A Global Analysis Of Agricultural Reform
In WTO Member Countries
AGRICULTURAL
POLICY REFORM
IN THE WTO
The Road Ahead
Xinshen Diao, Agapi Somwaru and Terry Roe
The objective was to provide the “big picture”
Computable General Equilibrium (CGE)
Model
Global Static and Dynamic (DYNAGEM)
Main Attributes of a Computable General Equilibrium
(CGE): Basic Specification (Circular Flow)
Final Goods:
Supply
Goods & Services
Demand
Expenditure
Final
Goods:
Intermediate
Goods:
Supply
Revenue
Intermediate
Goods:
Revenue
Households
Firms
Rents
Income
Supply
Demand
Factors
Main Attributes of a Full CGE Model: Additional
Institutions
Other countries/
Rest of the World
Government
Transfers
& Business
Subsidies
Taxes
Govt
Purchases
Imports
Exports
Basic CGE Model Structure
Private
Investment
Savings
Govt. Savings
(Budget Deficit)
Capital
Account
Savings from ROW
(Net Capital Inflow)
DYNAGEM ATTRIBUTES: Intertemporal Structure
CURRENT INCOME
Consumers' Intertemporal Decisions
CONSUMPTION
The elliptical box represents exogenous
variables, the rectangular box represents
endogenous variables. The dashed line
is for revenue flows and solid line is for
commodity flows.
SAVINGS
World Capital Market
FOREIGN ASSETS/DEBT
World Commodity Market
IMPORTS
&
EXPORTS
Domestic Commodity Market
OUTPUT
DIVIDENDS
INTERESTS
Firms' Intertemporal Decisions
ENDOWMENT
INCOME
PRODUCTION
LABOR, LAND
INVESTMENT
CAPITAL
CURRENT PROFIT
More Features
• Simulates policy changes in counterfactual or “what if”
comparisons
• Easily modified and flexible in the number of sectors
and commodities
• Requires PC with high computational capacities
• Written in GAMS
• The model was developed in 1997 and published in the
Journal of Economic Integration (2001), the Journal of
Policy Modeling (2000), the International Economic
Journal (1999)
• Based on the 1997 global economy (GTAP database
version 5)
• For more information, contact: Xinshen Diao, IFPRI, or
Agapi Somwaru, ERS
Commodity and Country Coverage
for the WTO study
Australia and New Zealand
Japan and Korea
United States
Canada
European Union
European Free Trade Area
China
Other Asian countries
Mexico
Latin America
South African countries
Rest of the World
Paddy and processed rice, wheat
Other grains (including corn)
Vegetables, fruits and nuts
Oilseeds, vegetable oil
Sugar cane, sugar beets,
processed sugar
Plant-based fibers and other crops
Livestock and livestock products
Beverages, tobacco, other
processed food products
Non-agricultural products
Services
Road Map of the Analysis
Static Model
•
•
•
•
Elimination of import barriers throughout the world
Elimination of export subsidies throughout the world
Elimination of domestic support throughout the world
Combining all of the above
Dynamic Model
• Elimination of all trade distortions without TFP growth
• Elimination of all trade distortions with TFP growth of
developing countries
(0.02 annually only for the first 10 years of trade reform)
Major Findings
Ag. Policy Distortions Cause World Prices to be
12% Lower Than They Otherwise Would be
Economies Around the World
Contribute to Ag. Price Distortions
Rest of w orld
20%
Australia & New
Zealand
0%
EU
39%
Other Asian
8%
Japan & Korea
13%
U.S.
15%
Latin Am erica
3%
Canada
2%
Decomposition of Price Effects of Global Agricutlural
Liberalization
-- Percentage change in world agricultural price index from the base year in
the model
12
export sub
1.6
10
8
LDCs all
2.4
dom sub
3.7
Japan&Korea all
1.5
6
US all
1.8
DCs all
9.1
LDCs tariffs
2.3
4
tariffs
6.3
EU all
4.4
2
0
1
Scenarios
DCs tariffs
4.0
Estimated annual gain in purchasing power =
$56 billion
Many Countries Would Share Consumer
Purchasing Power Gains From Elimination
of Ag. Tariffs and Subsidies
Rest of w orld
11%
EU
19%
Australia & New
Zealand
6%
Other Asian
13%
U.S.
24%
Canada
2%
Japan & Korea
11%
Latin Am erica
14%
Effects of Removing Domestic Support in the Developed Countries
(with and without Land Based Payments Removal
Remove all domestic subsidies, no direct payment removal
World
ANZ
JPK
USA Canada
EU
World Agricultural Price
Returns to Farmland
Total social welfare ($billion)
EFTA
3.55
4.11
0.24
-1.28
-3.66
-1.38
0.97
1.93
0.28
-7.26
6.06
-21.43
0.82
Remove all domestic subsidies, with direct payment decoupled
World Agricultural Price
Returns to Farmland
Total social welfare ($billion)
3.6
3.65
0.25
-1.3
-3.89
-8.71
1.04
-1.52
0.31
-14.49
5.92
-32.58
0.83
Remove all domestic subsidies, with direct payment full coupled
World Agricultural Price
Returns to Farmland
Total social welfare ($billion)
4.78
5.09
0.37
-0.63
-6.5
-4.31
1.23
6.43
0.34
-7.2
5.52
-22
0.81
In sum
• Eliminating global ag. policy distortions would:
• raise world welfare $56 billion annually
• raise world agricultural prices 12 percent
• Roles of policies in reducing world prices:
• Tariffs (52%)
• Domestic subsidies (31%)
• Export subsidies (13%)
• Developing countries can benefit from further
WTO reforms
For more information….
www.ers.usda.gov