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

(Hazell, et al, 1990). The APBS has also been argued to be protectionist in operation, if
not in intent (Josling, 1997). Not surprisingly, the APBS has also been unpopular with
exporting countries (such as the United States) and with multilateral organizations such
as the WTO.

This paper addresses three questions regarding the APBS: 1) Has the APBS
reduced the variability in prices received by farmers, and if so, what is the contribution of
instability in world market prices to domestic instability relative to the contributions of
other factors? 2) Has the APBS increased or decreased the levels of domestic prices in
relation to world prices? and 3) What are the transfer benefits received by farmers as well
as the benefits resulting from reduction in price risk?

Analytical Methods and Data

The methods used to examine each of these questions are briefly summarized in
this section (details are given in Villoria, 2000). Data constraints limit the analysis in this
paper to four products, all important to regional food security -- rice, yellow corn
(Ecuador) and white corn (Colombia, Venezuela), sugar and milk); three countries
(Colombia, Ecuador, and Venezuela); and monthly prices available for the period from
1990 through 1998. Data required for the analysis (international prices, exchange rates,
production, etc.) were obtained from standard national and international sources as well
as the Andean Community Agricultural Secretariat.

Effects on Price Instability

In order to assess the effects of the price band policy on price instability in the sample
countries and products, two periods are defined: the first “pre-APBS period” from
January, 1990, to April, 1995, and the second “APBS period” from May, 1995, through

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