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GTAP Resource #1906

"Why Market Access is the Most Important of Agriculture's Three Pillars in the Doha Negotiations"
by Anderson, Kym, Will Martin and Ernesto Valenzuela

Limiting trade-distorting domestic support to farmers and phasing out agricultural export subsidies are important and necessary disciplines. However, the potential income gains from abolishing these measures are much smaller than those from eliminating tariffs. Bank research has shown that over 90 percent of the cost of global agricultural distortions (including agricultural subsidies and tariff barriers) is due to tariffs. Why? First, the widely-cited $280 billion of OECD agricultural support in 2004 is derived primarily from tariffs and export subsidies. The resulting market price support (MPS) accounts for $168bn, or 60 percent of the total. Second, the OECD estimates of support refer only to support to farmers (primary agriculture), and there is a great deal of support to food processing covered under the Agreement on Agriculture – virtually all of which is provided by tariffs. Third, trade measures are doubly costly – distorting both production and consumption – potentially roughly doubling the costs per dollar of support to producers. Fourth, almost all of the agricultural support outside the OECD is provided through border measures. Fifth, the rates of protection provided by tariffs tend to vary more than those provided by subsidies. Since the costs of any distortion rise with the square of its rate, this variability raises the cost of providing support via tariffs. Sixth, the costs of domestic support are reduced to some degree by decoupling from production. Even without taking decoupling into account, World Bank research finds that domestic support accounted for only 5 percent of the global welfare cost of agricultural distortions in 2001.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
Status: Published
By/In: The World Bank, DRG Trade Electronic Newsletter, Winter 2005 vol4:34
Date: 2005
Created: Valenzuela, E. (12/12/2005)
Updated: Valenzuela, E. (3/23/2006)
Visits: 2,382
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