Deficiency Payment Policy The existing“ policy is not uniform for all commodities, but is generally characterized by guaranteed or contracted producer and consumer prices above the world market level. The consumer prices of some commodities are reduced by subsidies paid at the wholesale level out of the Federal budget. Even with the subsidy the prices of these supported commodities are usually above world market level. Under a deficiency payment scheme prices are guaranteed to producers. Consumers purchase at world market prices, 3Personal communication with Dr. Klaus Lotz, Deutscher Bauernverband, German Farmers' Union, Bonn. I'IThis paper defines "existing" up to the present time, although there were changes in the agricultural policy due to gutséin the Federal Price support programs beginning wit 9 7. leaving the difference between the world price and the guaranteed price to be paid by the Government. The size of the deficiency payment thus depends on the development of the world market prices. Only this type of "pure" deficiency payment policy will be used in this analysis.5 Under the assumption of the political, social and ' economic necessity for some kind of public policy to raise the income of agricultural producers to a certain level of parity income one may define two opposing views -- price support by direct or by indirect payments. In evaluating these two positions, one faces essentially the problem of direct or indirect taxation. As indicated above, a compromise between these extreme views exists in the Austrian case. Although Austria's ~ policy has been moving to the extreme of indirect payments, it is interesting to observe recent research which suggests 6 the use of a mixed policy -- a stage which Austria has been trying to leave since I967. 5For an extensive treatment on deficiency payments, see Timothy E. Josling, The United Kin dom Grains A reement l 65): An Economic AnaLysis (East [ansing: Institute of nternatTonaT Angculture,T§67). 5Timothy Josling,"A Formal Approach to Agricultural Policy," Journal of A ricultural Economics, Vol. 20, (May. I96§l. pp. '75-I95. This paper tries to evaluate the two policies in terms of the difference in welfare costs between the two systems. The author is, however, aware that the cost factor is only a part of the set of variables used to judge a specific policy. A Short Review of Existing Studies on Cost of Protection One of the first major statistical examinations of the costs of protection was the Bridgen7 report undertaken in l929 to determine the excess cost of the Australian tariff. The difference between the market value of that part of output which was due to protection and the costs of import- ing an equivalent amount of goods was defined as excessive costs. Corden8 pointed out that Bridgen neglected the change in producers' surplus and the consumption costs of protection which leads to a distorted result. Another large scale investigation was done on the costs of protection of the Canadian tariff by Young in I957.9 7J. B. Bridgen, et. al., The Australian Tariff: An_ Economic In uir , 2nd ed., (MeTBUrne: ‘MeIEUrne—University Press, I§2§I. 8W. M. Corden, "The Calculation of the Cost of Protection," Economic Record, Vol. 33, (April, I957). pp. 29-51.. 9J. H. Young, Canadian Commercial Policy (Ottawa: Queen's Printers, l957l. He also neglected the change in producers' surplus and consumption costs by defining cash cost as the difference between the amount spent on purchasing commodities under the tariff and their value at free market prices. Based on ID ll work by Corden and Johnson, Oardis‘2 developed the approach which is used in several other publications'3 of hers. I“ research is the first empirical work on Josling's using the welfare cost of protection under different policy alternatives as an active policy test. loW. M. Corden, ”The Calculation of the Cost of Protection," Economic Records, Vol. 33 (April, I957). pp. 29-Sl. I'H. G. Johnson, "The Cost of Protection and the Scientific Tariff,” Journal of Political,gEconomx. Vol. 68 (August, I960), pp. 327-355 lzRachel Dardis, "The Welfare Cost of Agricultural Protection," (Unpublished Ph.D. Thesis, University of Minnesota, I965). This thesis gives further reference to research and empirical work done on costs of protection and has been published in a somewhat abridged form under the title: Measures of the Degree and Cost of Economic Protection on AgricUTture in SETected—Countries, USDA, Economic ResearCh Service, Techn. BUT. No. l384. '3Rachel Dardis, "The Welfare Cost of Grain Protection in the United Kingdom," Journal of Farm Economics, Vol. #9, (August, I967). PP. 597-609. Rachel Dardis, "Intermediate Goods and the Gain from Trade," Review of Economics and Statistics, (Nov., I967). Rachel Dardis, "Ifie Welfare Cost of Alternative Methods of Protecting Raw Wool in the United States," American Journal of Agricujtgral Economics, Vol. SI, (May, |§6§), pp. 363-3]9. I"'Timothy Josling, "A Formal Approach to Agricultural Policyé"lJournal'of Agric. Economics., Vol. 20, (May, I969), pp. - 95. Significance and Objectives of the Study Economic theory and research done in the past indicate that there is a significant difference in welfare cost in protecting agricultural commodities under different policy schemes. Political discussions on Austria's agricultural policy have included the argument of cost difference but no study is yet available pointing out the welfare cost of protection and comparing these costs under alternative policies. Several approaches have been suggested to get estimates on the cost of protection. The applicability of these approaches has to be justified in terms of their conformity with existing economic theory. The results obtained have to be evaluated in the framework of values and beliefs which are valid in the economic community under concern. The objectives of this thesis are: (I) To find a suitable analytical model to determine the welfare costs of agricultural protection; (2) To examine the welfare costs of protection under the existing price policy; (3) To project the welfare costs of protection under a deficiency payment system. Chapter II will give a more detailed description of Austria's agriculture and agricultural policy necessary to understand the situation under which the two policy alter- natives are analyzed. The analysis upon which the cost examination is based is outlined in Chapter III. It will be shown that one type of model can be used for determining the cost of protection under both alternatives. Eleven major agricultural commodities are chosen for an evaluation of the cost of protection in Chapter IV. The available data will be adjusted to fit the analytical model presented in the previous chapter. The welfare costs of these eleven commodities are estimated and compared under the two alternatives. The summary and conclusions are set forth in Chapter V. CHAPTER II Austria's Agriculture Structure The I968 estimate shows a total p0pulation of 7,350,000 on an area of 83,8h9 square kilometers (32,376 square miles.)] These figures make Austria comparable in size to the U.S. State of Maine, and in population to the State of New Jersey. ‘ As in other industrialized countries, the relative share of agriculture within the total economy is decreasing. The agricultural labor force, which was 32.3 percent of the total civilian employment in l95l, declined to l9.5 percent by I968. The relative share of the agricultural pOpulation in the total population dropped from 2l.9 percent to l6.h percent between l95l and l96l. The contribution of agricul- ture and forestry to the gross national product was I0.5- percent in I959 and 7.6 percent in I967. Between I950 and I965 the number of farms decreased by l0 percent from h33,000 to 379.700. The nature of the age structure of the agri- cultural population indicates further changes for the future. ILand-und Forstwirtschoftliche Landes-Buchfuehrungs- Gesellschaft m.b.H. Oesterreichisches Agrar - Handbuch (Vienna: L B G, I964I7‘ET‘T7. "' About 5.h percent of perSons employed in agriculture are over 65 years of age. Thirty-four percent are older than 50. Among farm owners, I3.6 percent are over 65 and 25 percent are between 35 and 65 years of age. Due to internal and external conditions influencing' the Operation of the holding, about l26,000 mountain farms are classified in the Austrian mountain farm register. Only efficient cattle production, forestry and tourism will keep those farms on a competitive level. Table I shows the distribution of farms according to their sizes and soil utilization. Rows (L) and (M) Indicate that 5I.l percent of all farms are smaller than 7 hectares, but only 6.2 percent of them constitute the sole source of income for their owners. About #9 percent of all Austrian farms are operated on a part-time basis. Tourism plays an important role for part-time operation, mainly in moutain areas . Production Oceanic west weather on the northern side of the Alps, continental and Mediterranean climate in the east and in the south, variations in altitude and soil conditions influence agricultural production. These conditions and traditional structural conditions have been mainly responsible for Austria's diversified production pattern. ~6th DEN CO~UNN~ ~03 -0W 09 mC-ULOUUO >LUWUL°$ DEN ULJU—JU—me C. mmcuU-oz K0 c0~030~LUW~U U NUCUULUQ I~ Nucml .Aoozamcmooe_zv .mmm. .LonEOuaom .mmcum:< .mcco_> .mucooaum .mcau_:u_cm< mo :o_um_00mm< .mco_umccouc_ ecu mo mmocmcoa zuc— ocu um coucomoca Lo mm .:L:uxacumLmLm< mnem_:owoLcoumoo o_o: .LocuuDELUw ;o_Lpo_Lu "00L30m .co_umcmao oE_uI__:m moumu_pc_ mo_cmpc:on ecu c_;u_3 moem och l0 «Tom - - o._ m.~ m.m. «.m, o.~. _.m N._ ..N mn~ oooooooo oszo __:L‘.z - o.oo_ :.o 0.. m.~ m.m :.m m.m_ .m.m m.m _..~ ~._~ .noop opton3< .4 - o.m_ - - - - - - - - - o.m_ nooeoo .x m.o m.o - - - - - - . - - ~.o ~.o - noo=o_oo _o_ooom .o :.m o.m - - - - -— _.o _.o ~.o m.o ~.~ oc_z ._ o.~ k.~ - - _.o, m.o noooo-oc_3 .1 m.m m.m .. :.o o._ oc_3-ooooo .o m.~_ m.m_ - m.~ m.m o.~ , m.~ m.m - noooo .L _._. o.k_. - - N.o o._ o.~ _.m :.~ N.N _.: - nnooo-moooo .w m.~_ o._~ m.o o.o o._ N.~ m.~ m.m m._ _.N ~.o - nnoto .o N._ N.~ - - _.o o.o m.o . ~.o m.o - nonoooe-noooo .o N.N m.m - N.o o.o m.o - o._ m._ o.o k.o - _ nonoooe-onooo .m o.o o.m _.o ~.o ~.o ~.o _Im.o I “.0 m.o 4.0 _._ - >.co nonooou .< no...” no...” e e m - w... m a n .m N. os_o o_oo oo~ oo. .om om oN o. A m N oo o __:u Imzn m; cw onvm Eco», m~_m vcm co_umN_ .u: __0m cu mc_oeouom >LummL0m new menu—:u_cmm c. mmc_o_o: mo co_u:n_cum_v o mucouLom ._ o_th II The need for rationalization and simplification of agricultural production has resulted in a trend to adapt production by region, farm type and farm size. This led to a concentration of crop production, pig production and cattle fattening in the lowland and to milk production and cattle breeding in mountain areas.2 Farms in the plains and hilly regions produce over 90 percent of the nation's . crop output. Mountain farms account for one-third of total animal production. There is a positive correlation between increasing farm size and the shift of production from milk, rye and potatoes to wheat. Livestock products. account for about 75 percent of total sales value and crops account for 25 percent. Farm produced cr0psincfluded, however, a considerable share of feeding stuffs for live- stock and their share in total sales value underestimates their importance in the production pattern. Mechanization and rationalization have resulted in a steady increase in volume of both crops and livestock products. Table C2 in Appendix C shows the trends in the production. of bread grain, coarse grain, meat, eggs, milk, milk prodUcts ZOECD, Agricultural Policies In I966, (Paris: osco, 1967), p. IAT. I2 and sugar beets. Production has been fairly stable for rye, oats, veal and sugar beets, but has been increasing for wheat, barley, beef, pork, poultry, eggs, milk and milk products. Consumption The increase in income has resulted in a significant change in the food consumption pattern. Table 2 shows the per capita consumption of major agricultural products. Table 3 indicates that per capita national income has increased from US$588 in I958 to US$I033 in I966 or by 77 percent. (Federal Republic of Germany 8I percent, Switzerland 72 percent, U.S. #9 percent for the same time period). Changes in the size of the population had minor effects on total consumption since population increased only by h.3 percent between I958 and I966. (Federal Republic of Germany I0.h percent, Switzerland l5.h percent, U.S. l2.6 percent for the same time period). Whggtiggg.;1_:3 Due to the high consumption of dark bread in Austria, rye is considered as a bread grain. For ‘ 3OECD, Food Consumption and Agricultural Production in Austria, (Paris: OECD, I969). I3 .o_ .o .no_ooh .. .meam mo women on» c_ ommocucm poumamu_ucm mo mmamuon mommzocaa ommLOum 0» one ocam_m ;m_:n m U OLLOHM” cLoEmemummzomuc_3ocm4 Loo neocomcoxcoucob_momcm Loo usufiLm “ouLJOmm o.m~ o.on o.m~ _.om ~.mm _.m__ mooomooo om.m: m.mm N.oo m.om m.mm m.