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

programs were in effect. The welfare effects of the APBS are then estimated by
comparing the simulated prices under bands with the prices that would have prevailed
under free trade (e.g., adjusted border prices). This provides an idea of what the effects of
the APBS would have been had it been the only policy applied during the 1990’s. The
final “historical policy” scenario encompasses prices which actually prevailed in
domestic markets under various policy regimes in the period 1990-1998. Transfer and
risk benefits are expressed as estimated producers’ income in the absence of any price
stabilization program. These estimates require the use of price elasticities of supply
(obtained from Sullivan, et al., 1989) and coefficients of risk aversion, which are
assumed to be unity (following the practice of many authors (Newbery and Stiglitz, 1981;
Larson, 1993; Islam and Thomas, 1996; Hinchy and Fisher, 1998).

Empirical Results

This section describes the empirical results stemming from each of the four
components of the analysis described above. Table 1 shows the summary results of the
analysis of price variability before and after the institution of the price band policy. In
Colombia and Ecuador, results for the selected products generally show either a reduction
or a steady level of price variability around mean levels before and after the introduction
of the APBS. In Colombia, the importable products (milk and rice) exhibit greater price
stability after the application of the APBS than before. In Ecuador, the situation is
similar. Sugar and milk show lower coefficients of variation in the APBS period. In the
case of maize in Ecuador, the estimated CV is slightly higher, however, due to a
corresponding sharp increase in the variability of world market prices. In general, it can
be argued that the APBS has reached its objective of stabilizing domestic prices in these

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