Tackling the political problem of farm subsidiesPrepared for:University of CaliforniaSilverado Symposium on Agricultural Policy ReformSilverado Resort, Napa Valley, California19-20 January 2004

Prepared by:Dr Andrew Stoeckel, Executive DirectorCentre for International Economics, Canberra, Australia

2

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

3

Agricultural PSEs for OECD, the United States, Japan and the European Union

0

10

20

30

40

50

60

70

1986 1988 1990 1992 1994 1996 1998 2000

Pro

duce

r su

ppor

t est

imat

e (%

)

United States

Japan

OECD

European Union

4

The mix of highly distorting and less distorting agricultural subsidies in OECD countries

0

10

20

30

40

50

60

70

Austra

lia

Canad

a

Czech EU

Hungr

y

Icelan

d

Japa

n

Korea

Mex

ico NZ

Norway

Poland

Slovak

ia

Swiss

Turke

yUSA

OECDPro

duce

r su

ppor

t es

timat

e (%

)

.

Less distortingHighly distorting

5

6

Forces for and against reform

Forces for reformForces against reform

Farmers

7

CBO projections of total US fiscal surplus/deficit

-600

-400

-200

0

200

400

600

800

1000

2000 2002 2004 2006 2008 2010 2012

US$

billio

ns

CBO projections, August 2003

CBO projections, January 2001

8

Forces for liberalisation

Taxpayers GreensExportersDeveloping

countriesConsumers

Those facingbarriers

Generally

Doha Round onlyempowers this group

9

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

10

A quick quiz of Indonesian journalists

EXPORTS are: 19

BADGOOD

IMPORTS are: 0

0

19

11

Forces for liberalisation

Taxpayers GreensExportersDeveloping

countriesConsumers

Those facingbarriers

Generally

Doha Round onlyempowers this group

Australia’sliberalisation led by this group

12

13

How to engage other groups

Economy-wide analysis Look beyond the direct to the indirect or secondary

effects

Important in Australian liberalisation Also for New Zealand

Requires a special process Open, independent, transparent

Changes the politics of protection

14

Forces for liberalisation (continued)

For reform

Greens

Against reform

Farmers

15

Good and bad subsidies

Positive economic

Negative economic

x

Positive environmental

Negative environmental

x

x

x xx

80%

16

Benefits of New Zealand reform

0

10

20

30

40

50

60

70

80

90

1984 1986 1988 1990 1992 1994 1996 1998 2000

She

ep n

umbe

rs (

mill

ion

head

)

0

200

400

600

800

1000

1200

1400

1600

1800

Priv

ate

fore

st a

rea

(000

ha)

Number of sheep

Area of private forests

17

Forces for liberalisation (continued)

For reformDeveloping countries

Against reform

Farmers

18

Welfare gains from trade liberalisation in the Philippines

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0

2

4

6

8

10

Full WTO liberalisation

Own liberalisation

19

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

20

Preferences and developing countries (continued)

Measuring all secondary effects shows Mauritius worse-off

Same story with bananas

Preferences ‘kiss-of-death’

21

22

Forces for and against reform

Forces for reformForces against reform

Farmers

23

Price differentiation, domestic Wagyu beef production: Japan

0

50

100

150

200

250

300

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

tonnes

BSEscare

Market liberalisation

24

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