Guide To Foreign Crop Subsidiesand Tariffs

Texas Tech University CERIStaff Report

CERI-SR07-01

February2007

 

INTRODUCTION


Freecompetitive markets provide economic efficiency through the allocation of goodsand resources within and between countries. Problems with some markets,however, arise from three sources: (1) some markets are not structurallycompetitive (e.g., monopolies or oligopolies), (2) some goods/services arecommon property or have externalities associated with them, so that there is nomarket available for allocation, and (3) societies/governments have goals otherthan market efficiency. Any of these reasons may provide rationale forinterfering with markets.

 

Virtuallyall countries, through their governments, interfere with the markets foragricultural products through a public policy framework. The amount and typesof interference vary greatly among countries and the tools used to"manage" them include trade protection, input and product subsidies,and a wide variety of price and income support programs. Reasons for this interferenceinclude concerns over the inherent price instability in many agriculturalmarkets (arising from the price inelasticity of supply and demand and theimpacts of variable weather on supply), national security, environmentalquality, and the priority to achieve safe, reliable, low-cost food for urbanpopulations.

Many of these programs share the common goal of moneytransfer to farmers, either by raising farmers' revenues or by reducing theirproduction expenses. One widely used measure of the extent of public transfersto producers is the Producer Support Estimate (%PSE) [1][1] . There are large differences in the level of support andprotection for agriculture across countries and commodities as measured by the%PSE, ranging from 63% in South Korea to 1% for Russia (see Figure 1).

The large difference in the extent of protection is alsoevident in a simple comparison of tariff rates across countries. As shown inFigure 2, average unweighted applied import tariffs for agriculture in 2004were as low as 1% for Australia and as high as 43% for Turkey. The range ofprotection is even broader in a comparison of World Trade Organization (WTO)sanctioned bound tariff rates (see Figure 3) [2][2].

The objective of this report is to provide an accurate,readable summary of the policy tools and approaches (price and income support,production subsidies, import and export controls, and payments) used by a groupof countries that are important to U.S. agricultural interests either as directcompetitors or major trading partners. This report attempts to describegeneral trade positions of countries, although bilateral/regional tradeagreements may alter these policies. Descriptions of these exceptions have beennoted in the country summaries where they have been located.

Thisstudy was initiated at the request of a consortium of commodity groups known asthe Southwest Council of Agribusiness. We focus on seven commodities: corn,cotton, rice, sorghum, soybeans, sugar, and wheat. While the emphasis on sevencommodities is broader than the usual focus of Texas Tech's Cotton EconomicsResearch Institute, our research experience on the interrelationship betweencommodity production, consumption, trade, and policies fits us well for thetask. The commodity groups requested the study as one means to prepare for thepolicy debates on the 2007 Farm Bill. Their request was for reliable,objective, easily understood information, no more and no less.

The report is organized into four sections: (1) summarytables of policy instruments by commodity; (2) a brief description of thesepolicy tools and major farm support programs by country; (3) a summary offindings and policy implications; and (4) a list of the sources of informationused to compile this report.

The researchemployed here is designed to be "positive" (describing what is)rather than "normative" (prescribing what ought to be). The primaryfunction of research as it relates to policy is to provide reliableinformation. That is our goal. Decisions on public policies are the functionof policy makers. In a representative democracy, such as the system ofgovernment in the United States, these are the elected representatives of thepeople.

Figure 1. Producer SupportEstimate (%PSE), Selected Countries

 

Source: OECD and IFPRI, 2006

 

Figure 2. Average AppliedAgricultural Tariffs, Selected Countries

 

Source: U.S. Department ofAgriculture, WTO Agricultural
Trade Policy Commitments Database, 2007 and World Bank, 2007

 

Figure 3. Average Bound AgriculturalTariffs, Selected Countries

 

Source: World Bank, 2007



 

[2][2][2]The bound ratesare the maximum tariff rates notified by a specific country to the World TradeOrganization (WTO). It implies that a country has committed to WTO not toraise tariff rates above its notified rates.