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of lower output amonig major coffee growers.<sup>Exports rose in 1988 according to preliminary data available</sup> at the time of this writing.

Direct pricing policy distortions. A variety of government<sup>acdons can affect producer prices directly (fixing</sup> prices, export taxes, marketing arrangements, etc).<sup>The net effect of which is often complex. To assess the</sup> magnitude of the collective distorting effects of these policies,<sup>some kind of measure is needed to capture the</sup> net effect of these complex interventions. The most<sup>commonly used measure of the distorting effects of</sup> policy is the nominal protection coefficient (NPC)<sup>-or ratio of producer price to border price adjusted for</sup> - marketing costs which compares what a farmer<sup>receives to the maximum he could receive short of</sup> subsidies (an NPC less than one indicates a tax<sup>on producers, an NPC greater than one would reflect a</sup> subsidy). NPCs have been widely used to assess<sup>the effect of policy on agricultural incentives, as a</sup> relatively simple means of assessing the divergence<sup>of producer prices from what they would be in the</sup> absence of government policies. I/ Figure 2 indicates that NPCs for Africa's major<sup>exports have fallen and risen twice since 1970, and</sup> are now at a level of about 1.0, on average, but having<sup>fallen below 0.5 in 1976. The range of NPCs varies</sup> widely among countries and over time (see Annex<sup>D tables 1 and 2), from as low as 0.16 for Ghanaian</sup> cocoa in 1976 to as high as 2.6 for Senegalese groundnuts<sup>in 1987. In most countries the NPC varies</sup> erratically from year to year because producer prices<sup>are usualy set at the beginning of the growing season,</sup> long before the international price that wiUl be received<sup>for their production in the folowing year is</sup> known. 4/ Only in the few countries where the producer<sup>price is based on what is eventually received for</sup> their product (using a rebate system) as in Kenyan<sup>and Ethiopian coffee, and Malawian tobacco, are the</sup> NPCs more stable across years.

The degree of taxation implicit in these NPCs is in many<sup>cases substantial. However, it does not</sup> appear to be significantly higher during this period<sup>than in other developing regions when compared to those</sup> estimates (Binswanger and Scandizzo; Krueger,<sup>Schiff, Valdes).</sup> Macconomic policy distor Thons. I e NPC as a measure of policy distortion suffers, however, from<sup>at</sup> least two important drawbacks. First, the NPC does not<sup>take account of exchange rate misalignment or</sup> the implicit taxation that it can represent, and thus<sup>will understate the degree of agricultural</sup> taxation when exchange rates are overvalued. And<sup>second, changes in the NPC over time arise</sup> from three sources, but the reladve importance of<sup>any one factor relative to the net</sup> I/ A broad range of agricultural and macroeconomic<sup>data for 1970 to 1988 were used to examine policies,</sup> incentives, and performance for up to 40 African countries<sup>(see Annex A for details). The time period being</sup> considered and the number of countries involved<sup>lends itself to an analysis of cross-sectional and time-series</sup> data. NPCs for each country's major export and food<sup>crops have been computed as the ratio of producer</sup> price to border price net of all processing and marketing<sup>costs. Both numerator and denominator are</sup> adjusted to reflect the comparison of producer to border<sup>prices at the "last joint marketing point' (Westlake);</sup> the border in the case of exports, and the major<sup>consumption center for import substituting food crops. See</sup> Scandizzo and Bruce (1980) for computational<sup>details.</sup> _41/_ The wide swings in NPCs from year to year<sup>explains, in part, conflicting findings in the literature as to</sup> the degree - and direction - of policy distorting<sup>effects in a particular country. Unless such studies are</sup> comparing producer prices and international prices<sup>for the same year, significant differences are likely to</sup> occur in the conclusions. Given these wide variations<sup>over time, multi-year analyses are advisable.</sup>