Chapter 4 - Comparing the impact of policy measures

4.01 Tables 4.1 to 4.7 present a comparison of alternative policy instruments aimed at restoring various aspects of livestock production and use. They analyse policy measures applicable in each area of concern and show their relative impact on different sectors of the economy in the short term.

4.02 The government budget: refers to changes in government revenue and expenditure as a result of implementing a particular change i in policy. Most changes involve expenditure in one form or another, through, for example, provision of subsidies or financing credit to producers. Against this increase in expenditure should be set (a) the possible receipt of finance for some of these policies from external agencies (b) the cost to government budgets from not acting, e.g. the continued provision of relief supplies to affected populations unable to reconstitute their capital and income, (c) the longer term benefits in the form of increased revenue-from reestablishing the viability of livestock and farming sectors.

4.03 Producers are divided into those of livestock and of grain. This is in order to identify the effects of changes in relative prices and levels of demand for the two products. There is evidently considerable heterogeneity within each group of producers which this distinction overlooks, for example in terms of herd size, herd management objectives and access to resources. Similarly, grain producers are not a homogenous body, some farmers producing a regular surplus while others must buy a part of their grain needs in most years. In addition, many producers are involved in both areas of activity, pastoralists growing some grain and farmers holding livestock assets.

4.04 Consumers: High income consumers are predominantly urban, purchasing above-average quantities of meat, predominantly beef. They are usually politically powerful group on whom governments depend for their support. This implies that governments will aim to avoid adverse changes in their welfare. Low income consumers are composed of the urban poor and the vast majority of the rural population. Their consumption of beef is relatively low and they depend instead on cheaper sources of meat - small stock, poultry - and other forms of protein - eg dried fish. Grains form a major part of their diet and of their expenditure; consequently, a large rise in the price of cereals will adversely affect the welfare of their group of consumers. While they represent a politically less powerful group, less influential and with poorer organisation and contacts than the high income group, the urban poor can occasionally wield great political power. Several governments have avoided or reversed cereal price rises following the threat of urban riots over the escalating price of food. Considerations of equity would imply the pursuit of policies in the interests of low as opposed to high income consumers.

4.05 External trade: This item measures the net expected changes in the flow of imports and exports as a result of each policy being carried out. Some measures will have a substantial foreign exchange cost, such as the diversion of animal feed from export to domestic use, imports of grain and meat, etc. As in the case of the government budget, external funding may be available to carry out some of these activities, thereby reducing the overall foreign exchange cost.

4.06 Discussion of Tables 4.1-4.7: These tables present the short term impact of various policy instruments on different sectors of the economy, the nature of the impact noted as being positive (+), negative (-) or neutral (0). The tables consider only the likely effects in the short term and thus ignore the longer term repercussions of different measures. For example, a ban on the export of female stock will reduce foreign exchange earnings in the short run. Over a period of years, however, this ban may promote faster reconstitution of herds and a more rapid return to pre-drought levels of livestock exports.

4.07 The impact of a particular policy instrument will be strongly affected by the structure of marketing and prices. For example, the effect on external trade from raising farm prices will depend on whether these farm products are exported, whether price increases paid to farmers are passed on in higher export prices (or absorbed by marketing boards) and, if the former, on the elasticity of demand in world markets for this export commodity. The overall size of the impact will often depend on the relative sizes of gains and losses. For example, some policies such as the lifting of direct taxes on livestock will involve a loss of revenue to governments on the one hand. On the other hand, there may be some fall in administrative costs as a result of the tax being lifted.

TABLE 4.1. ASSESSING THE IMPACT OF ALTERNATIVE POLICY INSTRUMENTS ON THE ECONOMY Aim of Policy - to Reconstitute Livestock Capital

Affected Sectors		Policy Instruments Used
		Credit for herders to buy stock	Agency buys animals for redistribution	Ban export of females	Ban slaughter of females	Raise livestock prices paid by government
Government budget		- -	- -	-	-	- -
Producers:
	Livestock	++	++	-	-	- -
	Grain	+/0	+/0	0	0	0
Consumers:
	High income	-	-	+	-	-
	Low income	-	-	+	-	-
External trade		-	-	-	+	-

TABLE 4.2. ASSESSING THE IMPACT OF ALTERNATIVE POLICY INSTRUMENTS ON THE ECONOMY Aim of Policy - to Reduce Pressure on Herder Incomes

