Publisher's Synopsis
Governments intervene in the agricultural sector through policies that both support and shape agricultural production. This leads to two important outcomes. First, agriculture specific programmes intended to increase the welfare of farmers - whether through commodity prices, input subsidies, or direct cash transfers - can become capitalised into asset values. These higher asset values translate to increased wealth for current sector participants, but the resulting higher cost structure can have deleterious effects. Second, many policies, in particular regulatory ones, reduce asset mobility -the ease with which capital, land, labour and other inputs are transferred between different economic activities. This results in reduced economic efficiency due a sub-optimal allocation of resources, and can potentially further exacerbate the capitalisation phenomena. This study focuses on the capitalisation of government support into land rents and prices. It assesses the consequences of inflated asset values, and suggests lessons for future policy making.
