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

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associated welfare gains, though these gains are relatively small. Transfer benefits, by
contrast, are much larger in magnitude, although with only two exceptions (maize and
sugar in Ecuador), they are negative. Typically, this indicates that changes in real
incomes to producers are matched by changes in expenditures by consumers and/or
government revenues. In this case, however, what is underlying the negative transfer
benefits are the substantial declines in real commodity prices over the 1990-1998 period.
It is unrealistic to think that consumer expenditures and government receipts have
changed by as much as the declines in prices received by farmers. Overall, the negative
transfer benefits dominate the small gains from risk reduction, leading to overall negative
benefits from price stabilization for the three nations as a whole. Again, however, it is
apparent that the long-term decline in prices combined with the system of variable tariffs
together mask the income transfer effects of the APBS. Moreover, this scenario compares
the pre-APBS period which was characterized by a variety of disparate domestic policies
in the three countries with the common APBS period from 1995 on. This may not provide
the basis for an accurate evaluation of the APBS’ effects on producers.

To try to surmount these limitations, the second scenario (Table 4) estimates real
producer incomes under simulated price bands for the entire 1990-1998 period, and
compares these levels with those that would have prevailed under free trade. This
assumes that the APBS is the only agricultural price policy applied during the 1990’s;
though this was not the case, this scenario estimates the results of a hypothetical scenario
that avoids the mixing of domestic policy and APBS effects that characterizes the prior
scenario. In this case, the hypothetical risk benefits are estimated to be positive, though
again very small in magnitude. This is consistent with the findings of Newbery and

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