Affected sectors		Policy Instruments Used
		Reduce livestock taxes	Subsidise grain to herders	Subsidise dried milk distribution to herders	Develop non-pastoral income sources
Government budget		- -	- -	- -	- -
Producers:
	Livestock	+ +	+ +	+ +	+ +
	Grain	+/0	-	0	0/-
Consumers:
	High income	-	-	-	0
	Low income	-	-	-	0
External trade		-	-	-	0/-

TABLE 4.3. ASSESSING THE IMPACT OF ALTERNATIVE POLICY INSTRUMENTS ON THE ECONOMY Aim of Policy - to Raise the Productivity of the Livestock Sector

Affected Sectors		Policy Instruments Used
		Subsidise distribution of supplementary feed to pastoral areas	Subsidise distribution of supplementary feed to fattening schemes	Animal health programme
Government budget		- -	- -	- -
Producers:
	Livestock	+ +	+ +	++
	Grain	0/-	0/-	+/0
Consumers:
	High income	0	+	0
	Low income	0	+	0
External trade		- -	- -	- -

TABLE 4.4. ASSESSING THE IMPACT OF ALTERNATIVE POLICY INSTRUMENTS ON THE ECONOMY Aim of Policy - to Reconstitute Farmers' Ploughing Capacity

Affected Sectors:		Policy Instruments Used
		Farmer loans for oxen purchase	Purchase oxen, feed and distribute	Tractor pool run by government	Farming loans for tractor hire	Subsidise fodder for oxen	Subsidise fertiliser and hand tools
Government budget		- -	- -	- -	- -	- -	- -
Producers:
	Livestock	+	+	0	0	0/-	0
	Grain	+ +	+ +	+ +	+ +	+ +	+ +
Consumers:
	High income	0/-	0/-	0	0	0	0
	Low income	+	+	+	+	+	+
External trade		-	-	- -	-	- -	- -

TABLE 4.5. ASSESSING THE IMPACT OF ALTERNATIVE POLICY INSTRUMENTS ON THE ECONOMY Aim of Policy- to Reduce Pressure on Farmers' Incomes

Affected Sectors		Policy Instruments Used
		Reduce land tax and poll tax	Raise farm prices paid by government	Minimise constraints on wage-employment, flows of migrant labour, etc.
Government budget		- -	- -	+/0
Producers:
	Livestock	+/0	-	+/0
	Grain	++	++	+ +
Consumers:
	High income	0	-	0
	Low income	0/-	- -	0
External trade		0/-	+/-	+

TABLE 4.6. ASSESSING THE IMPACT OF ALTERNATIVE POLICY INSTRUMENTS ON THE ECONOMY Aim of Policy - to Promote the Export of Livestock

Affected sectors		Policy Instruments Used
		Subsidise exports of livestock	Reduce taxes and other export costs	Increase taxes on domestic meat consumption	Impose direct controls sectors on domestic consumption rationing, etc.
Government budget		- -	- -	+ +	- -
Producers:
	Livestock	+ +	+ +	- -	- -
	Grain	0	0	0	0
Consumers:
	High income	-	-	-	-
	Low income	-	-	-	-
External trade		+ +	+ +	- + +	+ +

TABLE 4.7. ASSESSING THE IMPACT OF ALTERNATIVE POLICY INSTRUMENTS ON THE ECONOMY Aim of Policy - to Favour the Domestic Meat Market

Affected Sectors		Policy Instruments Used
		Lower taxes on domestic slaughters and market	Subsidise domestic consumers prices	Ban the export of stock	Raise export taxes	Subsidise imports of meat
Government Budget		- -	- -	- -	+ +	- -
Producers:
	Livestock	+ +	+ +	- -	- -	- -
	Grain	0	0	0	0	0
Consumers:
	High income	+ +	+ +	+ +	+	+ +
	Low income	+	+	+	+	-
External trade		- -	- -	- -	- -	- -

4.08 A number of conclusions can be drawn from Tables 4.1- 4.7 with respect to the cost and effectiveness of the different policies considered.

4.09 There is usually a variety of policy measures open to governments to achieve a desired aim or objective. These are not necessarily alternatives to each other but may be used in combination. For example, pressure on herders' incomes can be reduced by a mixture of policies including the abolition of livestock 'axes, provision of cheap grain supplies and the development of supplementary income sources.

4.10 Policies aiming at a single objective differ considerably in their distributional impact, depending on the policy instrument used and the course by which it achieves its effect. For example, the promotion of livestock exports may be achieved either by offering relative higher returns to producers and traders in export markets, or by imposing a mixture of taxes and controls on domestic sales and slaughters. In the latter case, producers will suffer a net income loss, since the flow of livestock through markets is directed by fiat rather than by providing price incentives.

