Analysis of Policies Affecting Pesticide Use in Ecuador

Nominal Rates of Protection (NPR) were calculated to quantify the degree of pesticide subsidy in Ecuador from 1991 to 1996. Equilibrium exchange rates were computed first to determine the indirect and total NPR's in addition to the direct NPR's. The computed equilibrium exchange rates from 1987 to 1996 indicated a decreasing trend in Sucre overvaluation. The direct NPR's indicated a small tax on pesticides due to a tariff and customs tax, and the indirect NPR's indicated a decreasing trend of subsidization due to the reduction in Sucre overvaluation. In sum, total NPR's indicated that the subsidy on pesticides has decreased substantially.

A demand function for pesticides was estimated to quantify the effect of price distortions on pesticide demand. Due to the limited degrees of freedom, a statistically significant function was not obtained. However, pesticide price, agricultural credit, and overvaluation of the Sucre were statistically significant in influencing pesticide demand.

Policy implications were drawn based on empirical results and background information. Since the agricultural profitability of small farms producing outputs for domestic consumption is most affected by the current economic liberalization, the Ecuadoran government may need to find a means for supporting the profitability of these farms to protect national agricultural productivity. Policies that aid these farmers in the adoption of inexpensive integrated pest management (IPM) technologies would help achieve this end, while reducing the environmental and health problems caused by pesticide use.