Abstract
Governments intervene in the agricultural price-setting mechanism in many ways that lead to distorted agricultural incentives. This paper attempts to discriminate among several factors that are hypothesised to affect government behavior in distorting wheat, rice, and maize prices. The analysis shows that governments do distort wheat, rice and maize prices. The main determinant of the extent and direction of the distortions is the level of development of the country. Governments, however, distort, in addition, the relative prices of the same commodities. The results show that countries follow taxing or subsidizing pricing policies that are influenced by vested interest groups and lead to domestic relative prices that are different from the respective international relative prices.
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