“ Como. _.: m.m o.m o.m n.~ ~.o onoozu ~.m m.m :.m m.m _.: m.~ Looooo n.mm_ o.mm_ o.o:_ _._:_ m.:m_ m.m~ x "E .o.:_ ~.:_ m.:_ ~.:_ _.m m.~ m mo. m.mo m.oo m.:o «.mm m.n: ~.m_ .mooo ones ~.n M.“ m.m m.m 0.. m.o >Lu_:oa 5.0m m.mm m.mm m.mm m.o~ m.“ xcoa _.m o.~ m.~ o.m m.m m._ .mo> m.m_ v.0. w.m_ m.:_ m.~_ w.m moon o.km A.mm m.om m._m “.mo_ _.o~_ Loo_c oco ooooo L>\m¥ mo\uom_ ~o\oom_ oo\mom_ mw\:om_ om\mmm_ m:\~:m_ III II N omemo> venom—om .mmcum=< c. boo: Loo cowuassmcoo boom .N o—nmh Table 3. Estimates of per capita national l4 income, selected years, selected countries Percentage change I958 I963 I965 I966 between I958 and I966 UT Dollars Austria 588 83l 962 I033 77 Fed. Rep. of Germany 838 l259 Ih55 I5I8 8I Switzerland Il95 I677 I929 2056 72 U. S. le5 2562 29IO 3l53 R9 Source: UN, Yearbook of National l96z, ew or 9 Income Accounts Statistics l5 both wheat and rye, there was a fast decline in per capita consumption up to I96l/62. Consumption has stablized some- what in recent years. Total consumption of bread grains in I96I/62-I963/6h was 93 kg. per capita. (83 kg. in Switzerland, 73 kg. in Germany, 5h kg. in the U.S.) This consumer behavior explains the exceptional position of food grain in Austria's agricultural policy. . Eggg'ggglg: Induced by the increasing consumption of meat, an increase in the derived demand for feed grain has occurred. The inter-dependence between feed grain and meat consumption has been taken into account in the following chapters. Meat: Meat consumption per head in Austria in I96l/62- I963/6h was 62 kg. and was increasing. .The level of pork consumption is the highest in western Europe. This may be explained by price advantages relative to other types of meat, and by traditional consumption habits. £395: Egg consumption has increased from 8.l kg. per capita In l955/56 to I2.5 kg. in l96l/62-l963/6h. Here, too, the interdependence with the consumption of feed grain has been accounted for in the following analysis. my: LOB. milk products: There was a considerable decrease from l6h.6 kg. per capita in I955/56 to l35.7 kg. per capita in I966/67 in the consumption of fluid milk.' I I6 Consumption of butter decreased in the mid-fifties, but since then has been rising again. Cheese and condensed‘ milk have taken an upward trend due to their positive income elasticities. S2325; Consumption of sugar has risen steadily over the past years up to 36.I kg. per capita in I96I/62-I963/6h. Further information on consumption is listed in Table 2. Agricultural Policy Egg; World War II history: Low yields in the post war period and excessive demand for foods resulted in the Price Regulation Law (Preisregelungsgesetz) of l9h5 and in the Food Administration Law (Lebensmittelbewirtschaftungsgesetz) of I9h7.“ These laws have been modified several times in order to stabilize prices and to guarantee effective dis- tribution as well as increased production of food. Economic policies up to I950 were in Austria more ”consumer oriented" than comparable measures in Germany, which were rather "investment oriented."5 “Getreideausgleichsfonds, Handbuch der Oesterreichischen. Getreidewirtschaft, (Vienna: I967). P. I7I. 5F. W. Buechel, ”Westdeutsche Und Oesterr. Agrar- preispolitik seit Ende des Zweiten Weltkrieges," Berichte ueber Landwirtschaft, (Hamburg-Berlin: Parey-Verlag, I960) pp. - - I7 The European Recovery Program (Marshall Plan), starting in l9h8, and the general increase of overseas supply and increased domestic production eased the tense food situation and the Austrian agricultural policy turned towards explicit protection of domestic production. Most sections of the Food Administration Law of I9h7 expired in I950. To cope with the improved domestic and foreign supply, the three Marketing Laws for grain, milk and livestock I (Getreidewirtschaftsgesetz Milchwirtschaftsgesetz, Viehverkehrsgesetz) were passed in I950 establishing Marketing Boards for each of the three main commodity groups. (The crucial supply conditions due to the Korean War led to a reactivation of the Food Administration Law in I952). The three Marketing Laws were renewed in I956 (Verkehrs- gesetze I956) and finally unified into the Marketing Order Law (Marktordnunsgesetz) of I958. In spite of the regulations specified in this law and executed by the Marketing Boards, the disparity in income between the agricultural and non-agricultural sector has been increasing and led to the Agricultural Act (Landwirtschafts- gesetz) of I960.6 5EFTA, Agriculture in EFTA, (Geneva: EFTA, I965). I8 Existing Policy: The Agricultural Act of I960 was the ideological basis for Austria's agricultural policies in the sixties and defines the following aims: (a) To maintain the agricultural population in a sound economic condition and to ensure that it participates in the development of the national economy. (b) To improve productivity and competitiveness, especially by structural measures. (c) To improve the standard of living of those engaged in agriculture and to ensure the best possible food supplies considering the whole economy and interests of consumers. (d) In realizing this Act, mountain farmers ought to be given special attention. These aims suggest implicitly the policy of a rather high level of self-sufficiency which, however, is not the explicit aim of the Agricultural Act. Figures l and 2 show the level of self-sufficiency of Austria's agriculture. The Agricultural Act orders that a "Green Report" on the situation of Austria's agriculture is to be submitted to the cabinet by September I5th of each year. On the basis of this report, the Cabinet gives its "Green Plan" tolthe Parliament (Nationalrat) by October ISth of the same year. The "Green Plan" deals mainly with the "basis of production," research, advisory work, re-afforestation, better breeding of plants and animals and with the "structural improvements" heaching optimum farm sizes, land consolidation, regional development). I9 __ \\\‘ INNER ‘I\\\\\ .I\\\ \ I\\\\\ [9/59 59/65 6S/SS atlas Level of self-sufficiency of total agriculture Figure l. Bericht ueber die Lage der oesterreichischen Landwirtschaft I968, BMFL, Vienna l969. Source: IZO IOO COO «3041' O NO RLIIO alqenaBaA I\\\\ \\\\\\\ -\\ \\ sngan usan \\\ \\\ xJod I\ . \\\\ N \ salqenaBaA qSSJJ suIeJfipean \\\\\In.. .....5..... \\\\ IZO IOO ”\OJN \\\\\\ \\\\\: L\\\\\ \\\\\\ \\\\\\S 20 Level of self-sufficiency of agricultural commodities for I966-67 Figure 2. Bericht ueber die Lage der oesterreichischen Landwirtschaft I968, BMFL, Vienna l969. Source: 2I The programs specified by the ”Green Plan” are financed from special items of the Federal Budget (Kapitel l9 Titel 8, 8 a-c and ID; 6OI and 603, respectively). Table 5 indicates that the largest portion of these funds is spent on improve-I ment of production, improvement of structure and credits. In addition to the funds provided under the "Green Plan" about #60 million AS (Austrian Schillings) are spent annually by the Provincial governments on programs in connection with the "Green Plan". Market Regulation: Prices and quantities of several agricultural commodities are regulated mainly under the authority of the Food Administration Law of I952, the Price Regulation Law of I957. the Market Order Law of I958 and the Agricultural Act of I960. The agricultural policy and resultingprices and quantities are discussed on the basis of annual results from I980 representative bookkeeping farms. The regulatory programs for the main commodities are executed by the Grain Marketing Board (Getreideausgleichsfonds), Milk Marketing Board (Milchwirtschaftsfonds) and Livestock I Marketing Board (Viehverkehrsfonds), respectively.7 Thus, two-thirds of the agricultural production is under the control of the three marketing boards. 7BMFLF, Taetigkeitsbericht I961, (Vienna: BMFLF, 22 :o.oom= I m< :onmo ummzomuc_3bcm4 Locom_;u_occoumoo Loo mama one Leno: u;u_com "00L30m me.mmm oo.~m~ Ao.:mm o:.~m~ mm.omo oo.mmm .oooe oe.o me.o um.o mn.m o~.m mm.o oo_e_oooneo ~m.mk_ __.~m_ mo.oo_ oo.~__ om._o_ m~.m~ noeonooz _no_o__oo-o_ooeo mm.oo oo.mm oo.~m Nm.m~ oo.m~ o_.o~ noeonooz .mo_u__oau_m_u0m mo.~m m:.mk o~.mm mm.m__ m_.~__ mo._o_ noeonooz .onoon_o new mc_uoxcmz mm.omm mm.e_m km.okm me.-m mm.ek~ m_._m~ oeooooeow mo ucoEo>oLaE_ .m.mo~ mm.me_ em.mm_ em.oo_ mk.mo_ om.mm_ :o_oo:oooo co m_mmm mo ucoEo>oLQE_ .mnmc~e__eom co_eono< Lo _ez, mom. mom. mom. :om. mom. Nom_. E cm_m coocu ozu ;u_3 oucmbcouum c_ pom: mbcau .: o_nmb 23 Producer and consumer prices for food grains, milling products, sugar, milk, butten special kinds of cheese and import and consumer prices for grains and eggs are determined through decisions by the Price Commission according to the law on price regulations after they have been discussed by the Chambers of Commerce, Labor and Agriculture and representatives of the responsible Ministers.8 Prices for milk and bread grains are pooled and all producers receive the same prices regardless of their location. The prices of other major agricultural inputs and products are discussed -- like most non-agricultural commodities -- by the Parity Commission on Price and Wage questions. The prices for those commodities, however, are not directly fixed. Biggg grains: Since I953 the actual guaranteed producer price of I00 kg. wheat has been AS 2A9. The guaranteed producer base price for IOO kg. rye has been AS 230. These prices would lead to prices for flour and bread considered too high for the consumer. Therefore, the Government pays a subsidy out of the federal budget to cover a part of these prices. By January I, I967, the subsidy for I00 kg. wheat has been cut from A5 52 to AS I7 and for rye from 8ozco, Agricultural Policies in I966, (Paris: osco, I967). p. IAS. 2h AS 55 to AS 20. The base prices for bread grains (guaranteed producer price minus the fixed subsidy) is differentiated monthly in such a way that they are lowest in July and highest from March to June of the foflowing year. The producer price for quality wheat and durum-wheat has been fixed at a higher level in order to stimulate production (AS 257 and AS 308, respectively for IOO kg. in I967). Other programs of the Cereal Marketing Board include a "Storage Action” in order to reduce the effects on the market caused by the seasonal production of grain. Depot holders whose stocks exceed their normal level are reimbursed for the cost of interest, storage losses and storage costs. A transport equalization program enables a uniform price to be paid to all producers. 