4.11 Policies vary in the size of their spill-over effects into other parts of the economy. Some policies achieve their objectives fairly precisely, with the minimum of side-effects, while others cause a range of changes in other factor and product markets.

Spill-over should be kept to a minimum, since they cause unintended changes in relative price levels and incentives affecting the efficiency of resource use in other areas. However, in some cases the government may have little choice but to adopt a broad-based policy with considerable spill overs where it lacks the administrative infrastructure to pursue a more precisely focussed policy. Table 4.8 shows, for the achievement of particular objectives, how policies can vary in their specificity and degree of spill-over.

Table 4.8. Targeting of Policies and Size of Spill-over Effects.

	Example 1) Promotion of Livestock Exports.	Example 2) Help to Reconstitute Holdings of Particular Herders
Well-targeted policies	Specific subsidies on livestock exports.	Distribute livestock to particular herders, on credit, subsidised prices or free.
	Reduce taxes and costs of exporting livestock, such as-improvements to transport.	Promote small stock, such as specific health programmes for reducing high mortality among kids.
Increasing spill-over effects	Control number of domestic slaughters' meat rationing. Increase tax on domestic consumption of meat leading to consumer price rises and a fall in demand.	Provide subsidised inputs to certain class of herder, for example by reducing pressure on incomes of smallest herd-owners by differential taxes' subsidised grain, milk powder. Ban on export and slaughter of females. Maintain high government buying price for stock.
		General livestock health measures. Develop non-pastoral income sources in most seriously affected areas.
Less specific policies	General subsidies on the exports of all commodities. Exchange rate measures to increase earnings from exports.	Reduce livestock tax on all herd owners. Reduce pressure on the incomes of all herd-owners by subsidies on inputs, grain, fodder.
	General tax increase for domestic consumers, reduction in government paid salaries.	Ban on the export of all stock.

4.12 There is a wide range in the administrative costs of policy implementation, there being in general a trade-off between the precision attainable and the cost of achieving this. For example, it could be argued that livestock tax relief should go to herders with the smallest number of stock, tax being levied once herd numbers rise above a certain level, this graduated schedule providing relief only to those most - in need. However, the assessment and collection of livestock tax is sufficiently problematic in many countries already, without additional demands being made on administrative staff to verify actual ownership of livestock in the close detail which would be required for the introduction of such a policy measure. Similarly, in designing a credit programme to aid farmers who have lost their work oxen, a decision must be made about how much time to spend, on the selection and screening of applicants for loans. While a tighter procedure might ensure a lower degree of fraud, it also places a greater strain on limited administrative resources and hampers the speed at which reconstitution of holdings can take place. Some degree of fraud may be acceptable in order to achieve a rapid disbursement of funds where speed is a crucial actor in the success of a policy. This would be particularly the ease where, for example, work oxen must be distributed before the start of the farming season in order to ensure a timely preparation and sowing of fields.

4.13 The probability of receiving external funding will differ between policy measures. Many donors will be more willing to fund direct interventions in farm and livestock production than in provision of general financial support to the government's budget.

4.14 Policies differ in terms of their timing, the speed with which they can be implemented and the time period over which their impact is intended. Certain actions can be taken immediately, such as the abolition of taxes on livestock, land, slaughters, etc. Others will take much longer to implement, requiring the setting in place of administrative structure, for example to control the movement and prices of livestock or to establish a system for the distribution of subsidised animal feed. Policies which build up productive capacity on a permanent basis are to be preferred to those which provide inputs over a limited period. For example, when helping farmers to reconstitute their work oxen holdings, funds may be used to enable them to purchase new animals or to hire draft power (work oxen or tractors) from elsewhere. The latter policy evidently does not provide the farmer with permanent access to draft power; it may however be a useful complement to a work oxen credit programme where, due to limited numbers of oxen available for distribution immediately, considerable demand for draft power remains unsatisfied. Over time, as an increasing supply of oxen becomes available, the tractor hire scheme can be phased out.

4.15 A comparison of policy options should include an explicit assessment of the cost of not taking action in a particular field. In the cases looked at here, the costs of inaction are composed of an extension of the period with below average production in livestock and farming sectors, leading to reduced opportunities for income and employment for part of the population who must as a result depend on others for support (from the state, famine relief agencies, kinship links, etc), a reduced taxable base, lower export earnings and higher domestic prices for output from drought-affected sectors of the economy The financial, economic and social costs- of inaction are high. However, as recent experience in several drought-affected African countries has shown, it may be relatively easier for the government to get funding for the provision of food relief than it is for longer term development programmes.

