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Disciplining agricultural support through decoupling

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Author Info
Baffes, John
De Gorter, Harry

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Abstract

Agricultural protection, particularly in high income countries, have induced overproduction, thereby depressing world commodity prices and reducing export shares of countries which do not support agriculture. One-and perhaps the only-effective way to bring a socially acceptable and politically feasible reform is to replace payments linked to current production levels, input use, and prices by payments which are decoupled from these measures. Overall, the experience with decoupling agricultural support has been mixed while the switch to less distortive support has been uneven across commodities and countries. Rules have changed with new decoupling programs added so expectations about future policies affect current production decisions. Time limits were not implemented and if so, were overruled. Ideally, compensation programs would be universal (open to all sectors in the economy, not just agriculture) or at least non-sector-specific within agriculture. A simple and minimally distorting scheme would be a one-time unconditional payment to everyone engaged in farming or deemed in need of compensation that is nontransferable, along the lines of one-time buyouts without remaining subsidies. To maintain government credibility and reduce uncertainty, eligibility rules need to be clearly defined and not allowed to change. The time period on which payments are based, the level of payments, and the sectors covered should all remain fixed. Support to specific sectors within agriculture should be in the form of taxpayer-funded payments. There should be no requirement of production. Land, labor, and any other input should not have to be in"agricultural use."

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3533.

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Date of creation: 01 Mar 2005
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Handle: RePEc:wbk:wbrwps:3533

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Related research
Keywords: TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Access to Markets; Environmental Economics&Policies; Economic Theory&Research; Agricultural Knowledge&Information Systems;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Hennessy, David A., 1998. "The Production Effects of Agricultural Income Support Policies under Uncertainty," Staff General Research Papers 1207, Iowa State University, Department of Economics.
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    Other versions:
  3. Beard, Nick & Swinbank, Alan, 2001. "Decoupled payments to facilitate CAP reform," Food Policy, Elsevier, vol. 26(2), pages 121-145, April. [Downloadable!] (restricted)
  4. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November. [Downloadable!] (restricted)
    Other versions:
  5. GianCarlo Moschini & Paolo Sckokai, 1994. "Efficiency of Decoupled Farm Programs under Distortionary Taxation," Center for Agricultural and Rural Development (CARD) Publications 94-gatt5, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
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  6. Munk, K J, 1989. "Price Support to the EC Agricultural Sector: An Optimal Policy?," Oxford Review of Economic Policy, Oxford University Press, vol. 5(2), pages 76-89, Summer.
  7. Boris C. Swerling, 1959. "Income Protection for Farmers: A Possible Approach," Journal of Political Economy, University of Chicago Press, vol. 67, pages 173. [Downloadable!] (restricted)
  8. Arild Vatn, 2002. "Multifunctional agriculture: some consequences for international trade regimes," European Review of Agricultural Economics, Oxford University Press for the Foundation for the European Review of Agricultural Economics, vol. 29(3), pages 309-327, July.
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  10. Parry, Ian, 1997. "Agricultural Policies in the Presence of Distorting Taxes," Discussion Papers dp-98-05, Resources For the Future. [Downloadable!]
  11. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June. [Downloadable!] (restricted)
  12. Sergio H. Lence & Ashok K. Mishra, 2003. "The Impacts of Different Farm Programs on Cash Rents," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 85(3), pages 753-761, 08. [Downloadable!] (restricted)
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  13. Baffes, John & Meerman, Jacob, 1998. "From Prices to Incomes: Agricultural Subsidization without Protection?," World Bank Research Observer, Oxford University Press, vol. 13(2), pages 191-211, August. [Downloadable!]
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  14. Gardner, Bruce, 2002. "U.S. Commodity Policies And Land Prices," Working Papers 28560, University of Maryland, Department of Agricultural and Resource Economics. [Downloadable!]
  15. Tim Phipps, 2003. "Discussion of Agricultural Land Values, Government Payments, and Production," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 85(3), pages 770-771, 08. [Downloadable!] (restricted)
  16. Calum G. Turvey, 2003. "Agricultural Land Values, Government Payments, and Production: Discussion," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 85(3), pages 772-773, 08. [Downloadable!] (restricted)
  17. Vercammen, James, 2003. "A Stochastic Dynamic Programming Model Of Direct Subsidy Payments And Agricultural Investment," Working Papers 15847, University of British Columbia, Food and Resource Economics. [Downloadable!]
  18. Michael J. Roberts & Barrett Kirwan & Jeffrey Hopkins, 2003. "The Incidence of Government Program Payments on Agricultural Land Rents: The Challenges of Identification," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 85(3), pages 762-769, 08. [Downloadable!] (restricted)
  19. Barry K. Goodwin & Ashok K. Mishra & François N. Ortalo-Magné, 2003. "What's Wrong with Our Models of Agricultural Land Values?," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 85(3), pages 744-752, 08. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Orden, David, 2005. "Can U.S. Farm Subsidies Be Bought Out?," 2005 Annual meeting, July 24-27, Providence, RI 19233, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. Brink, Lars, 2007. "Classifying, Measuring and Analyzing WTO Domestic Support in Agriculture: Some Conceptual Distinctions," Working Papers 7337, Canadian Agricultural Trade Policy Research Network. [Downloadable!]
    Other versions:
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