599g grains: By an increase of the import delivery price (Inport abgabe-bzw. Grosshandelseinstellpreis), comparable to the EEC threshold price, in l96h and I966 domestic production of feed grains has been stimulated; mainly because the higher prices for feed grain have narrowed the price difference between wheat and barley. Thus, the necessity of an import subsidy for imported feed grains has been changed into the necessity for a levy on imported feed grains in I967 due to the increased domestic price. The receipts obtained from the levy are used directly for the 25 equalization of transport costs, denaturation of wheat, promotion of sales of animal products, aid programs for mountain farms and purchase of governmental grain reserves. M_i_'_l_k and ELLIS products: Producer prices are uniform throughout the country. The guided price is composed of the basic price and of the price per fat unit and was AS 227 for IOO liters, 3.2 percent fat in I967. Increases in the producer prices for milk in the past have been distributed to various degrees on the consumer prices of the end products. Eachof the AAI dairy enterprises has a regulated supply and delivery area. In order to equalize transportation costs, the Milk Marketing Board collects a compensatory levy from the dairy enterprises which is then redistributed according to production and processing conditions. Due to a low margin between producer and consumer prices, the Milk Marketing Board operates with a deficit which is made up by government payments and a levy imposed on imported dairy products. Export of the surplus production is possible only by a subsidy financed from various sources (crisis fund, fund for market relief) out of consumer and producer prices. The fact that milk is the main source of income for mountain farms is held as the leading argument for support of the milk price. 26 Livestock Egg mggg: The market for slaughter cattle, veal, pigs, and horses is administered by the Livestock Marketing Board by means of direct and indirect measures. Direct regulation is executed by a variable levy in order to equalize the domestic-foreign price difference. Import quotas are offered on the basis of an import plan and are granted to the lowest bidder. Importers pledge to deliver the livestock at a certain date. To operate on a basis of indirect regulation a ”price-band" (Preisband, comparable to EEC "Orientation Prices") is defined which limits the highest and lowest acceptable price. In case of too low prices, the Livestock Marketing Board may request private enterprises to purchase and feed or store livestock or meat in order to reduce excess supply. If prices are high, the request for resale and imports alleviates an excess demand situation and forces the price back within the limits of the "price-band." Though this system of indirect price regulation is limited by the capacity of storage facilities, it has had a valuable effect on the stabilization of prices.9 The Livestock Marketing Board does not buy meat or livestock, but refunds storage costs for chilled meat using the receipts 9Getreideausgleichsfonds, Handbuch der Oesterreichischen Getreidewirtschaft, (Vienna: I967). 27 of the import levy. Up to August I967 sugar beet producing farms and agricultural distilleries in the lowlands could be required to take in cattle from mountain farms to fatten them. Sgggg: Prices are determined by the Ministries and Chambers of Commerce, Labor and Agriculture. The producers' association and the sugar beet processing industry negotiate annually a quota which is distributed among farmers according to individual basic quotas. lgppgp agricultural policy programs: The market for horticultural products is regulated by a four-phase system according to the seasonal domestic supply conditions. Promotion programs for wine are quality oriented. Besides the measures already discussed which directly or indirectly affect input costs, special support programs for fertilizers and fuel oils are in existence. Transpor- tation of straw from surplus (IOwland) to deficit (mountain) areas and transportation of domestically produced feed grains is subsidized. Consumer information programs and a school milk program are financed to increase domestic consumption of farm products. II Foreign trade: Agricultural, forestry and food products llC. E. A. Salzburg, Oesterreichs Land und Forstwirtschaft (Vienna: Oesterreichischer AgrarvefTag, I968), pp. - . 28 contributed l2.8 percent to Austria's exports and l5.h percent to imports in I966. Seventy-two percent of the agricultural exports are exported to the EEC, nineteen per- cent to EFTA countries and nine percent to other countries. The levy regulations applied by the EEC countries since I967 make exports of agricultural commodities into the EEC increasingly difficult and threaten to reduce Austria's share of cattle and beef exports into Germany and Italy. Due to Austria's geographical location, most imports of hogs, beef, veal, poultry, and eggs are from Eastern Europe. In I966, sixty-nine percent of livestock and meat imports originated from Eastern Europe, seventeen percent from EFTA and six percent from EEC. Most of the imports of vegetables, fruits, and feed grains, however, come from the EEC. CHAPTER III Analytical Frameworkl Partial Equilibrium In spite of the limitations of the partial equilibrium approach in international trade a partial equilibrium model has been used to determine the welfare costs of protecting selected commodities. This approach is justified under the assumption that the indirect effects of removing the protection are negligible. The assumption holds in the Austrian case since: I. The commodities under concern constitute a relatively small part of the tOtal economy. 2. The commodities have low domestic demand and supply elasticities. The introduction or elimination of tariffs will therefore result in small changes in the volume of trade. 3. The country's foreign trade in the selected commodities fist a relatively unimportant part of the world market which results in a perfectly elastic world market as far as the country is' concerned. lFor most of the methodology used in estimating the costs of protection, I am in debt to the procedure devised by Rachel Dardis in her thesis on this subject: Rachel Dardis, "The Welfare Cost of Agricultural Protection," (Unpublished Ph.D. thesis, University of Minnesota, I965). 29 30 A. Most of the effects not considered by the partial equilibrium model will appear in the results of both policy systems under discussion and can be disregarded in a comparison of the two systems. Thus, changes in total employment, changes in the terms of trade and balance of payments and changes in the prices of non-agricultural commodities can be neglected. Tariffs Domestic and world market prices have been compared in order to determine the welfare costs of protection under the two policy systems. Since the nominal tariff rate is not an adequate measure of protection, Harberger's2 equivilent tariff concept has been employed. Let P - domestic price P0 a world market price. The percentage tariff “U" is the price difference between domestic price and world market price in percent of the domestic price and ueitgi’lioo The ad valorem tariff "T" indicates the price difference between the domestic and world market as a percentage of the 2Harberger, A. C., ”Using the Resources at Hand More Effectively,” American Economic Review, Vol. #9, I959. PP. I3h-lh6. 3l world market price. Thus, T P-P° po IOO. The tariffs are related to each other by the equation U l00 The term tariff alone is used in this paper solely to indicate a price difference between domestic and world market prices due to any kind of protection. Thus, the term tariff stands here for the expression "P-Po" and is analogous to the specific tariff. Price and Quantity Quotations at Different Marketing Levels The application of a partial equilibrium model assumes a uniform price level on the demand and supply side. To find the equilibrium at the same price level, all prices were compared at the wholesale level. Furthermore, it is assumed that there are no changes in the quantity of the godd as it is moved from the farm to the retail level. Due to the lack of Austrian data on transportation rates and makreting margins, it was assumed that the c.i.f. import prices free Austrian border were comparable with domestic wholesale prices. 32 Consumers' Surplus and Producers' Surplus Since the concept of welfare cost is based on the existence of producers' surplus and consumers' surplus it is necessaryj to explain first these two terms. Q/Ut Figure 3. Consumers' Surplus and Producers' Surplus Marshall3 and others have shown that a consumer consuming at Oz in Figure 3 gains total satisfaction amounting to the area (I + 2 +~3 + A + 5). At the prevailing price, however, he pays only the area (3 + A + 5) for the amount Q2 purchased. They define the excess area of unpaid satisfaction -- area (I + 2) -- as consumers' surplus. It is the amount above the price Pe actually paid that the consumer would be willing to pay for a given amount of a commodity rather than go without It. 3Alfred Marshall, Principles of Economics (9th ed., Longon: Macmillan and C0.,*ETmitedT'l96l)} p. IZH and p. O 33 At price Pe area (3) must be regarded as producers' sur- plus or rent since any producer producing to the left of ‘ Q] will be able to charge (under the assumption of compe- tition) the full price diough operating at much lower total expenses-~area (A). (Assume that S is the summation of the individual firms' marginal cost curves.) Equipped with the concept of tariffs and of producers'-- and consumers' surplus it is now possible to proceed in the analysis of welfare costs of protection. To simplify the analytical approach it is assumed that protection of domestic agricultural production occurs by means of either indirect or direct price support policies. Import quotas, however, are neglected in this study although the models presented below explain quotas as well as tariffs. £2) Welfare Cost of Protecting Domestic Production Through *Tndirect Price Support Under this policy a levy is charged on imports enabling domestic producers to sell their products above the world market price. 0n the other side the levy forces consumers to consume domestically produced as well as imported commodities at prices above world market prices. l) One Import Good 3A Q/Ut Figure A. Cost of protection in a one import good model In figure A linear demand and supply function approximate the shape of s . v Illlllllll (R+Cp+G-CC ) I the true functions. Let EIMC; - domestic supply curve Hicks Compensating Demand Curve World supply curve World market price Domestic producer price .m a price difference due to protection Change in producers' surplus or rent Tariff revenue Change in consumers' surplus. Since all available data are "post-protection-data” it seems useful to calculate the cost of protection in terms of the gain obtained from eliminating protection; thus necessitating the use of the percentage tariff as a measure of the height of the tariff. 35 The elimination of the tariff "m“ causes a reduction of producers' surplus of (R), a loss of the tariff revenue (G) and a gain in consumers' surplus of (R+Cp+G+Cc). Comparing gains and losses indicates the cost of ptotection which is represented by the area of the two triangles Cp and Cc where Cp a production cost of protection and Cc - consumption cost of protection. Thus C - Cp + Cc = total cost of protection. (I) Algebraic Representation pf Welfare Eggpg I To find numerical values for Cp and Cc demand-and-supply- price elasticities have to be employed. cp- l/2mdS -_- l/2mgg'. dP- l/2 m2n Q2 leads to ‘p- cp - l/2 t2 n v; where (2) n - elasticity of supply at price (P) I-I- ll percentage tariff "? m - dP - price difference due to protection Vt - value of domestic production under protection . QZP The calculation of the consumption cost (Cc) needs more elaboration. cc - l/2 mdD - l/2 m (-53) dP - l/2 mzk (3) where k a egg is Slutsky substitution term which is expanded according to the Slutsky substitution 36 theorem.