4.16 The above points illustrate the different characteristics of policy measures aimed at restoring the performance of drought-affected sectors of production, in terms of their costs, spill-overs and distributional impact. Particular governments will be faced by additional constraints on the choices to be made among possible policies; these constraints are imposed by limited resources, poor marketing and administrative infrastructures leading to weak control by government of trade flows within the country and to foreign markets, weak institutional development at the level of producer organizations and political constraints imposed by the need to act in the interests of certain groups.

4.17 Resource constraints, almost all policies require the direct allocation of funds for their implementation and many of the policies investigated in Tables 4.1 - 4.7 are costly in administrative and material resources. By contrast, inaction makes no immediate demands on the government budget; however, its long term cost may be much greater in terms of foregone output, incomes and foreign earnings. In au poor countries, there will be a high opportunity cost to the use of most resources. Foreign exchange is usually in especially short supply. Thus, policy measures which rely on using exportable commodities (such as agro-industrial by-products) or on importing inputs (such as machinery, fuel and spare parts for a tractor hire scheme) must be looked at with particular care. Foreign exchange limitations are relaxed where part of the finance required is available through grants in aid from external agencies.

4.18 Marketing and administrative structures. Several of the policy options outlined in Tables 4.1- 4.7 involve government intervention in controlling trade, prices and the imposition of taxes and subsidies. This presupposes a structure through which governments are able to act effectively at little extra cost. In practice, in few countries do governments have the required degree of control in these fields to carry out such policies. Thus, for example, it is estimated that controlled exports make up only a small proportion of total livestock exports both from Ethiopia and from many Sahelian countries. This is due to long frontiers which are impossible to police effectively except at very great cost. By contrast, Botswana meat exports - are channelled entirely through the Botswana Meat Commission official exporting body and this is made possible by the high prices paid to producers by the BMC. On the hoof exports of stock across the frontier to neighbouring states are of negligible importance. Control over domestic slaughters is less complete as many of these take place in rural areas. Prospects for policies aimed at redirecting livestock flows between export and domestic markets are far greater for a country like Botswana, where movement within the country is also tightly controlled, due to the need for careful monitoring of livestock quarantine regulations to comply with the import standards of the European Community. Some countries have tried to set up parastatal bodies to enable governments to have more control over livestock marketing but attempts by government to impose tighter controls on domestic slaughters or exports of stock have often had little or no effect. Instead such policies tend to drive a higher share of the market into the uncontrolled sector. Thus, Stryker (1974) reckons that attempts to intervene in the Malian livestock market, over the period 1960-68, were largely nullified by the ability of merchants to displace their activity to other locations. Similarly, the short-term export ban on various categories of stock from many Sahelian states after the drought of 1973, while it led to a dramatic fall in controller exports, probably caused a substantial increase in the number of exports passing through illegal channels.

4.19 Level of institutional development at the producer level. The structure of livestock production differs between countries, in the ease of Botswana, 15% of the cattle are held by large commercial farmers and 85% by smaller herd owners in the communal areas. In Ethiopia, the traditional farming sector accounts for about 70% of the country's cattle population, most of the rest being held in rangeland areas while State Farms are of significance in some areas. In most Sahelian states, livestock are in the hands both of pastoralists and farmers' although an increasing proportion of animals are thought to be held by non-traditional producers (traders, civil servants, etc.) who invest in cattle as one asset within a wider portfolio of investments. Different patterns of ownership imply differing herd management objectives and supply responses to changing market conditions. The structure of production, mean herd size and the extent of producer organisation affect both the options open to government to intervene successfully in this sector and the extent to which producers can themselves lobby for their own interests. A network of herder co-operatives, for example, provides a framework within which credit and other inputs can be channelled to herd owners. In their absence, active intervention in the livestock sector becomes much more administratively costly as systems for selection, allocation and distribution of resources must be established. For this reason, several development agencies working in the Sahel have made it an explicit component of their project work to set up some institutional structure that can act not only as the vehicle for current intervention, but also for evolving systems of communal resource management.

4.20 Political constraints. All governments depend on particular groups for their support, for example the army, the middle classes or producers of commodities critically important to the performance of the economy. Almost all policies are likely to affect the distribution of welfare within society' whether it be by changes in relative prices or by changes in employment and income prospects for certain groups of workers. On the whole, the power of the urban professional class has tended to ensure that priority is given to the level of food prices in urban markets. For this reason, governments have been unwilling to adopt policies which might lead to domestic shortages of key commodities, such as grains and meat.