This report attempts to provide a compilation of various policies and programs that directly and indirectly influence the production, marketing, and trade of seven agricultural commodities (corn, cotton, rice, sorghum, soybeans, sugar, and wheat) in 21 foreign countries. These countries were selected to represent major players from both developing and developed countries.
Agriculture around the world has a long history of government intervention and remains the most distorted sector of the world economy. One thing is obvious from this report: there is a great array of programs and combinations of programs that are used to achieve policy goals in different countries. There are common goals that all countries, regardless of stage of economic development, political philosophy, or natural resource endowment, seem to pursue. These include self-sufficiency in food production, safety of food supply, and the sustainability of natural resources. Yet while sharing common goals, the policies governments employ in pursuit of those goals are very diverse. While this report does not or cannot explain why such diversity exists, it does offer evidence of it.
That said, an overview of the evidence offered in the report suggests several generalizations. Most countries in the world, both developed and developing, use some form of guaranteed minimum price to the producers and use import tariffs or tariff-rate-quotas to protect domestic industries. The guaranteed minimum price is known by many names: loan rate in the U.S., intervention price in the EU, minimum support price in India and Pakistan, and minimum floor price in China. In the case of cotton for instance, our findings reveal that the minimum support price in the U.S. is lower than that of other cotton producing countries (Figure 4).
Figure 4. Cotton Minimum Support Prices
However, developed/industrialized countries in recent years are moving away from price supports in favor of broader farm income support mechanisms and/or direct income payments as a means of supporting and stabilizing their agriculture sectors. The United States uses counter cyclical payments to supplement farm income in years of low prices and provides direct payments to farmers decoupled from farm production. Similarly, the European Union is moving from commodity price support policies to an income support policy through decoupled payments. Figure 5 shows how support policies for wheat have shifted in the E.U. and the U.S. over the past two decades. The charts below graph all forms of governmental support for wheat as a percentage of total farm gross revenue. Contributions of price support programs as a percentage of gross farm receipts have decreased significantly. Other program payments (such as direct farm payments, historical entitlements, disaster aid, etc.) comprise a much larger proportion of governmental support now compared to recent years. In addition, the overall level of support has declined in both cases meaning that a greater percentage of gross receipts are coming from the marketplace.
Figure 5. Evolving Support Programs
Source: OECD Database 1986-2005
Japan also implemented a new farm program that replaced the commodity-based farm payments, which included producer quotas, income stabilization policies, deficiency payments, and the rice diversion program, with targeted direct payments. Yet these generalizations regarding developed countriesÕ farm programs do have notable exceptions. For example, Australia provides no price support programs or direct income payments for its agricultural producers.
If we consider per unit price or income support, the extent of support may be higher in the developed countries than in the developing countries. But major developing countries supplement their price support programs with a sizable amount of input subsidies to protect their agriculture sectors. For example, India provides annual subsidies of $12 billion for food storage and distribution, fertilizer, water, and electricity (Landes, 2004). Similarly, China provided its producers subsidized seed and machinery purchases, technology adoption, and investments in rural infrastructure of $43 billion in 2006 (CMOA, 2006), up from $18 billion in 2004 and $15 billion in 2003 (Gale et al., 2005). Brazil, a rising force in the world agricultural market, is proposing $26.1 billion in various forms of credit assistance and agricultural production insurance (Bastos, 2006; Ministerio da Agricultura, 2007).
Input subsidies given by developing countries are exempt from inclusion in the Aggregate Measure of Support (AMS) because of Òspecial and differentialÓ treatment, and thus not subject to reduction commitments. Apart from this, developing countries prefer to subsidize inputs rather than support output prices because they are easy to implement and can be enacted at the source. Unlike price support programs, input subsidies keep domestic food prices low, which is politically popular.
It is clear from this report that both developed and developing countries extensively use import tariffs to protect their agriculture sectors. But an interesting point, supported by World Bank estimates (Nicita and Olarreaga, 2006), is that average bound/applied tariffs for agriculture are higher in major developing countries than in the developed countries. In 2004, the average applied tariff rates were 8.2% for the U.S. and 9.5% for the EU. For major developing countries like India and China, the average applied tariff rates for agriculture were 30% and 15% in the same year. Even countries like Mexico (26.4%), Brazil (10.4%), and Thailand (16.2%) also had higher average applied tariff rates for agriculture than that of the United States and the European Union. The differences are even more pronounced when one compares average bound tariff rates for agriculture between major developed and developing countries (Figure 6).
Figure 6. Average Bound and Applied Tariffs for Agriculture:
Developed versus Developing Countries
Source: World Bank, 2007. Developing country tariffs are an average of rates from 1998-2004.
Developed countries' tariff rates are an average of 2002-2004.
It is also worth mentioning that developed countries allow a greater number of agricultural products to enter their markets duty-free than do developing countries. Both the United States and the European Union allow more than 25% of agricultural products to enter without any tariffs at all, whereas for most developing countries, that share is less than 3% (Panagariya, 2005).
Sanitary and phytosanitary (SPS) regulations have been frequently used by countries in the past to restrict trade . As the crop tables of this report show, the use of SPS measures are more frequent among developing countries than in developed countries. For example, in the last few years Brazil has cited concern over possible contamination by weed seeds to restrict wheat imports from the United States. Russia has completely shut off rice imports citing the need to upgrade its inspection stations with more modern equipment that can better insure the quality and safety of imports.
Finally, it is important to note the differences that exist between developed and developing countries in the areas of environmental regulations and labor standards. The implementation of policies that protect both the environment and workers will likely impose additional costs on agricultural producers. On the environmental front, this would include such programs as those that affect the use and management of pesticides, fertilizers, water resources, and air quality. In the area of labor standards, minimum wage legislation, workplace safety standards, freedom from forced labor, and basic union rights are policies that promote the health and well being of the work force. It has been argued that the cost savings from lax or nonexistent environmental and workforce protection policies in developing countries may be a source of competitive advantage for their producers. In effect, low standards in these areas may be considered a form of subsidy in that they represent costs that producers in developing countries do not have to bear. The presence and enforcement of environmental and worker standards increases the cost of production of producers in developed countries who must abide by them.