Multifunctionality and non-trade concerns: implications for future agricultural policy in Asia

Agriculture's multifunctional role as provider of non-commodity outputs has received increased attention in the debate on the future of agricultural policy. To identify appropriate economic policies, a distinction must be made between concerns involving market failure and a consequent misallocation of resources, and those relating to distributional issues. We argue that it is essential to restrict the concept of multifunctionality to non-commodity outputs involving technical externalities or public goods and for which market failure and the misallocation of resources are important (e. g., amenity values and agricultural pollution). Other non-trade concerns, such as rural incomes and employment and food security, involve distributional issues, but no resource misallocation. This distinction makes it possible to identify different types of domestic policy measures to address them effectively and efficiently. Through reference to an empirical application to Taiwanese paddy rice policy, we illustrate that the most effective way to reconcile non-trade concerns is through policy measures that correct for market failure by valuing non-commodity outputs appropriately and a separate set of measures that address distributional issues.