Domestic Support in GTAP
and AMS reduction
Mark Gehlhar
Mary Burfisher
EU Modeling Workshop
New challenges in Modeling EU Agriculture
November 15-16, Economic Research Service
Order of Presentation
• How the PSE data is mapped to
GTAP policy variables
• Classification of programs and OECD
PSE measure
• Issues debated within the GTAP
Consortium
• Examples of scenarios for AMS
support reductions for WTO
• An overall assessment of GTAP for
modeling
GTAP model/database
• Public documentation available on
web(http://www.gtap.agecon.purdue.edu/)
• Multi-commodity, multi-region
• Multipurpose model: policy
(multilateral, regional trade)
economic growth, climate,
environment change
GTAP model/database continued
• Version 5 released in 2001 has 66
country/regions
• 57 sectors, 12 primary agriculture
and 8 agricultural processing
• New extension is more detailed
domestic support
Production structure
-------------------qo(j,r)
/\
/ \ <----- CES
/
\
/
\
/
\
qva(j,r)
qf(i,j,r)
/|\
/\
CES ----->
/ | \
/ \ <------ CES
/ | \
/
\
/ | \
/
\
/
|
\
/
\
Land Labor Capital Domestic
Foreign
qfe(i,j,r)
qfd(i,j,r) qfm(i,j,r)
Domestic support
• Previously the output subsidy
contained all domestic support
• Adopt new PSE classification
• More variables in GTAP model used
to represent domestic policy
• Subsidies/payments to primary
factors: land, labor, capital
• Tax/subsidies to intermediates inputs
Classification of Policy Measures Included in the
OECD Producer Support Estimate
Producer Support Estimate (PSE)
A. Market price support
1. Standard PSE commodities
B. Payments based on output
1. Based on unlimited output
2. Based on limited output
C. Payments based on area planted/animal numbers
1. Based on unlimited area or animal numbers
2. Based on limited area or animal numbers
D. Payments based on historical entitlements
1. Based on historical plantings/animal numbers or production
2. Based on historical support programmes
E. Payments based on input use
1. Based on use of variable inputs
2. Based on use of on-farm services
3. Based on use of fixed inputs
F. Payments based on input constraints
1. Based on constraints on variable inputs
2. Based on constraints on fixed inputs
3. Based on constraints on a set of inputs
G. Payments based on overall farming income
1. Based on farm income level
2. Based on established minimum income
H. Miscellaneous payments
1. National payments
2. Sub-national payments
Who decides how support is
mapped to policy variables ?
• How payment are mapped to policy
variables in model is controversial
• Each consortium member can make
recommendations
• In the end a compromise must be
reached
USDA’s Approach
(The Economic Research Service)
• How support is administered and
under what conditions matters
• Treat countries on individual basis
• Treat programs individually
• And give consideration to how
programs are notified to WTO
EU’s Approach
(Danish Institute for Agricultural and Fisheries Economics)
• Use a generic formula for all
countries
• Account for the entire PSE as
support to agriculture
• Achieve transparency for all users
Mapping formula
USDA
Formula
SJFI Proposal
for EU
crops
A
Comprise proposal
for all OECD
livestock
crops
livestock
A
A
A
Market Price Support
A
Output Subsidies
B
B
D
G
H
B
C2
D
G
H
B
H
B
H
Interm Input Subsidies
E1(lvstk)
C1( exc lvstk)
C2
E1
E2
F1
F3
E1
E2
F1
F3
E1
E2
E1
E2
Land Based Payments
D
F1
F2
G
C1
C2
F2
C1
C2
D
F1
F2
G
D
F1
F2
F3
G
Capital Based Payments
E3
E3
E3
C1
C2
E3
Other Minimal Impacts
C1 (part)
E1 (part)
E2
F2(part)
F3
H
C1
C2
E3
F2
U.S category C in the PSE
C. Payments based on area planted/animal numbers
1. Based on unlimited area or animal numbers
Crop disaster payments
Livestock disaster payments
Hogs production assistance
Dairy disaster payment
Crop insurance
2. Based on limited area or animal numbers
Deficiency payments
Diversion payments
EU category C in the PSE
C. Payments based on area planted/animal numbers
1. Based on unlimited area or animal numbers
Production aid for durum wheat
Suckler and special cow premiums
Ewe and goat premiums
Other
2. Based on limited area or animal numbers
Set-aside related to per hectare aid
Per hectare aid for maize (less silage)
Per hectare aid for cereals (less maize and silage)
Per hectare paymernts for oilseeds
Per hectare paymernts for peas, beans and lupins
Per hectare paymernts for non-textile flax seed, other
Supplementary aid for durum wheat
Suckler, additional suckler cow, deseason. and extensif. premiums
Ewe and goat premiums
Compensatory allowances (Guidance)
Other
U.S category F in the PSE
F. Payments based on input constraints
1. Based on constraints on variable inputs
Soil and water loans program
2. Based on constraints on fixed inputs
Conservation reserve program
Wetland reserve program
Flood risk reduction contracts
Water bank program
Dairy termination program
3. Based on constraints on a set of inputs
Colorado river basin salinity control program
Agricultural conservation program
Great plains conservation program
Environmental quality improvement program
Rural clean water program
Wildlife habitat incentive program
EU category F in the PSE
F. Payments based on input constraints
1. Based on constraints on variable inputs
Environment (Gurantee)
Other
2. Based on constraints on fixed inputs
Environment (Gurantee)
Premium for abandonment or reduction of milk production
Premiums for the removal of bovine animals from production
Permanent abandonment premiums in respect of areas under vine
Other
3. Based on constraints on a set of inputs
Environment (Gurantee)
National
What the compromise means for
model users
• The domestic support database serves as
starting point for all users
• Applications requiring changes to the
database should be documented by users
• Replications of results still possible after
alterations
Table 4. Rate of support as output subsidies
U.S.