“ Thus, - - D - 30 a D - a ' -1—-' k 3.7 ST D e P y Y Pz 12 SP ol‘u where e a price elasticity of demand - - Y income elasticity 2&2 D Y ' BY Y - personal income V2 - value of domestic consumption under protection - Q3P . Now t Vt cc - l/2 t2Vc(e-y .5.). (A) Since the prOportion of income spent on agricultural commodities is relatively small, the expression y.!é can be neglected leading to the final equation for consumption cost of protection such that Cc - l/2 tzeVE (5) The total welfare cost of protection expressed in numerical values is therefore c - cp + cc e l/2t2n v; + I/2 t2 avg (6) The result indicates that the costs of protection vary proportionally with the elasticities and the height of the tariff. - Anicks J. R., Value and Capital (Oxford University Press, ZHd ed., ‘9L6)9 PP- - ‘ 37 ii) More Than One Import Good To determine the welfare costs of protecting more than one good, the model outlined above is extended so as to take care of the influence of cross-elasticities on the demand and supply functions. Equations 8 and ID yield production and consumption cost of protection, respectively. Equation ll determines the total welfare cost of protecting n substitutable goods. number of protected goods under consideration 3 ll l.2. . . .n P; - domestic price of the protected good dPi . mi - change in price of good i when protection-is . removed Y - personal income 0; = f(P1P2 . . . Pn, Y) = domestic consumption under protection S- - g(P]P2 . . . Pn) = domestic production under protection Cpi a production cost of protecting good i Cci a consumption cost of protection of good i C - total cost of protection of n goods These costs are estimated by the summation of the individual. costs of production and consumption. 38 Cpi - l/2 dSim; CCI - l/2 dDim; when the change in S; and D; (i.e., dS; and d0;) is caused by the change in prices of all commodities under question (l,2,...n). Thus dS- dS- dSi I i a-P—L de ‘ i --—-----I mj c Letting 33'. a hij (j=l,2 ...n) we obtain dSi .5 hi jjm de j-l Substitution in Cpi leads to 9. ds‘ jg] de j.‘ The summation of the individual costs of production yields n ég; n dS: ZCpI-I/z 2'. dP-dP.I/2é. fin mm . . . de j j I-I I-l j=l is] j-l In order to be able to utilize given parameters such as . nij a cross elasticity of supply -.aF_. .;l and t: - percentage tariff of good i - 3"; Pi vgi - value of domestic production of good i under protection - SiP:,equation 7 is transformed into ‘2. Op: - 1/2 E. E; titjni .vt i-l i-l jal '1 Pi (7) (8) 39 Similar steps lead to a useful equation of the summation of the individual costs of consumption: dD- n dDo dDi-é -;de=£-—mj-ékijjm j'l de jfll . de j.) where dDi kij = -'3p; a Slutsky substitution term. Substitution in Cc; leads to: Cc. = I/2 ég: - -—3- mjmi - I/2 lg; kij mj mi. i=1 j-I Thus é; " ii” é. a". Cc =- 1/2 E. E.” d PjPi = 1/2 k° - mimj (9) i-I j-l dPJ’ i-l j-l Using the Slutsky substitution theorem for kijs and the fact that a relatively small fraction of theincome is spent on agricultural goods, it follows that: n n aCc - 1/25, a. t't eiJ-Vcl: . (IO) i-l ial jal j Total welfare cost of protecting more than one good equals‘ Vpi «I» l/2 E- a. titjeiJ-Vcliz, (ll) C-l/Za—é—t3tjni- ial jal i-I j-l J 5For a more detail derivation see Dardis' Thesis. A0 The total costs of protection of substitutable goods derived by means of formula II are lower than if the total costs of the individual commodities had been summed up. iii) Final and Intermediate Goods The following model has been used in the grain-livestock sector since the simple addition of the individual costs of these two sectors would over-estimate the costs of protection by double counting. It is assumed that the intermediate good is used predominately in one final industry. j - final good i 2 intermediate good P j 32’ 5. P; 3 Pi I r p n h AI 3 P mi 5 l E I\ .o o " PJ ’ Pl 0 . s...- c D. Qi/U‘ “i A at. W I] I. q T) Q: c, Q! “A Figure 5. Cost of protection in a final and intermediate good model The shaded Pj° Pj” mc QI Q5 Al areas in Figure 5 indicate the costs of protection. Price of Final good without protection. Price of final good with protection of final good only. Price of final good with protection of both goods. Price of intermediate good without protection. Price of intermediate good with protection. Net tariff on final good only (due to protection of final good) Hypothetical compensatory tariff on final good due to tariff on intermediate good. Gross tariff on final good due to tariff on both goods. Tariff on intermediate good. Demand curve on final good. Supply curve on final good. Supply curve of final good after tariff on inter- mediate good has been imposed. Demand curve of intermediate good. Demand curve of intermediate good due to the compensatory tariff on the final good. and Q6 is initial production of j and i. and Q9 is initial consumption of j and i To facilitate the explanation of the “More Than One Import Good" model the cost of protection is calculated here directly and not in terms of gains from eliminating the protection. Both methods lead to the same result. A2 As shown in the ”One Import Good” model it follows that the costs of protection due to the tariff m are C? where n C = I/2 mn dS- + l/2 m J an = M- + R- (12) n J J n I Now the intermediate good is protected by mi. This will cause an increase of domestic production of i, but will lead to a reduction of demand of i due to the increased price. Since marginal costs have been increased, a shift of the supply curve of the final good to the left follows. This would cause a shift of the equilibrium position back to the intersection of ijwith Sjt and a change in producers' surplus. Changes in producers' surplus, however, in j are equivilent to profit changes in i. Since only one of these changes should be estimated, a hypothetical compensatory tariff me is added to hold producers' surplus constant in j. The c0mpensatory tariff mc is added so as to keep production at Q2 which is the same level of output of the final good as was reached by the imposition of the original ~net tariff. This raises the price level of the final good, but also the VMP of the intermediate good and, thus, shifts the demand curve of the intermediate good to the right until consumption of i is at the initial level Q9, however, at a higher price. Since production of j at Pj” and at Pj is the same, it follows that the demand for i is the same under 0; and Die, if no substitution has occurred. A3 The increase of the price level of the final good due to the compensatory tariff mc does not create any producers' surplus in the final good sector since production occurs now on a higher supply curve. There is, however, an increase in total revenue in producing the final good due to the higher price Pj. As in the ”One-Import Good” model, the costs of the tariff mc on the final good are C + D. Since: change in total producer's revenue = (A) plus change in tariff revenue - +(B-D) minus change in consumer's surplus . -(A+B+C) E = C+D or algebraically C? a ch(mn+I/2mc) (l3) Similar considerations hold for the intermediate good yields C sector where the costs of the tariff m; are Mi- Since: change in producers' surplus = (E) plus change in tariff revenue 2 +(F+G+H) minus change in total consumer's I outlays a - (E+M; + F+G+H) yields C? = Mi or algebraically C? = l/2 midSi. (IA) Summing up equations l2, l3 and IA, the total costs of protecting both industries are represented by Ct - Mj+C+D+Rj+M3 or algebraically (3t 3 I/Zmndsj + l/2mdij+l/2m;dsi where (l5) AA Mj = l/2mnde = net production costs of protecting the final good sector C+D+Rj = l/2mdij a gross consumption costs of proteCting the final good sector Mi = l/2midSi = gross production costs of protecting the intermediate good sector. Equation l5 can now easily be expressed in terms of elasticities as shown in equations 6 and Il Determination of the Net Tariff on the Final Good The net tariff which is necessary for the estimation of net production costs of protecting the final good can be calculated as mn = mj - mc. This approach necessitates the derivation of mc- Under the assumption of fixed coefficients of production and taking aij as the amount of intermediate good in producing one unit of the final goOd, it follows that me I aijml- Thus mn=mj -a;jm;. I (I6) Dardis points out that since there is some substitution in the intermediate good sector, me is overestimated. Thus, is underestimated due to the equation m = m- - m and an m n j c n underestimation of the net production costs follows. A more accurate estimate for me has been derived by Dardis, such that 211.291 . __.I_ = lLL—J. where 9"; 3P; anj '1in A5 0?] a compensatory tariff on final good 2P; = tariff on intermediate good nj = price elasticity of supply for final good nj; a price cross elasticity of supply for final and intermediate good ”jiPJ’ Thus, mC = :75?— - m. and J l'l.i Pj (l) mn = mJ - 3+P7_-'° mI 7 It is obvious that only a good estimate of the elasticities will yield a reliable estimate for mn in equation (l7). Effective Tariff and the Final and Intermediate Goods-Model The concept of effective protection has been applied in recent research also to the measurement of the cost of 6 protection . The cost of protection is approximated by the formula aw .. I/2 (9J3 EJ- v; + t} ej vg) where (I8) AW a change in welfare, gJ- = effective tariff on j, Ej a elasticity of supply of value added (Ej = vjnj, where vj a value added, nj = supply price elasticity for j), tj a percentage tariff on j, v; a value of domestic production under 6H. G. Johnson, “The Theory of Effective Protection and Preferences,” Economica, Vol. 36, May I969, pp. lI9-l37. A6 protection, v: = value of domestic consumption under protection. It seems that Johnson does not treat pppp sectors completely. Formula l8 does not include the production costs of protection of the intermediate sector. The deriva- tion of equation l5 , however, suggests that the area Mi = (gross production costs of protecting the intermediate good sector) has to be added to the welfare costs of protection of both sectors. B) Welfare Cost of Protecting Domestic Production Through ’DTrectTPrTce Support This policy guarantees a certain price to domestic producers above the world market price financed directly by means of a deficiency payment from the governments annual budget. Consumers continue to consume at world market prices. Since the model outlined above applies to both indirect and direct protection only a short description follows below. One Import Good P po p Ix ‘° » Q/ut Figure 6. Cost of protection under a deficiency payment system. 