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The Relative Importance of Global Agricultural Subsidies and Market Access

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  • Anderson, Kym
  • Martin, William J.
  • Valenzuela, Ernesto

Abstract

The claim by global trade modelers that the potential contribution to global economic welfare of removing agricultural subsidies is less than one-tenth of that from removing agricultural tariffs puzzles many observers. To help explain that result, this paper first compares the OECD and model-based estimates of the extent of the producer distortions (leaving aside consumer distortions), and shows that 75 percent of total support is provided by market access barriers when account is taken of all forms of support to farmers and to agricultural processors globally, and only 19 percent to domestic farm subsidies. We then provide a back-of-the-envelope (BOTE) calculation of the welfare cost of those distortions. Assuming unitary supply and demand elasticities, that BOTE analysis suggests 86 percent of the welfare cost is due to tariffs and only 6 percent to domestic farm subsidies. When the higher costs associated with the greater variability of trade measures relative to domestic support are accounted for, the BOTE estimate of the latter's share falls to 4 percent. This is close to the 5 percent generated by the most commonly used global model (GTAP) and reported in the paper's final section.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2006 Annual meeting, July 23-26, Long Beach, CA with number 21180.

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Date of creation: 2006
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Handle: RePEc:ags:aaea06:21180

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Keywords: International Relations/Trade;

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  1. Will Martin & Kym Anderson, 2006. "Agricultural Trade Reform and the Doha Development Agenda," World Bank Publications, The World Bank, number 6889, October.
  2. Diao, Xinshen & Somwaru, Agapi & Roe, Terry L., 2001. "A Global Analysis Of Agricultural Trade Reform In Wto Member Countries," Bulletins 12984, University of Minnesota, Economic Development Center.
  3. Anderson, Kym & Valenzuela, Ernesto, 2006. "Do global trade distortions still harm developing country farmers ?," Policy Research Working Paper Series 3901, The World Bank.
  4. Bernard Hoekman & Francis Ng & Marcelo Olarreaga, 2004. "Agricultural Tariffs or Subsidies: Which Are More Important for Developing Economies?," World Bank Economic Review, World Bank Group, vol. 18(2), pages 175-204.
  5. Hiau LooiKee & Alessandro Nicita & Marcelo Olarreaga, 2009. "Estimating Trade Restrictiveness Indices," Economic Journal, Royal Economic Society, vol. 119(534), pages 172-199, 01.
  6. Keeney, Roman & Thomas Hertel, 2005. "GTAP-AGR : A Framework for Assessing the Implications of Multilateral Changes in Agricultural Policies," GTAP Technical Papers 1869, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  7. Huff, Karen & Thomas W. Hertel, 2001. "Decomposing Welfare Changes in GTAP," GTAP Technical Papers 308, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
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