domestic prices with which they were being compared.<sup>3</sup> Finding a product traded internationally for which a consistent long term price series was available was crucial but difficult and usually required making some arbitrary assumptions which are detailed in the background papers. Although it is perhaps an extreme case, the lengths to which we had to go can be illustrated by the NPC estimates for groundnuts.. Indian groundnuts are overwhelmingly used as the raw material for the groundnut oils and meal industry, but for many years there have been no Indian imports or exports of crushing grade groundnuts, and international trade in similar groundnuts (mainly exported from Africa) practically ceased in about 1988. After this there are no published statistics of international groundnut prices, with the exception of much higher quality and higher priced "US runner " groundnuts used for direct consumption and in the confectionery industry. Comparisons of Indian groundnut prices with the latter would be quite misleading and would suggest that the Indian industry which previously has been heavily protected had overnight become disprotected. To deal with this problem, in this case we obtained a regression equation relating international prices of crushing- grade groundnuts at Rotterdam during the period in which these prices were published, to the international prices of groundnut oil and meal during the same period. For the years after 1988, this equation was used to infer hypothetical international crushing- grade groundnut prices from the published international prices of groundnut oil and groundnut meal, and adjusted for transport and marketing costs, these inferred prices were in turn used as the basis for the Indian reference prices and the NPC estimates for Indian groundnuts.

# _Importable and exportable hypotheses_

In estimating the nominal protection indicators of farm commodities, transport and other related costs - both international and domestic - can make a very large difference. International transport costs provide a degree of protection for domestic producers against imports, whereas in exporting the domestic producer's price must be low enough to make the product competitive in foreign markets, including transport cost to the market. Consequently, the observed domestic price of a commodity may well be lower than the import reference price, while at the same time substantially exceeding the price that would have to be charged to capture export markets. Similarly, domestic transport costs provide additional protection to production in inland areas, but on the other hand reduce the prices that producers would receive if they were competing with imports at a port city, or if they were exporting. The importance of transport costs depends on a variety of factors, including the location of foreign suppliers of imports and foreign markets for exports, the location of domestic producing areas in relation to the main ports, and the value of the commodity in international trade. In particular, in our sample of commodities, transport costs were very high in relation to the international prices of low-value commodities such as maize, sorghum, and wheat but considerably lower in relation to the international prices of higher-value commodities such as rice, sugar and long staple cotton. For example, we estimate that under free trade in the 1990s, the price that the farmer would have received for wheat under free trade would have been about 40 percent lower than the price at which he would have had to compete with imports. By contrast, the estimated free trade export price for milled common rice was

**3** If there actually had been free trade, differences between the delivery times of domestic supplies and imports, and other factors, might mean that international prices in periods before and after the domestic harvest would also influence domestic prices. But we made no attempt to allow for this, owing to the arbitrary assumptions that would have to be made to construct the alternative free trade scenarios in such detail.

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