By Edwin Young, Mary Burfisher, Frederick Nelson, and Lorraine Mitchell
Domestic farm support policies are a source of market and trade distortions. As members of the WTO, countries committed to limit their spending on domestic agricultural programs presumed to be the most trade distorting and to exempt other programs from any limitations under a set of special conditions. The continuing challenge for WTO negotiations on domestic farm policy will be to obtain effective commitments to reduce agricultural trade distortions, while allowing countries flexibility to use minimally trade distorting policies to achieve their own national priorities. Part of the task facing trade negotiators is determining where and how to draw the line between benign policies and trade distorting policies.
This paper develops a database that classifies support into production and trade distorting categories that are useful in describing and comparing the structure of policy across countries and commodities for a consistent time frame. The classification design aims to show differences in the types of programs used to implement agricultural policy and differences in the potential for each program type to distort production and trade.
Results show that the type and level of agricultural support varies widely across countries and commodities. The distorting effect of policies depends upon both the economic incentives created by program parameters and the total amount of support provided.
As the two largest agricultural sectors, the EU and the United States dominate the results, accounting for 70 percent of total value of agricultural production for the included commodities, total support, and total amber type support. Over half of measured total support and over threefourths of amber type support in the 12 OECD countries is market price support, with Korea providing over 95 percent of its support as market price support. While the level of support varies widely among countries, considerable variation in the overall level of support exists among commodities, with milk and sugar generally receiving the highest support.
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