7This formula deviates from formula 2l in Johnson's paper as far as the valuation of domestic production and consumption is concerned. A7 The welfare cost of protection are obtained by comparing the change in producers' surplus--the area (R)--with the budget cost of the deficiency payment--the area (R + Cp). The cost of protection is therefore equal to the area (Cp) which can be transformed into numerical values as outlined in equation 2 . More Than One Import Good There, too, only production cost can exist. Equation 8 yields therefore total welfare cost of protection. Final and Intermediate Goods Again the total welfare cost of protection (Ct) is originated by production costs only. With respect to figure 5 it follows that Ct = M] + M;. From the analysis it is concluded that under a defiCiency payment policy no consumption costs can occur since there is no tariff valid at the demand curve. Thus, the welfare costs of protection for a deficiency payment system are considerably below the costs of the existing policy which is to be shown in the following chapter. CHAPTER IV ‘Procedure and Results of Cost Estimation To provide a useful estimate of the costs of total agricultural protection, eleven major commodities were examined over a period of four years. Since it seemed not _iustifiable to treat all commodities with the same model, t11e products were grouped to fit specific models outlined in ‘tl1e analytical chapter. Thus, the "One Import Good” model was applied individually to wheat, rye, sugar, butter and cheese since there is not enough interdependence between any of those products to necessitate the use of a more refined model. To take account <3Vf’ the interdependence between feedgrains and livestock, the "F 3' nal and Intermediate Goods" model was utilized. The "More Than One Good" model was used to take care of the existing Sub'stitution in the consumption of pork, poultry and eggs. 5212511£1§rison of Costs Between the Two Policies Since under a deficiency payment system cOnsumers consume at World market prices, no Consumption costs of protection <><1<3L1r. Thus, it holds for all models that Cp + CC = C equals costs of protection under the existing policy Cp - C equals costs of protection under a deficiency payment policy where A8 A9 production costs of protection Cp Cc consumption costs of protection The final equations for the calculation of the costs of protection--equations 6 , II and IS in Chapter III-- indicate that the costs of protection depend on the values' of domestic production and consumption, the height of the tariff and the price elasticities of demand and supply. Domestic Production and Consumption The values of domestic production were derived by multi- gatl‘ying the quantity of domestic production with the specific cicawnestic price. Data for the quantity of domestic production we re obtained from the FAO Production Yearbook and for the yea r I967 from Austrian national statisticsI and are listed 5 11 Appendix C, Table C2. The domesticwholesale price was ta ken from Austrian national statistics. The price of pork F‘éitéi to be converted from live weight to carcass weight using the conversion factor l.2A. All prices used are listed in Tab 1 e 62 of Appendix c. To obtain the values of domestic consumption the values 0‘: net-imports! were added to the values of domestic production (Table C2 of Appendix C). Export- and import data were obtained 1:'"CN"1 Austrian national statistics. Butter and cheese (l96A-67) Ear‘<1 \flheat (I967) show net exports. It can, however, be shown \ 1See Appendix B for exact sources of statistical data. 50 that the models used in the analysis apply also to this situation.2 Tariffs The tariff was evaluated as a percentage tariff (i.e., price difference between domestic and world market divided by the domestic price). The source for domestic prices is discussed above. The world market price was obtained by dividing the value (at: hnports by the quantity imported. To apply this procedure t:<3 pork and poultry all quantities listed in live weight had tac: be converted into carcass weight (Table C3, Appendix C). The world market price obtained by this method is thus an 3:11;:ort price c.i.f. Austrian border and is compared in Ta ble CA of Appendix C with other world market prices. The <:<:>t11parison indicated that the obtained import prices c.i.f. Au$trian border lie considerably above all other world market pl" ? ces quoted. This difference exists due to transportation COS ts, but also due to the fact tha: the imported goods are usually of higher quality than the average of domestically F>T"C>rice of butter. The prices used as world market prices in t:F1e analysis are given in Table CA of Appendix C. The gross tariff is listed as specific, percentage and ad valorem tariff in Table C5 of Appendix C. Since all feed 9 r-ains were used as one aggregate intermediate good for the '7'? \zestock sector, a weighted average tariff had to be derived f=<:> r- feed grains. The gross specific taniff for feed grains was obtained by the formula3 _ o m; -£:ES——J§LE—3 £i.q The percentage tariff is ' _. .0 _2 P; 2P 9 where 99 ti p-- domestic producer price for barley, corn and oats. 6° . world market price for barley, corn and oats. q - quantity of domestic product with tariff (barley, corn and oats). \ 3I6id., p. 55. 52 Price Elasticities of Supply and Demand _ Austrian elasticities were not available, thus necessitating the use of U.S. elasticities. Since these U.S. values are obtained from studies discussing all commodities simultaneously it is assumed that their inter-commodity consistency will give more accurate results than the applica- tion of various existing European figures which usuallyhave been estimated separately depending on the commodity under) <:<>nsideration. The supply elasticities were given at farm level and are I F sted in Table C7 of Appendix C. Demand elasticities were 9 i ven at retail level and are shown in Table C8 of Appendix C. E; i’ruce the analysis uses supply and demand functions at the Wholesale level, all elasticities were converted into elasti- <3 3 ties at wholesale level in the following way: Let Pw - domestic price at wholesale level Pr a domestic price at retail level Pf = domestic price at farm level ew - domestic price elasticity of demand at wholesale er - domestic price elasticity of demand at retail nw - domestic price elasticity of supply at wholesale nf - domestic price elasticity of supply at farm level DEB"dish and others show that under the assumption of constant- do] lar marketing margins ew a e.- . PW and nw a nit-$1:- r \ l'lbid., p. 25. 53 Lacking applicable European data, U.S. figures on I marketing margins were used to define the percentage of marketing costs allocated between farm and wholesale level and between wholesale and retail level. Farmers' share in retail prices was obtained from an estimate on German farm-retail price spreads. Table C6 of Appendix C shows the procedure applied to obtain the price ratios between the marketing leavels. Tables C7 and C8 of Appendix C list the adjusted elasticities. The use of the ”More Than One Good” model in the livestock sector necessitated the use of cross elasticities of demand. ‘TDcar obtain the wholesale values the given retail cross elastici- t: i (as were multiplied with the wholesale-retail price ratio <>Vf= the price variables. The cross elasticities on both levels a re listed in Table C9 of Appendix C. .S;<:>ss t of Protection of Wheat, Rye, Sugar,gButter and Cheese For each of these commodities an individual estimate of 12P1o_ o_omo_o:3 um mo_u_u_umn_o mo om: one On one ucoEumamom on» 0u Loco; mo:_m> ooumaao mo:_m> mo:_m> Inmooaabok nooonasé Inmoonotaoa :0 w uUOuOLm com uUMuOLA *0 com uUGuOLa m0 no mumoQ _mu0H mumoo cohmuaoomn, mumOU co_qu:mcou >u__o¢ mm_um_xm >u__0¢ ucoExom mr—uILO mumOP >Uc0LUmI+0b m LO muf“ ..3 . so am: . .m 23 out .ceoeeto eo_ooooocq co cameo 55 costs plus consumption costs of protection. Thus, c = Cp + Cc = 1/2 tznV; + 1/2 t2 e V: Table 5 shows the costs under both policy schemes. The adjusted values are due to the use of elasticities at wholesale sale level and yield as expected lower values on the demand side and higher values on the supply side. The adjusted values For total costs differ from the unadjusted values according to the relation between the price ratios used to determine the elasticities at wholesale level. Although there are year to year fluctuations, an increasing 1: r'end in the costs may be noted which is partly due to the Fact that the government has reduced the price support pay- ments over the last years and ordered a severe restriction of those payments beginning with the year I967, especially for Food grains(wheat and rye), which resulted in a shift in the na ture of these costs from explicit budgetary costs to implicit we ‘I Fare costs of protection. Tab 1e 6. Price Supports Financed From the Federal Budget' ‘ g Expenditures Receipts Net Expenditures TTn Mil Austrian Séhlllings :21 l::<><>d grains 666 2 66A ___ Milk 1662 277 1385 :3 Po d ‘ 571 7 56A Ox 0 grams ==:U11;lk l7A8 29o 1A58 Source: Bundesfinanzgesetze fuer das Jahr I966 and I967. 56 Cost of Protection of the Feed Grain-Livestock Sector Table 7 indicates that wheat and rye are of minor im- portance as feed grains leaving barley, corn and oats as the main variables of interest. Since there was no considerable difference between the world market price and the domestic price for beef and veal and since only a minor portion of feed grains is used as input for beef and veal production, it was assumed that pork, poultry and eggs were the most important variables under protection. The interrelation- ship between feed-grains and livestock and the fact that more than seventy percent of feed grain is predominantly used in the production of livestock satisfies the assumptions under- lying the "Final and Intermediate Goods" model which was used here. Table 7. Percentage of grains used for feeding I960-6A I965-66 I966-67 %7 , T7% % Wheat I3.6 2l.9 28.9 Rye l0.0 l3.A l8.A Barley 70.1 72.2 7o.u Corn 88.5 90.7 86.3 Oats 86.9 86.7 88.3 Source: OECD, Food Consum tion Statistics, l95A-I966-(Parls: DECO, I958). 57 Equation l5 of Chapter III defines costs under the existing policy which consist of net production costs of protecting the final good sector plus gross consumption costs of protecting the final good sector plus gross production costs of protecting the intermediate good sector. The Livestock Sector The costs for the final good sector were obtained by aggregating the costs of protection of pork, poultry and eggs, taking cross elasticities of demand into account. Thus, a modified “More Than One Good" model was applied yielding the following equation for total costs of protecting the livestock segment of the model: C = l/2 i rJgnJ-VE + l/2 é. é tjtkejkvg where j=l j-l k=l j a k - pork, poultry, eggs. rj - net percentage tariff of good j nj - price elasticity of supply of good j V5 - value of domestic production of good j under the net tariff t- - gross percentage tariff of good j ejk . cross price elasticity of demand between good j and k V? - value of domestic consumption of good j under J the gross tariff 58 In Table 9 the costs obtained by this equation are compared with the costs of protection if no cross elasticities of demand are considered. Equation l6 was used to calcu- late the net tariff on the livestock sector. The necessary production coefficients were obtained from estimates on German grain-meat ratios which are listed in Table 8 . Table 8. Calculation of share of feedgrain in costs of pork, poultry, eggs without tariff GFETn-Meat ImportC vaTUe of’ Share of ratio price feedgrain feedgrain l96A/67 per ton in meat meat prices AS7tOn AS Pork 1960/65a 3.25 1A,65A 5,905 o.ho Poultry l96A/65b 2.3 15,557 4,179 0.27 Eggs I96A/65b 3.7 13,27u 6,723 0.51 Feedgrains Average l,8l6 aCalculated from: George E. Rossmiller, The Grain- Livestock Economy of West Germa_y, Institute of International Agriculture, *MICHigan StateTUniversity, Research Report No. I ( ast Lansing, Mich. I968), p. I62. bSource: Ibid., p. IA3. cCalculated from Appendix C, Table AC. 59 on on .« .« ow: -nm .«- .« nmm_ nu4. m. m. N. N. m. m. N. N. :8. w..." m. o. m. :. m. m. m. m. 3m. m6. :. :. :. :. :. :. :. :. :8. - mm m: mmu ..~ 2. 2 :k k: 2. mm. Sm. A I. :8 o: ..N mm. om em 3 mm :2 m... :8. 82 0 m3 ..~ ::~ mg .m 8 R .: ::. mm. mom. cu. m. SN N: m3 m2 ::. m: R .0 MN. mm. :8. w. I .4 .I :8 m2 m3 «2 Z. Q i N: m:. m... Sm. M m: :m. m2 :8 om mm 3 mm mu. 3. 8m. m a mmm 03 m3 «.3 .m we R, .: :w. «2 mom. Wu. m .mu NMN :NN o:~ ::. m: um .m mm. Nu. :mm. w n. . 1w .: 3 o: 2 ma :. mu N. N. m. Sm. 3. :: mu m: mN .m m. - m. m. m. com. .o m. .. m. m. N : m m m m mom. w mm o: .m N: .: mN o: oN N. oN. :mm. .N. 8. N: 8. S N: mm 2 mm m. Sm. NM i 3 S 3 a 3 .N a. R 2 39 mm :2 mo. m: S. S 5: mm 2 3 cm mom. 1: 8. m:. .m. mm. mm mm .m an m. 8. :8. m No. mm mo. NO. ON .. :. m ~m mm .mm.. 8. a m: .2. 2 . m. :. m m. :0. 8m. m... m: 0.. mm. :m. .N o. :. .. :m m. 3m. uq Nm m: m: co m o w : m: mm :mm. umm...z umm...z mmm...z nmm...: mm...z mm...x m0: —m> 0: —m> m0: —m> amoumamwm mvoumamom .mmoumamnm co.uoouoLm mo mumou .mu0h. >o.