Tackling the political problem of farm subsidies

1
Tackling the political problem of farm subsidies

• Prepared forUniversity of CaliforniaSilverado
  Symposium on Agricultural Policy Reform
• Silverado Resort, Napa Valley, California
• 19-20 January 2004
• Prepared by
• Dr Andrew Stoeckel, Executive Director
• Centre for International Economics, Canberra,
  Australia

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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
70
60
50
40
Producer support estimate ()
30
20
10
0
1986
1992
1994
1996
1988
1990
1998
2000
4
The mix of highly distorting and less distorting
agricultural subsidies in OECD countries
.
70
Less distorting
60
Highly distorting
50
40
Producer support estimate ()
30
20
10
0
NZ
EU
USA
Japan
Korea
Swiss
Czech
Hungry
Iceland
Mexico
Poland
Turkey
OECD
Canada
Norway
Slovakia
Australia
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(No Transcript)
6
Forces for and against reform
7
CBO projections of total US fiscal surplus/deficit
1000
800
600
400
200
US billions
0
-200
-400
-600
2000
2002
2004
2006
2008
2010
2012
8
Forces for liberalisation
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
BAD
GOOD
EXPORTS are
19
0
IMPORTS are
0
19
11
Forces for liberalisation
12
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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

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Forces for liberalisation (continued)
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Good and bad subsidies
44
4x
x4
xx
16
Benefits of New Zealand reform
90
1800
80
1600
70
1400
60
1200
Private forest area (000 ha)
50
1000
Sheep numbers (million head)
40
800
30
600
20
400
10
200
0
0
1984
1986
1988
1990
1992
1994
1996
1998
2000
17
Forces for liberalisation (continued)
18
Welfare gains from trade liberalisation in the
Philippines
19
Preferences and developing countries

• Mauritius has preferential access to EUs 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

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Preferences and developing countries (continued)

• Measuring all secondary effects shows Mauritius
  worse-off
• Same story with bananas
• Preferences kiss-of-death

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(No Transcript)
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Forces for and against reform
23
Price differentiation, domestic Wagyu beef
production Japan
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