The principal purpose of this chapter is to show that many of the economic concepts presented in earlier chapters can be employed to develop an approach to the analysis and evaluation of agricultural policies. The approach is that of partial equilibrium analysis explained in Chapter 8, and it involves the manipulation of supply and demand curves for products and factors of production to identify the effects of different policy changes upon a whole range of variables including producer and consumer surplus, balance of payment costs, and budgetary expenditures. In this form of analysis any policy can be assessed by comparing its economic effects to those of any alternative policy. One alternative policy would be to have no purposeful intervention, and to leave all economic decisions to competitive market forces operating in conditions of free trade. The method provides a means of undertaking a form of cost-benefit analysis whereby the various benefits and costs of a particular policy can be assessed against competitive free trade or some other form of intervention.

Before proceeding to the analysis of selected agricultural policy instruments, Section 12.1 briefly examines the nature and principles of agricultural policy. This is crucial in establishing the broad policy context in which the subsequent analysis of specific policy instruments and individual commodity policies should be placed and interpreted. Section 12.2 starts with the partial equilibrium analysis of policy instruments which is the focus of the chapter. Coverage here is restricted to policy instruments which have not already been presented elsewhere in the book and (with one exception) to instruments of particular importance in LDCs.