—om mc.um_Xm ocu mo mumou Leuoom xUOumm>..-c.mcm boom may mo co_uoouoLo mo mumou co_uoouoLm mo. mambo covuuzmoLn co.uuouoLm mo mumoo co.uoE:mcoU .>o..o¢ “:05 mm >oco~mhmoommo mumop .m 2%.: 60 .co.u00u0co o>_uoommo mo pamucoo osu mo co_umo__aom osu mmumu.oc. ass—cu uzm.c ocho .muoaoOLQ xUOumo>._ omega ocu coozuon ocmEoo mo mo.u_o.umm_o mocco ozu mo ucaouom moxMu m acm.cm>u mauso0ca xUOumo>._ omega 0;» coozuoo ocmeoo mo mm.u.o.umm.o mmoco mc.coo_mcoo unocu.3 voc_muno mm: < ucm.cm>n ._o>o_ o_mmo_o;3 um mo_u_u.umm_o mo om: ocu cu 03o ucoeumzmom osu cu comm; mo:_m> toumzmo m0: _ m) INNoumahcm invoumJHMM mnoumahmm co_uoouocm co.uuou0cm mo co.uuMuoLm mo mo mumou —muo», mumou cohuozmoxn mumou co.uoE:mmmm >o._om mc.um_Xm o a--o mumo No._oa ucoexod .>oco.o o. m o mumo .ucou .m o.nmw 6I ii)The Feed Grain Sector The costs for the intermediate good sector consist only of production costs since the consumption costs are embodied in the final good sector.3 Barley, corn and oats were treated as one product with a weighted average tariff the derivation of which has been discussed above. The costs of protection of feed grains are listed in Table 9 . They were obtained by means of the equation C s Cp = 1/2 (tizniVE) where t- - the weighted average of the percentage tariff of all feed grains n- - price elasticity of supply of feed grains V. - value of domestic consumption of feed grain under the tariff. Table 9 lists the costs under both policies. In . addition, the table shows that applying the concept of effec- tive protection as outlined in equation l8 results in a higher cost estimate than the procedure devised by Dardis. It should, however, be noted that only the values in the last two blocks are true estimates of the costs of protection since only here full account is given to the interdependence between the feed grain and livestock sector. The values of the individual commodities though are useful indicators of the weight to be assigned to each commodity. 62 Again, it has been shown that the costs of protection under a deficiency payment system are considerably less than under the existing policy. Total Cost of Protection of all Commodities under Consideration The welfare costs of protecting all the products discussed above are computed in Table ID. The difference between the four alternatives indicates how much the analysis depends on the elasticity values used. The costs are between 353 and 6hh million Austrian Schillings under the existing policy. Under a deficiency payment system, however, costs of protection vary only between lh6 and 382 million Austrian Schillings. Table l0. Welfare Costs of Protection of all Commodities under considerationa With elasticities at With elasticities farm and retail level at wholesale level‘ e IcIency XIstIng e 1c1ency x st ng Pa ment Policy Pa ent Policy Po icy Po icy 5,115 . Mill Ks 11111 As 1111 As MTIT As ‘0 ex 6'; 3"8 1960 106.397 372.121 200.761 378.050 gmz‘ggg 1965 160.566 086.970 215.015 068.815 5 w— «100 I966 207.539 621.975 382.950 608.590 -8- 5.28 1967 200.722 603.532 303.553 635.082 ZUU'D—In . 8' ex e';..°"8 1960 106.397 353.102 200.761 363.333 6.; 62:15 1965 160.566 062.166 215.015 009.605 5 a. 8 on 1966 207.539 600.002 382.950 590.659 ;%:§_:81967 200. 722 622.929 303 . 553 609. 128 In aEstimates obtained by applying the concept of effective protection to the feed grain-livestock sector. 63 Welfare Cost of Protection as Economic Indicator The costs of protection as percentage of National Income are listed in Table II for the largest and smallest alterna- tive of each policy scheme and vary for the existing policy between 0.0l6 and 0.030 percent and for a deficiency payment scheme between 0.005 and 0.0lh percent. Table II. Welfare costs of protection of all commodities under consideration as percentage of national income ‘DeficiencyTFayment Existing Policy Policy High Alternative Low Alternative High Alternative Low Alternativ 2L % % % 0.0l8 _0.0l6 0.006 0.005 0.026 0.023 0.0l0 0.008 0.030 0.028 0.0lh 0.0l2 0.030 0.027 0.0l3 0.02l Sourcezr National Income Fi ures were obtained from Oesterreichisches tatistisches Zentralamt, Statisches Handbuch Fuer Die Re ublik UESterreich, |§68 IVlennaT—UesterreIchische Staats druckerei, l968), p. 55. i) Welfare COst of Protection and Income Transfer DardisS suggests to measure costs as percentage of extra income which has accrued to the producers due to the protection. 5|bid., p. 55. 60 This extra income can be defined as change in producers' surplus due to the tariff which is in the notation of figure 0 represented by area (R). R a Qz-m-Cp, where 02 - quantity of domestic production, m - specific tariff, and Cp - production costs of protection. In the case of pork, poultry and eggs, the net specific tariff was used since producers' surplus is changed only by this rate. The values for costs as percent of change in producers' surplus for pork, poultry and eggs can only serve as a basis of comparison between those three products since the analysis is based on their interdependence with the feed. grains sector. The values in Table l2 are useful in comparing the two policies. Within a given policy they may be viewed as cost indicators of protecting the respective commodities. Poultry, butter'and sugar show the highest figures within a given policy scheme. A deficiency payment, however, yields in all cases lower cost figures than the existing policy. If we invert the relationship mentioned above it is possible to read the percentage figures in Table I2 as average welfare cost of obtaining one unit of change in producers‘ surplus due to the protection. In other words, Table l2 gives the average welfare cost of income transfer from consumers to the producer. In the example of wheat it may be seen that in I967 the average cost of transferring AS I.00 to farm income 65 Table l2. Calculation of costs of protection as percentage of the change in producers' surplus due to protection or average welfare cost of income transfer to producers —Change in . COSts as a7Percent of the Producers' Change in Producers' Surplus Surplus ‘ExISting Deficiency Policy Payment Policy Mill AS 1 1 Wheat I960 28 I.9 0.5 I965 I35 9.3 2.I l966 l00 5.5 l.2 I967 030 l0.3 3.5 Rye I960 63 7.7 I.9 I965 59 9.1 2.0 I966 60 8.6 I.9 I967 l80 l9.9 0.5 Sugar I960 500 8.3 5.8 I965 676 I7.8 l2.0 l966 I,268 22.5 l5.6 I967 8I8 I8.3 l2.7 Butter I960 292 l0.8 3.6 I965 020 I3.5 0.6 I966 073 l5.6 5.2 I967 060 l3.3 0.5 Cheese I960 83 3.0 l.3 I965 70 2.6 I.0 l966 I02 0.5 l.8 I967 308 9.3 3.8 Pork I960 822 6.7 l.5 I965 l,l0l l0.6 2.I I966 902 I0.l l.8 I967 x 9.2 l.8 Poultry I960 I93 50.67 l.5 I965 I70 50.00 l3.8 I966 I03 36.27 I0.6 I967a x 07.ll l2.9 Eggs I960 320 8.85 3.7 1965 190 8.37 0.3 I966 256 8.06 3.5 I967 x 8.56 3.9 66 Table l2, cont. ‘7 Change in, ‘COsts as a Percent of the Producers' Change in Producers' Supplus Surplus Existing ‘DefTCiency Polipy Payment Polity Ffill AS . %fi 4% Feed I960 l,723 l0.9 3.8 grain I965 l,835 - ll.7 3.9 livestock l966 1,739 9.7 3.l sector I967 l0.8 3.6 All I960 2,699 10.] 0.0 commo- I965 3,200 I2.9 5.6 dltles 1966 3.792 l0.“ 7.0 I967 x l2.5 5.7 x: Data not available 8Average of previous three years 67 was AS 0.I0 under the existing policy but would have been only AS 0.03 under a deficiency payment system. Josling7 calls this amount a ”bribe“ to factors to induce their entry into the particular industries. This amount has to be below the social valuation of agricultural production in the specific sector in order to be politically justifyable. ii) Welfare Cost of Protection and Exchange Saving Figure 7 indicates that protective measures result in saving of foreign exchange necessary to buy imports. These savings are characterized by area (F+F') under the existing policy or by area (F) under a deficiency payment. Since discussion on protective measures include very often the balance of payment effects of certain policies it is useful to look at the welfare cost also in terms of foreign exchange. p I S P ' R ‘PO P CC F F1 , 2 . Q/Ut Figure 7. Welfare Cost and Exchange Saving 7T. Josling, "A Formal A proach to Agricultural Policy, Journal of Agric. Econ., XX ( ai, I969). p. I78. . 68 Figure 7 indicates that the average welfare cost of saving one unit of foreign exchange is E where (Cp + CC) d h ‘ 1 d a t t. . E (F+F') un er e ex1s Ing po Icy an Cp E =‘-f under a deficiency payment. Transforming this into numerical values yields E = 3' for both policies where t a ad valorem tariff = £_;_£2 p0 It is now obvious that a deficiency payment uses more foreign exchange absolutely but that the average cost in terms of gains are the same for both policies. 8 Josling shows that it is possible to find values for the marginal welfare cost of income transfer and exchange saving. These values are similar to the average welfare cost with. respect to their tendency but they give a more accurate picture of the situation at the margin of the protective level. The lack of applicable short run elasticities, however, excludes the marginal cost approach. The preceeding calculations have shown that a deficiency payment policy can be Operated at a considerable lower welfare cost to the total economy. Although the difference in per- centage of National Income is insignificant there appears to 8Ibid , p. I76. 69 be a large enough difference between the two policies (if the average costs of income transfer are compared) in order to justify the use of this difference as a policy parameter. The analysis allows the comparison between both the policies and the commodities under question. CHAPTER V Summary and Conclusions Problem Austria--a member country of EFTA--has been adjusting her agricultural policy over the last decade to facilitate an association with the EEC. Agricultural production faces similar structural problems as they are still prevalent in many regions of the EEC: Small farm size, fragmentation, inefficient farmstead layout, an insufficient internal and external transportation network, and the age structure of the agricultural population are just some of the structural imperfections to be mentioned here. Most of these structural problems are intensified by the fact that a large part of agricultural production takes place in the mountain and hill region. Past agricultural policies, Specially the recent adaptation to the EEC standard, have improved the structure of Austria's agriculture. They could not solve the problem of farm income in a satisfactory way and they had the disadvantage of holding food prices above the world market level. Technology and high prices have increased the level of self sufficiency to a stage of excess supply, thus increasing the tax payer's responsibility to finance export subsidies for several commodities. 