Transcript The role of subsidies in agricultural trade reform

Distortions to Agricultural Incentives:
A Global Perspective, 1955 to 2007
Kym Anderson
University of Adelaide and CEPR
Infoshop book launch and Rural Development Seminar,
World Bank, Washington DC, 5 November 2008
Financial assistance from the World Bank Trust Funds, particularly from DfID and BNPP, plus in-knd support from IFPRI, are gratefully acknowledged, as
are the contributions of the country case study authors and the Washington- and Adelaide-based teams. Views expressed are the authors’ alone and not
necessarily those of the World Bank or its Executive Directors, nor IFPRI. Research project details are at www.worldbank.org/agdistortions
What is this book about?
The extent to which governments can’t resist
distorting prices in agricultural markets
How that intervention has evolved since 1950s
Why it matters
What alternative, more cost-effective measures
are available to deal with food security,
inequality and poverty
Agric policies: govts. can’t resist
Haberler Report to GATT in 1958 warned of agric
protection growth in high-income countries (HICs)
reducing market access opportunities for agric-exporting
developing countries (DCs)
Meanwhile, newly independent DCs saw agric export
taxes and multiple exchange rates as major sources
of govt revenue to support their import-substituting
industrialization strategy
further reducing incomes of the world’s poor (DC farmers)
When D. Gale Johnson published his 1973 book on World
Agriculture in Disarray, he added that both sets of
countries were insulating their domestic food markets
exacerbating international food price volatility and slowing
global recovery to shocks
The early evidence
The anti-agric and anti-trade policy biases of DCs were
quantified for 1960-84 by the Krueger/Schiff/Valdes
study of 18 developing countries
but not included were the 3 biggest (China, India, Indonesia)
The agric protection growth of HICs that Haberler
feared was documented for WE and NE Asia for select
years to early 1980s by Anderson, Hayami & others
(1986)
The assistance to farmers in HICs has been ably
documented by OECD’s PSEs/CSEs since 1986, but
there was no comparable set of numbers for DCs
The good news of the past 2 decades,
after the Krueger/Schiff/Valdes study:
Many developing countries have undertaken
major economic reforms since the 1980s
phased out their agric export taxes, reduced manuf
protection, and allowed markets to determine the
value of their currency
Some rich countries also have begun to reduce
trade-distorting supports for their farmers
partly through policy re-instrumentation towards
somewhat decoupled measures
Even so, there were believed to be many
distortionary policies still in place
One purpose of present study was to document
more fully the extent of DC reforms
Conclusion: much achieved, but
much reform still needed
Global modeling results suggest the reforms
since the early 1980s have taken the world at
least halfway towards free goods markets
Remaining distortionary agric policies are
responsible for 70% of the global welfare cost
of 2004 merchandise trade distortions
even though agric is only 3% of global GDP
They are also responsible for much of the
instability in int’l agric markets
They appear to be net contributors to poverty
in developing countries
What did this study involve?
90 consultants covered 75 countries (>90% of world
agriculture, population and GDP)
Measured Nominal Rate of Assistance (NRA) for key
farm products, covering 70% of production value
NRA = percentage by which domestic prices for farm products
exceed those in international markets
Also generated a Relative Rate of Assistance (RRA) to
producers of agric relative to non-agric tradable goods
