Monitoring and evaluating policies, projects and programs are particularly important for the development of any country. These two activities allow us to assess whether programs and projects are implemented efficiently, and to evaluate their success in terms of their objectives, goals and target population. Only if we know well how a plan is being implemented, and what results and impacts it has in the short, medium and long term, can we refine and improve the design of the policies on which these projects are built.
For this reason, the Inter-American Development Bank (IDB), through the Agrimonitor initiative, supports the governments of Latin America and the Caribbean in monitoring their agricultural policies. Agrimonitor uses the OECD methodology called “Producer Support Estimate” (PSE) to measure how much governments invest in the agricultural sector. This methodology allows to quantitatively determine the level of support to the sector, and classify this support as market price protection, private subsidies -or other forms of direct support to producers and consumers-, or investments in general services or public goods.
Within the framework of this initiative, the IDB has worked jointly with the governments of the region in the development of skills for policy monitoring. One of the first success stories was Ecuador, reflected in the collaboration carried out since 2016 with the Ministry of Agriculture and Livestock (MAG). After a process that included training and technical support, Ecuador’s MAG calculated the indicators of support for the sector. The most relevant findings were subsequently published as part of the IDB’s series of Agricultural Policy Reports.
The report on Ecuador shows that the agricultural sector contributes with 10% of the country’s GDP and employs more than two thirds of the economically active rural population. In addition, the report shows the sector faces several challenges, such as a low diversification of the export basket, accentuated rural poverty, low agricultural productivity, and the sector’s vulnerability to climate change.
Given this scenario, the government of Ecuador provides two types of support to the sector: protection of market prices and public spending. On the one hand, price protection in the country occurs through tariff and non-tariff barriers for imported products. Ecuador is a member of the Andean Community of Nations (CAN), and as such applies ad valorem variable import duties, in accordance with the Andean System of Agricultural Price Strips. In addition, for certain products, the Ecuadorian government sets “Minimum Support Prices“, to sustain the income of producers in the context of price instability, and compensate the market power of intermediaries, food processors and retailers.
On the other hand, support for the sector through public spending consists of a mixture of direct subsidies and public goods. Direct subsidies include the delivery of agrochemicals or subsidized certified seeds, provision of machinery, equipment and infrastructure, on-farm services, or subsidized agricultural insurance programs. Investments in public goods, such as research, innovation and technology transfer, agricultural health, and infrastructure, are also part of the portfolio of support programs for the sector.
Total support to agriculture represented, on average between 2014 and 2016, 1.07% of GDP, similar to other countries in the region. Market price support represented, according to the information provided by MAG, between 51 and 96% of total support in the period 2006-2016, due to tariff barriers (for example, import tariffs on pork) and pricing mechanisms (for bananas, rice and milk). Moreover, between 2014 and 2016, 46% of public spending was allocated to subsidies (mainly to inputs), and 54% to various public goods (with significant investment in research and education). The composition of support in Ecuador is somewhat different compared to that of other countries in the region (for example, Chile, or Uruguay) that support agriculture more heavily through public goods (or general services, as they are called in the PSE methodology) and have reduced support in the form of market price protection or direct subsidies.
Data collected through this analysis show us that the composition of support to the Ecuadorian agricultural sector could be improved. For example, a study conducted by the IDB estimated that redirecting government spending towards public goods (10 percentage points), without increasing total public spending, could raise per capita income by up to 5%. On the other hand, the country could gradually reduce market price protection to reduce distortions that can affect Ecuadorian consumers by paying higher prices for imported goods.
The collaborative work between the government of Ecuador and the IDB is still ongoing. Now, in addition to the support in agricultural policy monitoring, we are working on the construction of indicators to monitor fisheries policies, and in the next entry we will give you updates!