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



13

Stiglitz (1981). Similarly, the weighted transfer benefits for maize and rice are generally
small; those for sugar are somewhat larger. The low transfer benefits are explained by the
fact that lower variability of world market prices especially for maize and rice require
less necessity to apply tariffs and subsidies under the “pure APBS” regime. Overall, the
transfers from consumers and government to producers are positive (except for rice) but
small, the largest averaging 12.5% for sugar producers.

The third policy scenario estimates risk and transfer benefits based on the
comparison of historical real incomes resulting from the policies actually applied with
estimated real “free trade” incomes. This provides a benchmark against which the welfare
effects of the APBS (the previous scenario) can be evaluated had it been the only policy
applied. The results for this scenario (Table 5) show that the risk benefits generated by
historical policies are both positive and negative for individual crops and countries, but
overall, as in the previous scenarios, are again rather small. This is not unexpected, given
the fact that historical policy interventions in these countries were only in part designed
to address price instability; other policies such as import prohibitions, import licensing
and other measures had more direct domestic protection objectives. In the case of the
estimated income transfer benefits, however, these are (with only one exception) positive
and substantial in magnitude, averaging 22-26% for rice and maize sectors, with some
crops in some countries showing much larger transfer benefits. Summing the two
components, it is clear that historical Andean Community policies have, in most cases,
created significant benefits to producers of maize, rice and (except in Colombia) sugar.



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