Finishing Global Farm Trade Reform: Implications for ... · of goods trade distortions by 2004? Adverse global welfare & trade effects of trade policies & agric subsidies were reduced

Finishing Global Farm Trade Reform:

Implications for Developing Countries

Kym Anderson

University of Adelaide and Australian National [email protected]

Cairns Group Farm Leaders’ Seminar at the WTO Secretariat, Geneva, 11 November 2016

New book

Due to be revised following this seminar and then published for DFAT

by University of Adelaide Press, December 2016

Book’s scope

Why open agricultural trade boosts food security and improves nutrition in developing countries

Much trade policy reform since 1980s, but still plenty of scope for further reform

Ways forward for WTO members in each of 3 pillars

… including domestic support

New reasons & opportunities also for unilateral reform

Motivation for commissioning the study

Nairobi Decision in Dec 2015 to phase out agric. export subsidies showed reform progress is possible even without a single-undertaking agreement

But it’s also an opportunity to celebrate the Cairns Group’s 30th anniversary, by reflecting on reform progress during those 3 decades

Focus of today’s presentation

1. Extent of farm (and other trade) policy reforms, especially since 1980s

2. Scope for further reform

& relative importance of the 3 pillars

3. Challenges associated with support re-instrumentation & DC ag protection growth

4. What can be done in the next year?

Prior policy history (briefly)

Britain’s David Ricardo famously explained two centuries ago (published in 1817) how nations can gain from trading with other nations by exploiting their comparative advantage

which Britain embraced by repealing its Corn Laws in 1846, & re-opening trade with France etc. from 1860

Together with the Industrial Revolution, and associated fall in intercontinental trade costs, those policy reforms generated the world’s first Globalization wave

19th century intercontinental

trade and globalization

Agric & nonagric trade both grew at 3.5%/year during 1850-1913

(& both fell 0.8%/year during 1925-38)

=> agric was still half of global trade in 1938 (i.e., <80 years ago)

Real int’l prices of farm products since 1920

Reversal of 1790-1920 positive trend: real agric prices declined at 0.7%/year in 20th century

Real int’l prices of farm products

declined in 20th century for 2 reasons

1. New agricultural technologies ensured supplies expanded faster than global demand

2. Agricultural protection growth in high-income countries put extra downward pressure on real int’l agric prices through to 1980s

• … although offset somewhat by anti-agricultural policy bias in developing countries

Trade policy impact on real

international prices of farm products

Agric protection growth in high-income countries & anti-agric policy bias in developing countries had 3 impacts in 20th century:

• It shrunk agriculture’s share of global trade,

• It slowed rise in share of agric output exported,

• It ‘thinned’ international food markets and so made those prices more volatile

Real int’l agric prices, 1900-2000(Source: World Bank, 1977-79 = 100)

y = -0.60x + 134R² = 0.41

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y = -0.98x + 167R² = 0.63

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Non-food agric

Key agric policy features, 1960 to mid-1980s

High-income countries (HICs) used variable import restrictions and export subsidies to:

protect & insulate farmers from int’l food markets




Developing countries (DCs) used variable agric. export restrictions plus overvalued exchange rates and manuf. import tariffs to:

boost industrialization (at expense of agriculture), &

placate urban demand for lower & stable food prices




Developing countries (DCs) used variable agric. export restrictions plus overvalued exchange rates and manuf. import tariffs to:

boost industrialization (at expense of agriculture), &

placate urban demand for lower & stable food prices

Both slowed agriculture’s globalization, and both lowered incomes of DC farmers

… who constituted >half the global workforce!

Farm policy reforms since mid-1980s

Reduction in farm supports in many HICs

… as captured by estimates of Nominal Rate of Assistance (NRA) to farmers

• NRA = % by which value of farm production exceeds what it would under free markets

– Similar to OECD’s PSE estimates (which start in 1986), but based on undistorted prices (see Anderson, K. (ed.), Distortions to Agricultural Incentives: A Global Perspective, 1955-2007. London: Palgrave Macmillan, 2009)

Ups & downs of ag NRA for HICs

-- in long run, and in short run

Farm policy reforms since mid-1980s

In DCs, reduction in ag. export taxation

… & lowering of protection of their manufacturers

Average agric NRA for DCs (%)

Relative Rate of Assistance (RRA) to all DCs’

farmers: from large negative, to slightly positive

20

How close had world come to being free

of goods trade distortions by 2004?

Adverse global welfare & trade effects of trade policies & agric subsidies were reduced by 3/5ths between 1980-84 and 2004

• according to global modelling results in Ch. 12 of Anderson (2009)

Certainly something for Cairns Group to celebrate

But, plenty of scope for further reform remains

How much more would agric prod’n have been traded if

all remaining trade distortions in 2004 were removed?

Global share of agric & food prod’n exported would’ve been 5 percentage points higher

By 2007, that share was 11%

tiny compared with 31% for manufacturing, and 42% for other primary goods

Would removal of remaining trade distortions in 2004

have reduced global poverty, & income inequality?

Answers: Yes, and yesAbout half of average DC’s national benefit would have come from unilateral trade lib’n, the other half from rest-of-world’s liberalization

• Anderson, K., J. Cockburn and W. Martin (eds.), Agricultural Price Distortions, Inequality and Poverty. World Bank, 2010 (freely downloadable at www.worldbank.org/agdistortions)







Is world nearly free of agric distortions now?

