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Government Failures in Development

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University of Toronto St. George
Political Science
Sophia Moreau

November 1, 2010 Government Failures in Development o What do governments in Africa do? They tax the output of farmers and they tax the agricultural inputs o Theyre trying to increase agricultural production without increasing the prices they offer for the outputs (beans, coffee, rice, cocoa) o What does this mean? o They introduce economic inefficiencies like price distortions, non- competitive rents o Governments in Africa tend to undermine the market o Subsidized: Fertilizers, seeds, machinery o Taxed: Coffee, tea, cocoa o Cost of inputs things farmers need in order to farm (fertilizer, seeds, irrigation) Elements of Agricultural Policy o Cost of inputs (fertilizer, irrigation, etc.) o Cost of outputs o Cost of secondarymanufactured goods o What does the farmer have to buy in terms of inputs and secondary goods and how does it all add up? o The inputs and the manufactured goods are expenses that the farmer has and the cost of outputs is his income o Banks analyze agricultural policy from the perspective of the farmer Government Intervention o Cost of outputs beans, coffee, cocoa, etc. (governments decrease the cost of outputs); the cost of this is artificially depressed o Cost of manufactured goods (governments increase this) o Cost of inputs (governments decrease the cost of inputs) o Decreasing income while increasing expenses governments also subsidize the cost of inputs 1. The government depresses the price of crops; how exactly is it that governments are controlling the market for crops? Monopsonies o Governments depress the price of crops through monopsonies: sets the price for a crop, buys all of a crop for farmers and resells it either domestically or on the international market o Farmers sell their crops to a marketing board and all of the sales are sold to the marketing board (state run) and this sets the price for the product everyone gets the same price in the same year o Theres no competition; the price is set, stable and theres no way you can get a better price for your product
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