Defined as RRA = [(1+NRAagt/100)(1+NRAnonagt/100)] – 1
Compiled in a global annual database (1955-2007),
available at www.worldbank.org/agdistortions
Project’s focus countries: number
and shares (%) of the global economy
No. of
countries
21
Pop’n
share
10
AgGDP
share
6
GDP
share
1
Asia
12
51
37
10
Latin America
8
8
8
5
European TEs
14
7
67
4
High-income
20
14
33
76
WORLD TOTAL
75
90%
91%
96%
Africa
Global coverage of NRA estimates
for 30 major agric products
Grains (10 products)
Share (%)
Share (%)
of global ag of global ag
exports
production
85
90
Oilseeds (6 products)
78
85
Tropical crops (7)
74
71
Livestock products (7)
72
88
SUM OF ABOVE (30)
77
85
Two summary indicators
Inter-sectoral neutrality in assistance is
least harmful to welfare (=> RRA=0)
Intra-agric sectoral neutrality, at least in
terms of equality of NRAs between agric
exportables and agric import-competing subsectors, is least harmful to gains from agric
trade and to ‘thinning’ int’l markets for agric
goods (which adds to their instability)
Measured by a trade bias index (TBI), defined as
TBI = [(1+NRAagx/100)/(1+NRAagm/100)] – 1
Evolution from negative to zero average
relative rate of assistance (RRA) for all DCs
100
80
percent
60
40
20
0
-20
1965-69
1970-74
1975-79
1980-84
1985-89
1990-94
1995-99
2000-04
-40
-60
NRA non-ag tradables
NRA ag tradables
RRA
11
RRA rise is steepest for Asia among the DC regions
10
0
percent
-10
1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
-20
-30
-40
-50
-60
-70
Asia
Africa
LAC
-60
Zimbabwe
Cote d 'ivoire
Tanzania
Nigeria
Zambia
Ethiopia
Argentina
Senegal
Bangladesh
Ukraine
Egypt
Pakistan
Sri Lanka
Nicaragua
Madagascar
Thailand
Cameroon
South Africa
Bulgaria
New Zealand
Australia
Dominican
Brazil
Uganda
Vietnam
Malaysia
China
Chile
Sudan
Ecuador
Poland
Mexico
Kenya
Ghana
Indonesia
Russia
Slovakia
US
Canada
India
Mozambique
Philippines
Estonia
Turkey
Colombia
Czech Rep
Hungary
Spain
France
Lithuania
Portugal
Italy
Denmark
Latvia
Germany
Finland
Sweden
UK
Austria
Netherlands
Romania
Ireland
Taiwan
Slovenia
Japan
Norway
Switzerland
Korea
Cross-country dispersion in RRA, 2000-04
140
90
40
-10
150
World’s RRAs and TBIs: 1980-84 vs 2000-04
100
Japan
Japan
50
WE
WE
Asia
NA
0
ECA LAC
Africa
Africa
NA
ANZ
ANZ
LAC
-50
Asia
-0.6
-0.5
-.4
-0.3
-0.2
Trade Bias Index
RRA
Triangle: 1980-84, Circle: 2000-04
-0.1
0
Anti-trade bias: in DCs, NRA ag export
taxation disappearing, but NRA ag importcompeting is >0 & growing
50
30
10
-10 1955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
-30
-50
import-competing
exportables
total
Long-run trend in NRA ag import-competing goods is
growing as fast in DCs as in HICs: a worry for WTO
80
70
percent
60
50
40
30
20
10
0
1955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
High-income countries
Developing countries
How far have policy reforms reduced the
disarray in world agricultural markets? PE
New partial equilibrium measures, based on
J. Anderson/P. Neary’s Trade Restrictiveness
theory but modified to account for difference
between ag NRAs and CTEs (both of which
can be positive or negative), are estimated for
each of our 75 countries:
a Welfare Reduction Index (WRI), and
a Trade Reduction Index (TRI)
We also estimate global WRI and TRI for each
of our commodities
Welfare reduction index: DCs, HICs and ETEs,
1960 to 2007 (percent)
100
80
60
40
20
0
1960 -64
1965 -69 1970 -74 1975 -79 1980 -84 1985 -89 1990 -94 1995 -99 2000 -04 2005 -07
Developing countries
High - income countries
Europe’s transition econs.
Trade reduction index: DCs, ETEs and HICs,
1960 to 2007 (percent)
70
50
30
10
-10 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04 2005-07
Developing countries
Europe’s transition econs.