7O 7l Austria's grain policy has been characterized by a mixture of a variable levy system and a deficiency payment system but is now undergoing a change in the direction of adopting a ”pure” variable levy system, mainly to fit the EEC pattern. Milk and milk products have been supported on the wholesale level in order to establish a "reasonable" consumer price. Also,these payments have been reduced recently and resulted in an increase of the consumer price. Most other products are administered in a fashion analogous to a variable levy system. The question arises whether this policy of variable levies comes as close as possible to an optional policy solution. This paper tries to evaluate the existing policy against a "pure” deficiency payment system regarding solely the welfare cost of protection. Methodology A partial equilibrium model, with all its limitations, offers the most fruitful approach to determine the implicit social cost of any protective policy. These welfare costs do not show up in private or public cost calculation but they are borne by the economy as a whole in form of resources used (or mis-allocated?). The economic explanation of welfare cost of protection bases mainly on Marshall's concept of producers' and consumer's surplus. Their relationship with 72 budget cost and tariff revenue is analyzed in Chapter III. It proved to be useful to expand the simple case of a "One Import Good” model to a ”More Than One Import Good” model and to a "Final and Intermediate Good" model. The expansion was necessary in order to take account of the interrelation- ship between substitutable products and especially to cover the case where factors of production and final products are .under some level of protection. Equations 6 , II and I IS give the final equation for the welfare cost of protection in the three cases under consideration. Each of the equations indicates that the welfare cost of protection is a function of the price elasticities of demand and supply of domestic production and consumption and of the height of the tariff. The objectives of the study were to examine eleven major agricultural commodities in terms of their welfare cost under the existing policy and under a deficiency payment system for the period between I960 and I967. The lack of applicable internally consistent Austrian or European elasticities necessitated the use of elasticity values calculated for the U.S. of the l950's. The time lag and their consistency were the main justification of their use. Data on domestic prices, production and consumption were obtained from Austrian national statistics. Since the equivalent tariff concept was used it was necessary to employ applicable world market prices. For most commodities it was assumed that the value 73 of imports divided by the quantity of imports will yield a usable world market price, free Austrian boarder. It is obvious that the accuracy of the final result depends largely upon the reliability of elasticities and import prices. To find suitable tariff levels for the "Final and Intermediate Goods” model it was felt that existing welfare cost studies could be improved by the use of the effective tariff concept. A more detailed exposition of the analytical tools used in this study is outlined in Chapter III. Further data on production and consumption needed to compare demand and supply at the same marketing level are discussed in the . text and in the appendices. Results The obtained values for the welfare cost of protection corresponded with the predictions of the models. In all models and for all commodities it could be shown that the cost of a deficiency payment scheme is considerably below the cost of the existing policy. The welfare cost of a deficiency payment system was during the period I960-I967 between I06 and 382 million Austrian Schillings for a deficiency payment andbetween 353 and 600 million Austrian Schillings for the existing policy. Inflation is a partial explanation for the rise in welfare cost in both policies during the four years considered. 70 Past experience has shown that the absolute cost figures have little meaning in policy discussions. Welfare costs of protection constitute only a small fraction of National Income, (Table II). The values gain significance, however. if they are compared with the income transferred to producers due to the protective measure (Table l2). The analysis shows a considerably lower average welfare cost of income transfer under the deficiency payment policy. Average welfare costiof exchange saving are the same under both policies and are not further pursued. Marginal welfare costs of income transfer and exchange saving would aid an even more relevant comparison of the cost of protection. The lack of accurate elasticities, however, does not justify a further expansion of the calculation. Table l2 shows that the average cost of transfering AS l.00 to the Austrian agricultural producers (average over all commodities) ranges between AS 0.l0 and AS 0.l0 under the existing system but only between A5 0.00 and A5 0.07 under a deficiency payment policy. The values for sugar and poultry meat are considerably above this average. Conclusions It was possible to show that a deficiency payment system policy could be operated considerably more effective than the existing policy. The superiority has been manifested in 75 terms of absolute welfare cost but also in terms of average welfare cost of income transfer. One has, however, to be aware of the fact that a change in the policy system may necessitate also a change in the administrative system. Costs connected with these changes have not been considered in the analysis. Welfare costs of protection are economic costs and thus they can and should be only one segment of the set of values underlying the public decision making process. The past, however, has shown that the importance of the welfare cost concept has been neglected --mainly due to ignorance. Many policy experts regard the absolute amount of budget payments and the absolute amount of foreign exchange saved as the significant parameters.for policy discussions. From this, some reasoned that unless the agricultural population has dropped to less than four to five percent, it is ' politically and economically infeasible to administer a deficiency payment system.1 Recent research has shown that economic analysis can provide more than purely intuitive arguments as to which kind of protective system should be employed to gain optimum social benefits. This research attempts to prove the feasibility of a practical application of a theoretical model in order to gain more useful policy parameters. Improved availability and accuracy of data. IT. van Lierde, Euro ese Landbouw roblemen En Euro ese Landbouw olitiek (Antwerpen: Stanaaarg Wetenschoppelyke Uitgeverij, I967 ). p. 70. 76 would tend to facilitate the calculation of marginal welfare costs of income transfer and of marginal costs of exchange saving along the lines proposed by T. Josling.2 This procedure provides the possibilities of examining marginal costs of the policies under question and proposes a mix of these policies as the Optimization of the welfare cost of protection. With existing and possible future improvements in the welfare cost analysis it is advisable to regard the results of this research as a step towards a more complete policy tool rather than as a final product. The present paper, however, gives ample indication that a deficiency payment policy saves domestic resources and this very argument questions the usefulness of Austria's move‘towards a stricter variable levy policy. The paper, therefore, suggests that a move of the EEC variable levy policy towards some kind of deficiency payment system embodied partially in the previous Austrian policy m_i_x_ would have achieved a position closer to the optimum policy than it is possible under the present setting. 2T. Josling, "A Formal Approach to Agricultural Policy", Journal of Agricultural Economics, XX (Mai, I969). P. I88. Bl BL I OGRAPHY BIBLIOGRAPHY Bundesministerium fuer Land-und Forstwirtschaft. Bericht ueber die La e der oesterreichischen Landwirtschaft I967. Vienna: BMFEUF, I968. . A . Taetigkeitsbericht I967. Vienna: BMFLUF, I968. Brandow, G.E. Interrelations Amonquemands for Farm Products and Implications fOr Control ofMarket—Spp‘l . Penn. State Univ. Agric. ExperimentStation Bulletin . University Park: Pennsylvania State University, l96l. Bridgen, J.B., et al. The Australian Tariff: An Economic Inguiry. 2nd ed. MelEurne: Melburne University Press, I922. Buechel, F.W. "Westdeutsche und oesterreichische Agrarpreis- politik seit Ende des zweiten Weltkrieges." Berichte ueber Landwirtschaft, (l966), pp. l6l-88. C.E.A. Salzburg. Oesterreichs Land-und Forstwirtschaft. Vienna: Oesterr. grarver ag, 9 . Corden, W.M. “The Calculation of the Cost of Protection.” Economic Record, Vol. 33 (April, I957), pp. 29-5l ”The Effective Protective Rate, the Uniform Tariff Equivalent and the Average Tariff." Economic Record, Vol. 02 (1966). pp. 200-16. _ . "The Structure of a Tariff System and the Effective rotective Rate". Journal of Political Economy, Vol. 70 (June, l966), pp. 22l-37. - Cromarty, W.A. "An econometric Model for United States Agriculture.” Journal of the American Statistical Association, Vol. 50 (Sept., 1959). 9.573. Dardis, R. ”The Welfare Cost of Agricultural Protection.” Unpublished Ph.D. dissertation, University of Minnesota, I965. . ”The Welfare Cost of Grain Protection in the United Ingdom." Journal of Farm Economics, Vol. 09 (August, 1967). pp. 597-669. . ”Intermediate Goods and the Gain from Trade.” Review of Economics and Statistics, (November, I967). 77 . Measures of the Degree and Cost oprconomic Protection on Angculture in Selected CountrIes. TedhnicaTBul.No. 1380.—Washington, D .C. :USDA, ERS, I968. . "The Welfare Cost of Alternative Methods of Protecting Ra aw Wool in the United States." American Journal of Agricultural Economics, Vol. SI (May, I969), pp. 303-l9. EEC.‘ A rar reise. Brussels: Statistisches Amt Der Eur3§EETEEFEF—Gemeinschaften, I960-67. . European Community. (March, I969). EFTA. Agriculture In EFTA. Geneva: EFTA, I965. FAD. Production Yearbook I961. Rome: FAD, I968. _____J The State of Food and Agriculture. Rome: FAD, I968. ______. Trade Yearbook I961. Rome: FAD, I968. Getreideausgleichsfonds. Handbuch der Oesterreichischen Getreidewirtschaft. Vienna: Getreideausgleichsfonds, Harberger, A.C. I'Using the Resources at Hand More Efficiently. " American Economic Review, Vol. 09 (I959), pp. I30- I06. Hicks, J.R. Value and Capital. Oxford: Oxford University Press, l9 . Hochleitner, E. P. “Zwischenbilanz der Bemuehungen Osterreichs um einen Vertrag mit der EWG. " Oesterreichishe Zeitschrift fuer Aussenpolitik, Vol. 7 (I967), pp. 273- 92. Johnson, H.G. "The Cost of Protection and the Scientific Tariff." Journal of Political Economy, Vol. 68 (August, 1960), pp. 327-05. . "The Theory of Effective Protection and Preferences." Economica, Vol. 36 (May, I969), pp. ll9- 37. Josling,T . The United Kin dom Grains A reement l 60 : conomic na ysis. ast anSIng: nstItute 0 International Agriculture, I967. . "A Formal Approach to Agricultural Policy." Journal of Agric. Economics, Vol. 20 (May, I969), pp. I75- 78 Krueger, A. "Some Economic Costs of Exchange Control: The Turkish Case.” Journal of Political Economy, Vol. 70 (1966). pp. 066-80. Land - und Forstwirtschaftliche Landes-Buchfuehrungs- Gesellschaft m.b. H. Landwirtschaftlicher Paritaetsspiegel. Vienna: LUFLBGMBH, I960-67. Marshall, A. Principles of Economics. 9th ed. London: MacMillan, l96l. National Commission on Food Marketing. Cost Components of Farm-Retail Price S reads for Foods, ec n. tu No. 9 Washington: US Eov. Print. Office, June, I96 , pp. 33-53. OECD, Agricultural Policies in l966. Paris: OECD, I967. . Food Consumption Statistics I960-61. Paris: OECD, I968. Oesterr. Statistisches Zentralamt. Statistisches Handbuch Fuer Die Republik Oesterreich l96 . Ienna: esterr. Stat. Zentralamt. . Statistische Nachrichten, I960-67. Vienna: Oesterr. Stat. Zentralamt. . Der Aussenhandel Oesterreichsg 1960161. Vienna: Oesterr. Stat._Zentralamt. Praesidentenkonferenz Der Landwirtschaftskammern Oesterreichs. Berichte. Vienna: Oesterr. Agrarverlag, l969. Rossmiller, G.E. The Grain-Livestock Economy of West German . East Lansing: Institute of‘lnternational Agriculture, l 8 Schmittner, F. ”Die Oesterreichische Agrarstruktur." Paper presented at the lOth Congress of the Int. Assn. of Ag. Students, Vienna, September, I966. (Mimeographed.) UN. Yearbook of Nagjonal Income Accounts Statistics; I96]. New York: UN, I968} Van Lierde, T. Europese Landbouwpgoblemen En Europese Landbouw olitiek. Antwerpen: Standaard wetensc Oppelyke UItgeverij, I967. Young, J.H. Canadian Commercial Policy. Ottawa: Queen's Printers, - 79 APPENDICES APPENDIX A Conversion Rates Used Conversion factors of meat production from carcass weight into live weight: Pork - l.20 Poultry - l.39 Source: FAD Production Yearbook, I968, (Rome: FAO, T938): p0 6700 Eggs: l kg. eggs = l8,l82 eggs Source: Calculated from FAD Production Yearbook, I968, (Rome: FAO, I968), p. 393. Exchange rates: I Austrian Schilling = I A.S. = IS = $U.S. 0.0380 1 $U.S. = 26 S = 0 OH Source: International Financial Statistics, Vol. 22, No.T., Jan., I969, p. 09. 