NO, because:

Still very wide cross-country dispersion of NRAs within HIC and DC country groups

Still very wide cross-product dispersion of NRAs within each country’s agric sector

• including a persistent anti-trade bias

NRAagric trends for HICs, 1955-2010

(%, 5-year averages, and spread in 2005-10)

0 50 100 150 200

newzealand

ukraine

australia

israel

us

russia

canada

Weighted Average

EU27

turkey

japan

switzerland

iceland

norway

-30

-20

-10

0

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1955-59 1965-69 1975-79 1985-89 1995-99 2005-10

NRAagric trends for DCs, 1955-2010

(%, 5-year averages, and spread in 2005-09)

-30

-20

-10

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1955-59 1965-69 1975-79 1985-89 1995-99 2005-09

Global NRA averages by product, 2005-09

(%)

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

Anti-trade bias in DC’s agric policies: average NRA (%) for import-competing farmers

still well above that for exporting farmers

How important were the 3 pillars in 2001?Source: Anderson, K., W. Martin and E. Valenzuela, ‘The Relative Importance of Global

Agricultural Subsidies and Market Access’, World Trade Review 5(3): 357-76, Nov. 2006

% contribution

to economic welfare cost in:

Domestic support

Export subsidies

Import market access

TOTAL

HICs 6 5 89 100

DCs 1 -10 109 100

World 5 2 93a 100

a Laborde (2014) estimated 89% with 2007 data



% contribution to

shrinking globalagric trade:

Domestic support

Export subsidies


TOTAL

World (loss) 17 -2 85 100



% contribution to

net farm income in:

Domestic support

Export subsidies


TOTAL

HICs (gain) 44 3 53 100

DCs (loss) 38 10 52 100







Measurement issues: improving transparency

PSE measurement by OECD for member countries and BRICS (and soon BRIICS)

Domestic support notifications to WTOOften long-delayed, incomplete, not easy to comprehend

Notified non-green box support (AMS,

Article 6.2, blue box), 1995 to 2010 (US$ billion) Source: Brink (forthcoming 2017)

Notified ag. domestic support, 1995 to 2014 (US$ billion, but incomplete after 2010) Source: Brink (2017, forth.)

Much of EU-28 farm assistance is now via decoupled

payments, fewer border measures or domestic support(percentage share of PSE) Source: OECD

Most of China’s farm assistance is now

product price support, not input support(percentage share of PSE) Source: OECD

Measurement issues: improving transparency

PSE measurement by OECD for member countries and BRICS (and soon BRIICS)

Domestic support notifications to WTOOften long-delayed, incomplete, not easy to comprehend

NRA measurement for DCs by World Bank

Provide a longer-term perspective

soon to be mainstreamed for regular updating

• see www.agincentives.org

China’s relative rate of assistance to farmers

(RRA, %): became positive around 2000[indicates extent of distortion to the price ratio of farm relative to non-farm tradables]

Will China, India, Indonesia, … copy NE Asian agric

protection path as incomes rise? (RRAs, 1955-2011)

Agric NRAs (%): China & Indonesia

already exceed average for EU countriesSources: Huang et al. (2009), Warr (2009) and OECD (2016)






4. What can be done in the next year?(see next Thursday’s seminar by Joe Glauber for detailed proposals)

With export subsidies phased out, …

… focus should turn to market access (where most of welfare and trade gains are to be had) and domestic support

Market access proposal

Rather than complicated formulae, just require members to reduce their average tariff by x%

And possibly include minimum cuts for each tariff item, and a cap on peak tariffs

Domestic support proposal

Again, rather than complicated formulae, eliminate exemptions under Articles 6.2 (dev’t subsidies), 6.3 (de minimis) and 6.5 (blue box), and just cap total support

plus perhaps product-specific caps, to avoid concentration of industry support

& make annual accurate notification mandatory

Safeguard proposal

Eliminate SSG, to reduce the G33’s claim for an SSM for dealing with price slumps or import surges

Export proposal

If exporters are to gain from reductions in tariffs and domestic support, they may have to offer something in return

Could be a phase-out of monopoly STEs, and disciplines on variable export taxes

Thanks!

Detailed NRA estimates are at www.worldbank.org/agdistortions

Anderson, K. (ed.) (2009), Distortions to Agricultural Incentives: A Global Perspective, 1955-2007. London: Palgrave Macmillan

Anderson, K. & A. Strutt (2014), “Food Security Policy Options for China: Lessons from Other Countries”, Food Policy 49: 50-58, December

Anderson, K. & A. Strutt (2016), “Impacts of Asia’s Rise on African and Latin American Trade: Projections to 2030”, The World Economy 39(2): 172-94, February

Brink, L. (2017), “Farm Support, Domestic Policies, and WTO Rules: The World is Changing”, Ch. 9 in Handbook on International Food and Agricultural Policies, Volume III: International Trade Rules for Food and Agricultural Products, edited by K. Meilke and T. Josling, Singapore: World Scientific (forthcoming).

Anderson, K. (2016), Finishing Global Farm Trade Reform: Implications for Developing Countries, University of Adelaide Press (forthcoming December)

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Finishing Global Farm Trade Reform: Implications for ... · of goods trade distortions by 2004? Adverse global welfare & trade effects of trade policies & agric subsidies were reduced