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The Relative Importance of Global Agricultural Subsidies and Market Access

  • Anderson, Kym
  • Martin, Will
  • Valenzuela, Ernesto

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5569.

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Date of creation: Mar 2006
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Handle: RePEc:cpr:ceprdp:5569
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  1. Kee, Hiau Looi & Nicita, Alessandro & Olarreaga, Marcelo, 2006. "Estimating Trade Restrictiveness Indices," CEPR Discussion Papers 5576, C.E.P.R. Discussion Papers.
  2. Kym Anderson & Ernesto Valenzuela, 2007. "Do Global Trade Distortions Still Harm Developing Country Farmers?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(1), pages 108-139, April.
  3. 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.
  4. Will Martin & Kym Anderson, 2006. "Agricultural Trade Reform and the Doha Development Agenda," World Bank Publications, The World Bank, number 6889.
  5. 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.
  6. 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.
  7. 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.
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