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# Forward Looking Issues

The prescription that follows from these findings should not be one of limiting the focus of attention to price policy. But rather it should be clear that the elimination of policy distortions sets the stage for getting on with strengthening the real sources of long-term agricultural growth: productive investment and technological change. In addition to investments by private agents, public investments in physical, human and institutional capital are essential such as transport infrastructure, support services, and agricultural research. All of these seek to raise productivity and reduce the cost of production to make agriculture more competitive.

In specific countries, prices may appear to be less important than nonprice factors; where price policies have not led to major distortions, attention should rightly be placed on promoting productive private and public investments. Where price distortions have been large and as a result agriculturai investments neglected, both price and nonprice constraints are likely to be binding, but romoving price distortiens should be seen as a prerequisite to encouraging appropriate investments in the sector.

The debate over the relative importance of price and nonprice factors is to some degree misguided, or at least misleading. There are three reasons for this. First, nonprice constraints on the responsiveness of agriculture may be interpretable as being price-related (i.e., the lack of roads is a transport cost which will reduce the farmgate price; the absence of extension services raises information costs making technology prohibitively expensive to most farmers). Second, the relative importance of these two categories clearly differs across countries. Therefore, the debate should rightly take place only within a specific country context.

And third, nonprice constraints in many cases may be a reflection of the very slow speed of adjustment for investments, maintenance, migration, and the attention of government to provide supporting services, in response to potentiaUy profitable agricultural activities. In the absence of price incentives, it will do little good to relieve nonprice constraints. In fact, it should be difficult to identify them without proper price signals (in the extreme, it does little good to build roads to rural areas if nobody lives there anymore).

In many cases constraints exist which inhibit a swift response of farmers to changes in prices. But bad roads, lack of irrigated land, and nonexistent input suppliers can be seen as the result of neglected investments in the face of unprofitable choices. The point here mirrors the dicotomy between short-run and (very) long-run supply response. In the same way that planting cocoa trees is a long-run investment decision by a farmer in response to expectations of future profitability, public funds for roads, storage facilities, or establishing institutional support reflect public sector responses to future returns on investment. In this way, the very long-run supply response includes "induced institutional change." Indeed, it should be clear that the highly developed physical and institutional infrastructure of Kenya's coffee sector would not have developed if pricing and exchange rate policies had been strongly adverse. The iasults presented here makc a case for the importance of reducing price policy distortions. Viewed in this way, it should be seen as a necessary but not sufficient condition for agricultural growth.