Revisiting the Question of Price and Income Support to Agriculture

A key issue in the foundation and subsequent evolution of the decisions on agricultural trade under the World Trade Organization (WTO) was the question of price and income support to agriculture. It is generally believed that income support, as opposed to price support, is less trade-distorting, which is also reflected in their classification under the Agreement on Agriculture (AoA). Price support is classified under the trade-distorting Amber box, whereas income support is covered by the provisions of the Green box that are considered as minimally trade-distorting. Most developing countries, however, tend to resort to price-support policies due to budgetary constraints and fiscal concerns. Any redistributive policies like the National Rural Employment Guarantee Program though found to be highly effective in bringing up wages and rural income are often critiqued domestically by neoliberals for the financial burden they allegedly place on the exchequer. This study seeks to engage with a particular aspect of critique of price-support policies that claim that income-support policies extended to farmers in developed countries do not distort prices and output. Though this proposition may be valid in a partial equilibrium perfectly competitive model, it is not necessarily valid in an oligopoly or a general equilibrium framework or a Keynesian/Kaleckian macroeconomic setting. Thus, this study makes a modest attempt to demonstrate that income-support measures, like price-support measures are also trade-distorting.