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Extra resources for Agricultural Policies for Poverty Reduction
The inevitability of leakages to other agents in the supply chain, and the difficulties of targeting have already been noted. In addition such measures may crowd out the development of private input markets, may lead to the over-use of inputs, and once introduced have historically proven difficult to rescind. Nevertheless, there has been renewed optimism that a new generation of so-called "smart" subsidies, by virtue of innovative design features, such as exit strategies, can deliver income benefits while limiting their known shortcomings (Dorward, 2009b).
In the case of OECD countries, the Policy Evaluation Model (PEM) has shown such instruments to be inefficient, because a large share of the benefits leaks to non-farm factor owners (principally landlords) and suppliers of purchased inputs (OECD, 2001). Moreover, the use of such instruments typically has perverse distributional effects, with larger farmers benefiting more than small ones (OECD, 2003). For developing countries, the effectiveness of such instruments relative to direct payments is currently being investigated with a new model, the Development Policy Evaluation Model (DEVPEM), which adapts the PEM to take account of some specific aspects of developing country agriculture (OECD, 2011a).
Improving the competitiveness of farrn households Income diversification for farm households and salaried agricultural workers Income diversification is essential for many farm households. For the poorest farm households, this is likely to provide some insurance and is in effect a "coping" strategy. For other farm households, having one or more family members draw income from outside agriculture may be the start of a successful move into more remunerative activities. Policies that support farm income alone, such as market price support, act as a disincentive for income diversification outside agriculture, and create an obstacle to one of the key "adjustment pathways".
Agricultural Policies for Poverty Reduction by OECD Publishing