8O APPENDIX 8 Sources of Statistical Data Statistisches Handbuch Fuer Die Re ublik Oesterreich I968 (Vienna: ‘Desterreichs Statistisches Zentralamt, I968). Statistische Nachrichten (Vienna: OesterreichischeS- Statistisches ientralamt). Der Aussenhandel Oesterreichs (Vienna: Oesterreichisches StatistiSchesZentralamt). Landwirtschaftlicher Paritaetsspieqel (Vienna: Land und Forstwgrtschaftliche [andes-Buchfuehrungs-Gesellschaft m.b.H. . FAO Production Yearbook I967 (Rome: FAD, I968). FAD Trade Yearbook I967 (Rome: FAD, I968). Handbuch Der Oesterreichischen Getreidewirtschaft (Vienna: Getreideausgleichsfonds, I967). égrarpreise (Brussels: Statistisches Amt Der Europaeischen emeinschaften). OECD, Food Consumption Statistics I950-l966, (Paris: 0500, I968). The State 9f Food and Agriculture (Rome: FAO, I968). 8l APPENDIX C 82 I 3 . u a 8a a J 31.8. m a. u s a: s a 3:8. w. d . m . .. u a an s 5 3.32 a. x u a «a a .a sea. “m a. a a z: a a. 32.8. a z a. u a 3 a 2 39 m x a u a on: a .< 66-:qm. u s 1 .m .. .2. z u a a: a 2 32.8. n , 0 z u 3 s 2 S s 3 $9 a x u as s .< am 6 .u 66-:66. a a z u on a .<. am a .4 sea. m g z u 8 s 4 mm s a. 69:69 u a g z o no a .< me a .4 “gm. n a. .. u 8 s 2 :: 6 J. 3.52 m 1A U o 3 a a 3m. a u .: s .a 66-:6m. U. x x u a an s .u 66-:aa. .. 20.330.10.133 :88: I 1:88 >Um~.:fl ob...“ o‘o-oo 050.00 0%...” c.—Lflm:‘ 0&0-00 :— sauce. 03; 3c: 00...... 37... 02.... 37... 3...; to}... use 02.... c0233.... ouIPoLoaoL tooxPoEp to}: to}... to}: 32...: 3.396 n 3.59... otmwglbb u. o . x.vcoss¢ 6. mc.utouu¢ cocoa :u.~u ...nup 6. saga .qu.u..a-.m .6 .outsom .3 03c.— 83 Table C2. Quantitites and Values of Production, Consumption and Trade 8.0 Domes tTc Domes t i c Domes ti c ' _ Hcducfion Price Production Imports Exports '" EX nsum ’T‘G. 00 sfmemc ‘MITTS metric T,0005rmetric 1,0005 T,DDDS 1 (005 ton tons tons .. I960 751 2,100 1,580 05.890 100.320 16 80 100,200 1,680 a 1965 661 2,100 1.391 90,131 177,107 16 71 177.076 1.568 g 1966 897 2,100 1,887 107.809 206.160 12 50 206,110 2.0 3 3 1967 1.005 2.076 2.587 20.382 03.660 32.203 52.628 -2.968 2.55 I960 388 1 .891 730 23 99 5 20 79 730 g 1965 316 1.891 598 05.286. 76.973 - '- 76.973 675 6: I966 363 1.891 686 65.762 113.335 - - 113.335 7 1961 317 2.260 852 50.989 89.2L1 2 L 9. I 91 >~ 1960 605 2.297 1.390 233.337 010.387 330 1,061 013.326 1.803 .2 1965 523 2.362 1.235 311.235 596.919 011 1.502 595.017 1.830 1- 1966 706‘ 2,002 1,695 205.788 508.656 26 88 508,568 2,200 3 I96] 772 2.011 1.866 165.909 311-018 21 89 410.929 2.177 1960 212 2,076 000 397,281 671,027 .839 8.768 662,659 1,103 a 1965 187 2,108 002 397.770 675.839 1.30 6,028 669,011 1,071 3 I966 275 2,178 599 305,598 609,391 80 0,230 605,161 1.200 U 1967 316 2.268 J16 190.877 312.651 1-638 10.078 322.573 1.019 1960 327 1,910 625 3,191 6,130 - - 6,130 631 3 1965 270 2,002 559 02,030 78,030 - - 78,001 637 8 1966 325 2,053 667 31.011 57.520 - - 57.520 72 1961 336 1.908 655 29.888 52.505 - - 52.59; p t 1960 333 6,260 2,080 0.65 38,002 310 2,760 35,638 2,120 3. 1965 235 6.260 1.071 11.057 53.570 67 1.170 52.396 1.523 g 1966 367 6,260 2,297 25,699 71,353 212 .909 69,010 2,366 1&3 x 6.260 10.236 56.188 02 702 5 11 3 1960 02 30,720 1,058 1.055 26.266 3,760 90,096 -60,230 1,390 .. 1965 05 36,290 1,633 - - 5.780 131,018 -131,018 1.502 E. 1966 05 37.070 1,668 - - 3.729 80.562 -80.562 1.587 1961 5 .0m 1.5m - . . 5.187 160.280 -106.280 1.11; 3 1960 00 23.970 1.050 3.626 77.630 9.792 216.063 438.033 916 o 1965 08 25.700 1.230 3.277 75.517 11.201272.381 -196.860 1.037 .3 1966 09 26.560 l.30I 3.503 82.557 l2.I66 287.3ll ~200.750 l.096 ° 1967 09 29.930 1-061 '3.511 76.907 10.150 331.155 450.218 1.213 1960 288 17.583 5,063 10,028 152,876 209 5,960 106.916 5.210 1‘. I965 298 17.236 S.I36 I3.l73 ”2.778 3.979 07.038 125.280 SJ“ ,9 I966 258 20.138 5.195 30.057 525.052 25 90 520.072 5.7l9 1967 x 19.803 x 17.572 269.002 322 9.668 259.370 11 > ,1; 1965 00 25,500 1,017 11,078 176,807 3 1,057 175,790 1,193 — I966 30 20,500 828 11,260 177,798 7 1.791 176,007 1,000 3 I967 39 23.000 900 12,073 210,879 18 0.286 210,593 1,115 m 1968 x 23-100 x 12.33 182.798 16 3.665 179.133 11 I960 90 17.273 1.563 10,160 177,019 50 2,006 175.013 1.738 5 l 1.3 I. 9 7.02 252.9 0 . . . g, 196 8 8 60 08 I 1 16 0 1 585 251 331 1 700 a. 1966 78 18,000 1,399 20,172 271,332 58 3.033 268,299 1,667 “‘ 1361 x 17.818 x 19.18] 2 .1 223 13.009 2 . 00 x X: not available -: value is Insignflcant or zero Source: See Table CI Table C3. imports, Exports and imoort Prices for Pork and Poultry. r 111908159 2111201115" 111-211 .32. c.i. ' Austsian 1 . r r case i 000 s Tonsc 1.000 5 1.000 s. on ' :FPTgs (i? finicass , W lblo 11,122 WJR'! ' we t 35 Pork 9 2,366 30,010 85 1,838 10,370 Total pork l0.1128 62.826 2'09 1.960 I” lh m 1119: (in carcass 9,805 131,103 1,715 l8.591 13,321 a weight) ' ' ,_ Pork 3,328 hl,625 2,2611 28.20 12,507 ##0ng 13.173 172.& 3.979 In- 125.359. 1 0 ,9 Pigs (in carcass 26,623 I003,896 '0 I90 l5.l70 a weight ‘ — Pork 7,5310 l2l,l56 2' 782 l6,297 L192“ an: 0 25 0 . rs Pigs (in carcass l0,hl9 611,989 296 8,657 “.075 ' a weight 1 - Pork 7.l52 ll'o,0 3 26 l,Oll 6,2107 __16;.1 Bark 17.572 m m 2.66% 359.370 15. 11 ER Poultry (:nhcgr- 3| 3.603 3 l,0&0 cass we _, Poultry 9 ll,0h 173,25h - l7 ’ 15.682 __To§al mltrv 11.07 176.807 3 1.051 m 0‘ Poultry (in car- b 3.530 l,776 a cass weight) 7 —. Poultry 11,256, 17h,268 - l5 15.03l fimnry ll.2§9_ 7 LEI I”? Poultry (in car- l8 6,072 l0 0,266 ' § cass weight) - _ Poultry 12.061 208.807 - 16 16.756 ,_ Totgl mm; 12.59 210,822 19 0,25 110.593 8 Poultry (:nhgr- ll 6,'009 l6 3.652 cass we - EB Poultry 9 l2,327 l 6,38 - l3 lh,308 .L_ Total mitt! l2.3§3_ [€2,223 l6 Mi l19.l13 lTo convert quantities from live weight into carcass weight the PAO converslon factors ( pork-l.“ and poultry-l;39)have been used. t’source: see Table Cl ‘Metric Ton 85 8. 0.36.... .u u.aeh eon .eucaome O—AQ:I>O «0: Nu 3N.N. N.N. 2:. Na. 63“: o ..HN. 68.2 $9 2.... «3.... 93.... 63.2 39 w N .. E 1 L? N. «2.: 3a 8 .... 3...: can”... oo..NN 3m. m. 92.2 3...: 3?». 95.3 3m. . 3...: 3...». 5...... 8%.: $2 m. N3 m. an . N8 m. 892 ..om .300. 8m”! .31. 48.2 .3. 8 «2.2 mi.m. 2.3. 2...: com. o meN" oN. . ...a N. RN“. 3%. u .. LFrwmhvmrl . . .3 8:43 29: o... N o «.2 3m. 0 26.2 cmmHNN 26.2 8%.: 89 w .NN...N N3 .N WNN ..N. ooN.mN mom. a .30.? B . . . . 1 a mdeN «2.2 N» ..N om...th.oN 11$ 6. N S ..H 8...: 80.3 8%: ”8.: 2° 2 com. .n. mN...oN mN...oN 3%: 8 NN 8N6. 3m. : EELmKN 63.: . m8; 3....» ..mm a 111 x x x an”. 6.3”. SN... 39 s ..oN.N So; 2.; SN; NFN SN... 3m. n Sea 8_.N ..mN.N own... 63... SN... .32 w 9%... Eu? 3:... N m n ....N... BN6 56 3 N31. 2:7 R... 93.. $9 0 m2... 9.... 3.. _ .84 £9 w 3.... ::.. m8”. N..oHN mom. s 03% air NNm..J 2... r 3m 26+. 136.1. NS”. NS; 8N.N Sm. 3 SN”. 8.... N3; SN . mtnN 39 m 86 . 5.... o... . m3”. 9...N $9 0 0mm... NN...T Sm.r 8m . m3 N ..mm 054 mafia. «30. m3”. NSJ New. m. So; 3.... N2; SPN No...N 3m. 3 2m; 3.... N3; 03... SNN 3m. m. 62.. .59.» 3.0... o: .. 22% SE A «1.. mi”. 8N.N Sm. 8 MN... NNN . .3; wow. .2. 8... SN; .3; 3m. 8N5. ..NN; .Lmb; ..mm 1 ...o1Nl 9:.— new; 63% o ...N Sm. A can“. 9.6.. ..n .. N.m.. ..onN 3m. w Wm.» 1mg; “mum N8 . ..o. N .mwmu .. .F P . . N J 3 66: 66mm #35 6.6% 085 Eglwéowow ._._._..__.an MW e b. ce_.un:< >u._e:a 0:.e> ace—cowu.3m >ceELou sovcouuoc concoa .u._.u van: uu..m an. cooc04 u_c: .m._.u ou..e .5...u uu..s .w._.u eu..s .u...u eu.ce uu..m ou..a Nuxcmz m_.om, eu..n ohwmobosz, acoaxm but. atone. Wuooe. Needs. acooib utoo£b1 uuuuoson . eweu.ce utooE. nee u.Naosoo .au o.ao» 86 Table CS. Calculated Tariffs Gross Specific ‘Gross Gross AdT Tariff S/Ton Percentage Valorem Tariff Tariff Wheat l96h 38 0.02 1965 209 0.10 1966 12h 0.06 1967 426 0.17 R e -x196h 166 0.09 1965 191 0.10 1966 168 0.09 1967 511 0.22 Barle 196% 521 0.23 1965 hhh 0.19 1966 333 0.1h 1967 ShZ 0.22 Corn 196A 386 0.19 1965 hh9 0.21 1966 #15 0.19 1967 630 0.28 Oats |§6h 000 0.00 1965 203 0.09 1966 198 0.10 1967 191 0.10 Feed Grains 1964 3h8 0.16 0.1 1965 397 0.18 0.22 1966 315 0.1h 0.16 1967 #79 0.21‘ 0.27 Su ar 1§6h 1,620 0.26 1965 '3,235 0.52 1966 3,996 0.6h 1967 X X 87 Table CS, Cont'd Gross—Specific GrOSS‘ Gross Ad Tariff S/Ton Percentage Valorem Tariff Tariff Butter 7.212 0.21 1965 9.865 0.27 1966 1.070 0.30 1967 0,771 0.29 Cheese 1.909 0.08 1965 l,h69 0.06 1966 2,9hh 0.11 1967 6,527 0.22 Pork l96h 3,025 0.17 0.20 1965 9,322 0.25 0.33 1966 h,005 0.22 0.28 1967 9,392 0.22 0.28 'Poultr 1965 9,818 0 38 0.61 1965 9,019 0.37 0.59 1966 6,2hh 0.27 0.37 1967 8,792 0.38 0.61 E s i96h 9,776 0.28 0.39 1965 3,505 0.19 0.23 1966 5.550 0.25 0.33 1967 5,529 0.31 0.h5 X: Not available. 88 .>u_m.m>_c: madam cmm_;u_z .mu_Eocouu .m.:u_:u_cm< mo ..mo.¢ .cOmcm.0m .> ..o sum: mco_umu_caeeoo .chmcmm "00.30mn .mm-mm .aa .Ammm_ 0:35 .munmwp mc.uc.cn ucoEccm>o . . .cOumc.mMm Vim .02>t:um _mo_c;uoh .mtOOm cow mnmo. m oo_c¢ __Mumm -Ecmm mo mucmcanoQ umoo .mc_umxcmz boom :0 co_mm_EEOU .mco_umz .EOLu nmum_:u_mod o..N MN.. mm.. mm.. om.. .... .u-oo.. ..u-oo.. u .60... o Ecmuv "Amu_.m 0_mmo_o;3v V :m.o mN.o 6N.o Nm.o .m.o mm.o , co...u-oo.. u .ou... . ..mHomv “Amu_cm 0.6mm_o:3v o. NN :N m. m. N. o .o x m u .o-oo.. u mu... 0: m: .m Nm Nm m. ..mumm co mmmucmutoa mm a becam mu_cm __mumm-Ecmm om mm m: m: m: mN nmu... ..mumm u c. mcmcm .mcmEcmu mvmmcam mu_ca __mbmm-Ecmu mm m: m: mm mm Nu mo ammucmuLma mm vmmcam a ou_ca __muomum_mmm_o;3 mvmmcam mu_cm __mumm-Ecmm .0 um mm mm :0 mm mo manucwuLma mm bmmcam < 00”.; mbmmmPOJBnecmk bmmcm mmmm cmxu»:u11xcom mmomsbl couuam mwhxz MbmmWWp uchLmAI m_m>64 mc_umxcmz cmmzuom monumm ou_cm vcm mcmmcmz mc_u0xcmz .ou m_nmh 89 Table C7. Price Elasticities of Supply At Farm Levela szPf At Wholesale Wheat 0.370 1.11 - 0.h1 Feed grains 0.u30 1.03b 0.40 Butter 0.212 1.56 0.33 Cheese 0.212 1.58 0.33 Pork , ' 0.130 1.h9 0.19 Poultry 0.678 1.73 1.17 Eggs 0.298 1.16c 0.35 aSource: W. A. Cromarty, An Econometric Model for United States Agriculture, Journal of American Statistical Association, Vol. 5h 1§eptemF er 19591, p. 5 bCalculated-from: Getreideausgleichsfonds, Handbuch der Oesterreichischen Getreidewirtsca 1Vienna: Getreideausgleichsfonds,1967,) p. 370. cCalculated from: Oesterreichisches Statistisches Zentralamt, Statistisches Handbuch Fuer Die Regublik 0esterreich 1Vienna: Oesterreichische Staatsdruckerei, 1968), p. 68 and p. 102. 90 Table C8. Price Elasticities of Demand At At At Farm Retaila szPr Wholesale Levelb Cereals -l.500 0.83 -1.24 Wheat -0.021 Sugarb - - -0.18 - - - Butter -0.850 0.81 -0.69 Milk for butter -0.665 Cheese -0.700 0.82 -0.57 Milk for cheese -0.536 Pork -0.750 0.76 -0.57 Hogs -0.458 Chicken -1.l60 0.78 -0.90 Chicken -0.737 Eggs -0.300 0.81c -0.2h Eggs -0.233 aSource: G. E. Brandow, Interrelations Amon Demands for Farm Products and Implicatidns for Contro1 2: Han??? Stud , Penn. State Univ. Agric. Experiment gtation Bullet1n 680 (Univ. Park, Penn., 1961), p. 17. bSource: Ibid., p. 59. cCalculated from: Oesterreichisches Statistisches Zentralamt, Statistisches Handbuch Fuer 21g Republik Oesterrerich, 1V1enna: 0esterrer1c 15c e Staatsdruckerei, 1968), p. lhh and p. 260. 91 Table C9. Cross Elasticities of Demand Quantities Retail Prices 0f Wholesale Price Of Demanded of Pork Chicken Eggs Pork Chicken Eggs Pork - 0.066 0.003 - 0.051 0.002 Chicken 0.157 - 0.003 0.119 - 0.002 Eggs 0.010 0.011 - 0.008 0.009 _ - Source: G. E. Brandow, Interrelations Amon Demands for Farm Products and l_plicationsfifor Control of Market 80' l , Penn. State Univ. ric.p xper. _Station Bul. 680 1Univ. Park, Penn., 1921) p. 92 GAN STATE UNIVE SITY LIBRARIES 1 1111111 111 111111111111 11 1 312930 03062 237