The overall purpose of the project has been to assess agricultural policies and levels of protection or disprotection for selected Asian developing countries, particularly India and China, since the inception of the WTO Uruguay Round negotiations in 1985. Attention was focused on the conceptual and empirical issues that arise when calculating such measures as market price support (MPS) or producer support estimates (PSEs) for developing countries. The two reports, enclosed in paper and electronic form (enclosed disk), are:
Mullen, Kathleen, David Orden and Ashok Gulati. Agricultural Policies in India: Producer Support Estimates, 1985-2002, MTI Discussion Paper 82, International Food Policy Research Institute, Washington D.C., February 2005, 128 pages.
Cheng, Fuzhi and David Orden. Exchange Rate Misalignment and Its Effects on Agricultural Producer Support Estimates: Empirical Evidence from India and China, MTI Discussion Paper 8 1 , International Food Policy Research Institute, Washington D.C., February 2005, 82 pages.
These papers have recently been posted on the IFPRI web page and are accessible at:
http://www.ifpri.org/sites/default/files/pubs/divs/mtid/dp/papers/mtidp8...
http://www.ifpri.org/sites/default/files/pubs/divs/mtid/dp/papers/mtidp8...

The report on agricultural policies in India reviews the substantial economic policy reforms undertaken since 1991. The protection and support versus disprotection of agriculture are evaluated by examining market price support for eleven crops (accounting for nearly half of agricultural production value) and budgetary expenditures for fertilizer, electricity and irrigation subsidies. Key domestic and international cost adjustments are incorporated into the analysis by drawing on the extensive price-comparison data sets and assessments developed previously by Ashok Gulati and his co-authors, often using disaggregated analysis for representative surplus and deficit states.
Our results indicate that support for agriculture in India has been counter-cyclical. Support for agriculture rises when world prices are low (as in the late 1980s and 1 998-2002) and falls when world prices strengthen (as in the early and mid 1990s). Budgetary payments (for input subsidies) have increased in recent years. Yet for key commodities and in the aggregate, when incorporating both price support and budgetary expenditures, the counter-cyclical dimension of agricultural policy dominates a clear trend from disprotection toward protection over the period 1985-2002.
The counter-cyclical pattern of support for agriculture in India has an important interpretation in the context of the WTO Doha Round agriculture negotiations. India has used border protection to insulate its farmers from low world prices in a manner and timing that corresponds to the increased subsidies provided in the United States and other developed countries when world prices fall. Disciplines on both of these instruments will be required to achieve an agreement that is effective at increasing world trade opportunities and stabilize world price levels.
Using different variants of MPS and PSE measurement we have also extended earlier analysis to demonstrate the impact of key assumptions on the calculations. These assumptions are important to consider. For example, in the standard approach to PSE measurement, the MPS component for the covered commodities is "scaled up" based on the share of the covered commodities in the total value of production. If the commodity coverage is less than complete, as is often the case, the scaling up procedure leads to a total MPS of greater absolute value than the MPS for the covered commodities. But this approach is only appropriate if market price support for the commodities not covered is similar to that of the covered commodities, which often is not the case.
We also find that the standard procedure of computing the MPS through a comparison of the domestic price to an adjusted reference price based on observed imports or exports can be problematic. This occurs when trade volumes are relatively small. In such a scenario, a reference price based on observed imports or exports can lead to misleading conclusions. To address the reference price issue, we adopt an approach of computing the level of protection or disprotection based on a counterfactual reference price chosen on economic criteria i.e. the adjusted reference price that would exist in the country if the policy interventions were removed. The relevant price can either be the autarky equilibrium price or the import or export adjusted reference price depending on the relationship among these prices. We apply this modified procedure for six crops in India (wheat, rice, corn, sorghum, sugar and groundnuts). The choice of the crops is dictated by the fact that India has been near self-sufficiency and there have been changes in the direction of trade over the period of analysis.
The magnitudes of estimated support for agriculture obtained in our paper are important for several additional reasons. The estimates confirm that high levels of subsidies (in the range of 35-50 percent) were required for India to export wheat or rice in recent years, a conclusion reached by several other studies. However, we report less disprotection of Indian agriculture in the 1990s than in earlier published studies. Part of this difference is explained by the differences in our approach, like the modified procedure for choice of a reference price. A large component of this difference can be accounted for by whether or not the scaling up procedure is invoked.
In the second paper, on exchange rate misalignment and its effects on PSEs, modem time series econometric techniques are used to identify determinants of the equilibrium real exchange rates for India and China. Our findings show that, due to poor external sector performance and depletion of foreign exchange reserves, the actual real exchange rate of the Indian rupee was overvalued in the years leading up to the financial crisis in 1 991 , but has since then move closer to the equilibrium. The Chinese yuan also experienced periods of misalignments which mostly consist of undervaluation. Rigid nominal exchange rates, low inflation rates, and strong economic fundamentals in recent years have driven up the gap between the actual and equilibrium value of Chinese currency, causing an undervaluation of about 20 percent.
The nominal equivalents of the equilibrium real exchange rates are applied to the calculations of MPS and PSEs to determine the effects of exchange rate misalignment on agriculture. Drawing on the India study, and initial work on the agricultural policies in China by Dr. Dongshen Sun of CASS, our results (from 1986-2002 for India and from 1995-2001 for China) show that the "indirect" misalignment effects have either amplified or counteracted the direct effect on agriculture from sector-specific policies. In India, such indirect effects are relatively small, especially after the 1991 economic reforms, and are mostly dominated by the direct effects. But in China, especially in recent years, the indirect effect from exchange rate undervaluation has been quite substantial. From 1999-2001 , for example, we estimate that direct effects of agricultural policies resulted in average disprotection of agriculture measured by commodity- specific PSEs of -7.7 percent, while the indirect effect of undervaluation was +10.2 percent.
The results presented in these two papers increase knowledge about the policies that have caused protection or disprotection of agriculture in India and China, and the magnitude of these effects. These results, along with analyses we have developed for Indonesia and Vietnam, have been presented at several conferences, including two in China (in Beijing, December 2003, and Nanjing, December 2004, each publishing a conference proceedings); one in Pakistan (March 2005); at the FAQ (October 2003); and at two annual meetings of the American Agricultural Economics Association (August 2004 and accepted for July 2005). We will continue to present these results in other professional settings and in discussions with policy decision makers.