Increasing agricultural production in Peru and Paraguay : the role of incentives

To gain an insight into this anomaly, the author of this report examines, against the background of each country"s general agricultural situation, the causes of these production increases. Applying Mosher"s paradigm of the five factors essential to increased agricultural production (transportation, inputs, technology, markets, and incentives), the author finds that the increases were mainly due to the incentive offered by high prices. In Peru, a new market outlet of foreign drug buyers, stemming from increased demand for cocaine, created the incentive of very high prices. Likewise in Paraguay, production increases are largely attributed to the development of a high-quality hybrid cotton commanding a high price on the world market and the prices offered for soybeans. The author notes that prices in these cases refers to world prices, not domestic prices, which are often kept low in an effort to keep consumer prices low. The implication is that lack of an effective incentive could be a key factor limiting production increases in other food commodities.