Government policies can have a major impact on the competitiveness and profitability of industries. This article presents an approach that can be used to evaluate their effect, both individually and in concert, on competitiveness and profitability. The approach, which is based on the same principles as those of effective protection, is demonstrated using Ontario's tomato paste and tomato producing industries. Results of the example demonstrate three important contributions of this approach. First, it helps direct attention to those policies which have the most serious effect on the performance of an industry. Second, it recognizes both the positive and negative effects of policy measures on an industry. Third, it shows that policies can have important spillover effects when industries are linked vertically through markets.
Executives in agribusiness see government policy as having major impact on the competitiveness and, hence, the profitability of their businesses. As a consequence, they spend a great deal of time and effort seeking changes in policy so that it economically favors their businesses. A notable characteristic of this lobbying activity is that it tends to be directed at specific policy measures. It is not, however, always apparent why these policies attract attention, nor is it clear why lobbying tends to concentrate on criticism of government policies that are seen as having negative consequences, while those that have positive consequences-even when put into place to compensate for the negative consequences-are ignored. Given this situation, some means of methodological analysis for rating the importance of various policy measures to business performance seems highly overdue, especially one that would deal with both domestic and trade policies.
This article offers an application of techniques developed and applied by trade economists to the measurement of the price effects of policies affecting trade. l,* Such analysis has been used in the international negotiations directed at reducing national policies that distort trade. Unfortunately, these methods have not been extended to developing a better understanding of the effect of the full range of policies affecting individual domestic industries. This article shows how these methods can be used to fill this gap.