High-income countries
Wool
GWRI
Cassava
Rubber
60
Coconut
Palmoil
Coffee
Sunflower
Wheat
Maize
Soybean
Rapeseed
Egg
Pigmeat
Tea
Oat
Sheepmeat
Millet
Barley
Cocoa
Sesame
Sorghum
Groundnut
Cotton
Poultry
Beef
Milk
Sugar
Rice
Global WRI & TRI (%), by product, 2000-04
160
140
120
100
80
GTRI
40
20
0
-20
-40
How far have policy reforms reduced the
disarray in world agricultural markets? GE
New global, economy-wide CGE modeling
results on effects of distortions also suggest
that, since the early 1980s, the world has gone
more than half way towards fully liberalizing
goods markets, in terms of welfare and trade
effects of policies affecting goods markets
But agric now account for 70% of the global
welfare cost of goods-trade-distorting policies
even though agric and food account for only 3% of
global GDP and 6% of global trade
Reflecting in part the wide dispersion in agric NRAs
not only between countries but also across products
Reform effects: retrospective since
1980-84, and prospectively as of 2004
Reform from
1980-84 to
2004
Move to
free trade
as of 2004
Global econ welfare, $b (%)
$233 (0.8%) $168b (0.6%)
DCs’ econ welfare, $b (%)
$73b (1.0%)
$65b (0.9%)
DC share of global ag output
58% 62%
62% 65%
DC share of global ag exports
43% 55%
55% 64%
% rise in DC ag (nonag)
sectoral value added
4.9%(0.4%) 5.6%(1.9%)
Insulation of food markets persists, so
volatility of int’l food prices continues
Fluctuations around trend NRAag from
year to year remain common
Consider the case of rice: insulating policies
have ‘thinned’ its int’l market
<7% of global production is exported, versus 24%
for wheat
So year-to-year coefficient of variation of int’l rice
price is high: 0.63 compared with 0.44 for wheat
Rice NRA for South Asia is
inversely correlated with int’l price
600
30
20
500
10
300
-20
-30
200
-40
-50
100
Pw
S Asia
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
-
1972
-60
1970
USD
-10
-70
NRA %
0
400
… and also for Southeast Asia
600
30
500
20
10
0
NRA %
300
-10
200
-20
Pw (USD)
SE Asia
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
-40
1976
-
1974
-30
1972
100
1970
USD
400
True for non-rice products too
Most farm product NRAs tend to be
negatively correlated with movements in
international product price
On average, barely half of the change in an
international price is transmitted to the domestic
market within the first year, for the top dozen
traded farm products
This is becoming a bigger issue as climate
change adds to volatility of crop seasons
Some research questions still to be addressed
1. Political economy question: Will trend
RRAs for HICs and DCs converge above
zero, rather than at zero (where
intersectoral distortion is zero)?
-100
0
100
200
300
400
Will DCs move, like HICs did, to positive
RRAs as their incomes rise?
-1
0
1
2
Ln real GDP per capita
HIC RRA obs
DC RRA obs
HIC fitted values
DC fitted values
3
-50
0
50
100
150
200
Korea and Taiwan followed Japan …
7
8
9
Ln real GDP per capita
Japan
Korea
Taiwan
10
-50
0
50
100
150
200
… so will China and India too, to avoid social
unrest from widening urban-rural income gap?
7
8
9
Ln real GDP per capita
China
Japan
Korea
Taiwan
10
India
Will growth in emerging economies
continue to push up int’l food prices?
China’s impact so far has been much less on int’l prices
for food than for minerals and energy
But partly because of rising RRA over the past 3 decades
True also of India, where Green Revolution also
contributed to food self sufficiency after the 1960s
Now with China’s and India’s RAAs close to zero, future
agric import growth could accelerate if, on the one
hand, they chose to not raise their RRA any more
On the other hand, what if China and India (and
other DCs) choose to follow Korea and Taiwan
with agric protection growth?
which their WTO commitments would allow for some time yet,
especially if Doha does not dramatically reduce tariff binding
overhangs
What are the implications for WTO
negotiations?
Need large cuts to bound tariffs and subsidies so as
to reduce binding overhang & thus prospect of:
agric protection growth in DCs as their incomes rise, and
NRA fluctuations around trend via variable trade barriers
(because lib’n would ‘thicken’ int’l food markets)
Need to not only ban agric export subsidies but also
discipline agric export restrictions at WTO?
Proposed ‘Special Products’ and ‘Special Safeguard
Mechanism’ would add to agric protection growth, to
dispersion of NRAs, and to int’l food price volatility
What alternative policy initiatives would
boost food security and reduce poverty?
Instead of variable trade measures, encourage
governments to pour more of their support into
boosting agric R&D, rural health & education,
and rural infrastructure, and improving agric
factor and product markets
Payoff from ag R&D investments has risen with
higher prices & spectre of climate change
Hotter, drier, more volatile seasons adds to need for:
• more-integrated global food markets so as to better share
the burden of fluctuating weather, and
• efficient water markets
Thanks!
For all Agric Distortions Research Project
working papers and global distortions database,
see www.worldbank.org/agdistortions
Two forthcoming books are:
Anderson, K., J. Cockburn and W. Martin (eds.),
Agricultural Price Distortions, Inequality and Poverty
Washington DC: World Bank, forthcoming March 2010
Anderson, K. (ed.), The Political Economy of Agricultural
Price Distortions , Cambridge and New York: Cambridge
University Press, forthcoming late 2010