THE ANDEAN PRICE BAND SYSTEM: EFFECTS ON PRICES, PROTECTION AND PRODUCER WELFARE

11

protection in the APBS period is higher than that in the pre-APBS period. The only cases
in which these results are not statistically significant are those of maize and milk in
Ecuador. It seems clear that the APBS has indeed acted as a mechanism of domestic price
protection. This does not mean that application of the policy actually increased price
levels, indeed, price levels for virtually all products and countries declined during the
study period. The increase in estimated NPC’s simply indicates that domestic prices have
increased with respect to their international counterparts. Application of the APBS has
allowed domestic prices to decline at a slower pace than border prices. This is a direct
result of the use of variable tariffs under the price band system. The protective effects of
the APBS confirm the views of Quiroz and Valdés (1993) who argue that this arises from
the lagged effects of instituting floor and ceiling prices based on moving averages of past
prices, in this case, based on a very “long memory” of 60 months.

The last set of results (Tables 3-5) show the effects of changes in total welfare
benefits induced by the APBS, divided into transfer or distributional effects and those
benefits due to income risk reduction and associated efficiency benefits. As mentioned
above, three scenarios were considered. In the first, we compare the period prior to the
introduction of the APBS with the period after its introduction. As shown in Table 3, the
weighted benefits from risk reduction (weighted by each country’s proportionate share of
total production) are very small, ranging between -1.65 and 1.62 percent, being positive
for rice and sugar and negative for maize and milk. The application of the APBS has not
contributed significantly to welfare effects stemming from greater stability of real
incomes of maize and milk producers relative to the earlier period. For rice and sugar
producers, on the other hand, the APBS has induced greater stability in real incomes and

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