Rice
0.56
Wheat
7.78
Other Cereals
6.81
Oilseeds
4.72
Dairy
0.18
Sugar
0.18
Beef
0.36
Other Meat
0.19
Wool
0.99
Vegetable and Fruit
0
Other Crops
0
GTAP version 5, pre-release 3
EU
0.09
0.46
0.24
0.24
0.12
0.09
0.12
0.14
-0.02
0
0
ROW
-0.73
1.21
0.24
0.49
0.51
0.09
0.12
-0.25
-0.57
-0.46
0.78
Table 3. Rates of support of land subsidy from direct payments
U.S.
EU
ROW
Rice
58
45
2
Wheat
83
92
4
Other Cereals
66
91
13
Oilseeds
26
93
1
Dairy
11
9
2
Sugar
17
32
0
Beef
10
6
2
Other Meat
7
11
1
Wool
98
0
2
Vegetable and Fruit
0
0
0
Other Crops
0
0
0
GTAP version 5, pre-release 3
An alternative to current domestic
support version of GTAP
• Alter subsidy rates such that they are
uniform across all land uses
• Conduct identical experiments with
current and altered database
Table 8. Change in U.S. Production from 50% reduction in U.S. land-based payments
Disproportional land payments base Proportional land payments base
volume
pct chg
volume
pct chg
Rice
-99
-8.43
0
0
Wheat
-1,146
-11.86
0
0
Other Cereals
-545
-1.70
0
0
Oilseeds
448
4.22
0
0
Dairy
-73
-0.36
0
0
Sugar
112
2.69
0
0
Beef
152
0.75
0
0
Other Meat
250
1.13
0
0
Wool
0
0.00
0
0
Vegetable and Fruit
1,435
7.72
0
0
Other Crops
1,375
9.74
0
0
Processed food
106
0.07
0
0
Natural resources
-36
-0.04
0
0
Manufactures
-1,192
-0.08
0
0
Services
755
0.01
0
0
Table 7. U.S. changes in sectoral output from 50% reduction in global tariffs and U.S. support reductions
Disproportionate U.S. land payments
Proportionate U.S. land payments
$ million
$ million
Rice
498
667
Wheat
-428
1,058
Other Cereals
-252
421
Oilseeds
940
480
Dairy
190
313
Sugar
-924
-1,030
Beef
1,753
1,710
Other Meat
876
654
Wool
-1
-1
Vegetable and Fruit
1,817
309
Other Crops
318
-1,006
Processed food
1,591
1,594
Natural resources
-93
-66
Manufactures
-6,083
-5,338
Services
1,890
1,272
Implications
• Generic treatment of agricultural support for all
countries can be misleading
• Potential for creating distortions in the database
that do not exist in reality
• Users should be aware of implications for
reductions of land-based payments
How ERS uses the PSE data
for AMS support reduction scenarios
• AMS data not used in model
Notifications are sporadic
PSE is more up to date
Available only for OECD
• PSE different concept than AMS
• We calculate a PSE-based AMS
• PSE data broken into green, amber, blue
• Identify commodities with administered price
• Calculate cuts based a reduction rule
Support Reduction Scenarios
• Reduce ceiling by additional 20% from Uruguay
ceiling
• Leveling support by commodity: no commodity
receives more that 30% of value of production
Reduction requirements if AMS is lowered an additional 20 percent from Uruguay Round Ceiling
Australia
Canada
European Union
Japan
Korea
Mexico
Norway
New Zealand
Poland
Switzerland
United States
AMS as percent of
WTO ceiling in 1998
23
9
75
77
80
7
88
0
8
71
45
Cuts in AMS required to reach a 20 percent
reduction in WTO Ceiling
0
0
-7
-10
-14
0
-21
0
0
-3
0
AMS Support (1997)
United States ($6.3 billion)
European Union ($55 billion)
other
44%
wheat total
6%
peanuts
5%
cotton
7%
dairy total
72%
dairy total
11%
sugar
16%
sugar
12%
beef
27%
Japan ($25.8 billion)
other
14%
rice
76%
beef
5%
dairy total
5%
Reduction requirements to lower commodity-specific AMS to less than 30 percent
Australia
Canada
European Union
Japan
Korea
Mexico
Norway
New Zealand
Poland
Switzerland
United States
Wheat
0
0
0
-65
0
0
-37
0
0
-35
0
Rice
0
0
0
-64
-57
0
0
0
0
0
0
Coarse Grains Oilseeds
0
0
0
0
0
0
-56
-17
-57
-61
0
0
-31
0
0
0
0
0
-36
-52
0
0
Sugar
0
0
-28
-51
0
-9
0
0
0
-47
-19
Dairy
0
-48
-44
-62
0
0
-10
0
0
-43
-49
Beef and sheep
0
0
-15
-6
-27
0
0
0
0
-36
0
Assessment of GTAP modeling
Framework
• Needs careful scrutiny of data prior to
running scenarios
• GTAP services as an accounting framework
for the PSE but does not model specific
policies
• Other comment see “Assessment of the
GTAP modelling framework for Policy
Analyses from a European Perspective”
2000 editors S.Frandsen and M.Staehr