Input and Output Pricing Policies

The agricultural sector, including livestock production and processing, is the most protected and distorted economic sector, particularly in industrial countries. A large number of interventions affect both domestic production and international trade, leading to complex interactions which are very difficult to analyse. For example, the EU supports the prices of various livestock products, such as beef and milk, while at the same time encouraging cheap imports of cereal substitutes such as cassava chips and sweet potato meal. Not only does this stimulate production in excess of requirements but also creates a considerable environmental burden from the excess phosphorus and nitrogen created. Thus, these interventions are often very costly and lead to a misallocation of resources. Moreover, they are invariably detrimental to consumers and the poor. Domestic production interventions include price guarantees, subsidies, production and input quotas and capital grants, while international trade is subject to tariffs, import and export quotas, and quality and sanitary regulations.

Globalisation alongside market and trade liberalisation policies are substantially reducing these distortions as well as leading to major changes in industrial structures and input costs for many livestock producers and processors. For example, the growing investment by chemical companies, particularly in Asia, has not only increased the range and quality of chemicals available to the tanning sector but also is leading to a gradual levelling of chemical prices in global terms. Domestic production of inputs, such as chemicals, enables processors to avoid the costs associated with importing various inputs. These costs can include high import tariffs, "hidden costs" associated with corruption, and/or the costs associated with cumbersome duty drawback procedures which are in place in a number of developing countries. The ability to purchase inputs in smaller quantities also facilitates lower stockholding costs.

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