Tackling the political problem of
farm subsidies
Prepared for:
University of California
Silverado Symposium on Agricultural Policy Reform
Silverado Resort, Napa Valley, California
19-20 January 2004
Prepared by:
Dr Andrew Stoeckel, Executive Director
Centre for International Economics, Canberra, Australia
The agricultural trade problem

No reform for fifty years

Political problem

Farmers are a well organised political group

Things have not got much better

But, in general, not worse either
2
Producer support estimate (%)
Agricultural PSEs for OECD, the
United States, Japan and the
European Union
70
Japan
60
50
40
European Union
30
OECD
20
10
United States
0
3
Producer support estimate (%).
The mix of highly distorting and
less distorting agricultural
subsidies in OECD countries
70
60
Less distorting
Highly distorting
50
40
30
20
10
0
4
5
Forces for and against reform
Forces against reform
Forces for reform
Farmers
6
CBO projections of total US
fiscal surplus/deficit
1000
800
US$ billions
600
400
CBO projections, January 2001
200
0
-200
-400
CBO projections, August 2003
-600
7
Forces for liberalisation
Taxpayers
Consumers
Exporters
Those facing
barriers
Developing
countries
Greens
Generally
Doha Round only
empowers this
group
8
Doha Round

Based on reciprocal ‘concessions’

May have worked in the past

No longer working

Success in other areas (nothing left to ‘give’ away)

Flawed logic
9
A quick quiz of Indonesian
journalists
GOOD
BAD
EXPORTS are:
19
0
IMPORTS are:
0
19
10
Forces for liberalisation
Taxpayers
Consumers
Exporters
Those facing
barriers
Doha Round only
empowers this
group
Developing
countries
Greens
Generally
Australia’s
liberalisation
led by this group
11
12
How to engage other groups

Economy-wide analysis


Important in Australian liberalisation


Also for New Zealand
Requires a special process


Look beyond the direct to the indirect or secondary
effects
Open, independent, transparent
Changes the politics of protection
13
Forces for liberalisation (continued)
Against reform
Farmers
For reform
Greens
14
Good and bad subsidies
Positive economic
Negative economic
4
x
44
4x
x4
xx
Positive environmental
4
Negative environmental
x
80%
15
Benefits of New Zealand reform
1800
Area of private forests
80
70
Number of sheep
1600
1400
60
1200
50
1000
40
800
30
600
20
400
10
200
0
Private forest area (000 ha)
Sheep numbers (million head)
90
0
16
Forces for liberalisation (continued)
Against reform
Farmers
For reform
Developing
countries
17
Welfare gains from trade
liberalisation in the Philippines
10
8
Full WTO liberalisation
6
4
Own liberalisation
2
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
18
Preferences and developing
countries

Mauritius has preferential access to EU’s sugar
market

Benefit: Mauritian sugar (roughly)
0.6 mt x $500 per tonne = $300 million

BUT

Resources used to produce sugar
 93 per cent arable land devoted to sugar
 Tourism has limited access to land
 ‘Guestworkers’ imported to fill labour gaps
19
Preferences and developing
countries (continued)

Measuring all secondary effects shows Mauritius
worse-off

Same story with bananas

Preferences ‘kiss-of-death’
20
21
Forces for and against reform
Forces against reform
Forces for reform
Farmers
22
Price differentiation, domestic
Wagyu beef production: Japan
tonnes
300
250
200
BSE
scare
150
100
Market liberalisation
50
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
23
Summary

Farm trade liberalisation a political problem

To see reform, have to change the politics

Doha round on its own unlikely to do this

In fact, makes going harder

Sends wrong ‘exports good, imports bad’ message

Need several groups to join forces as a
counterweight against those blocking change

Combination of economy-wide analysis and
open, independent, transparent process changes
the politics of protection
24