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

Protection and Producer Welfare

Introduction

As part of wide-ranging macroeconomic, trade and sectoral reforms, many Latin
American nations, including members of the Andean Community (AC)¹, substantially
reduced levels of tariffs and non-tariff barriers, including those in agriculture, during the
1990’s. These market-oriented reforms exposed formerly highly protected national
agricultural sectors to the volatility of international markets and prices. Predictably,
producer groups throughout the Andean region registered wide concern concerning the
introduction of new sources of domestic price instability in agriculture and urged the
introduction of policies to address this instability. These policies included the adoption of
variable levy systems in four of the AC nations (excluding Bolivia), and in three
countries, Colombia, Ecuador and Venezuela, price band systems were introduced
employing price floors and ceilings to buffer international price shocks. These systems
had varying product coverage, tariff rules and methods of operation, and resulted, by
mid-decade, in trade distortions and depressed growth in intra-regional trade (Garcia,
1997).

In response to these deficiencies among national systems, the Andean Community
adopted, in 1995, a comprehensive price band system known as the “Sistema Andino de
Franjas de Precios” (Andean Price Band System, APBS), which, along with policy
surveillance and agricultural health systems, form the core of the Andean Community’s
harmonized agricultural policies. The APBS consists of the application of variable levies
in addition to a basic ad valorem tariff established through the Andean Community’s

¹ Bolivia, Colombia, Ecuador, Perù, and Venezuela.

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