The Domestic Support Issues and Prospects
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Lars Brink POLICY SEMINAR Farm Subsidies and International Trade Rules MAY 25, 2023 - 9:30 TO 11:00AM EDT
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The Domestic Support Issues and Prospects
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- 2. The Domestic Support Issues and Prospects Lars Brink Independent Policy Advisor David Orden Virginia Polytechnic Institute and State University 25 May 2023
- 3. Contents • Introduction • Agriculture and SCM Disciplines • Economic Analysis • Trends in Support • Transparency • Issues under Negotiation • Disputes over Domestic Support • Twenty-First Century Priorities • Lessons from the Experience
- 4. Tryout slide 3 0 20 40 60 80 100 120 140 160 180 USD bill. AMSs: Aggregate Measurements of Support Note: Support notified to the WTO Committee on Agriculture by mid-2022
- 5. Tryout slide 3 0 20 40 60 80 100 120 140 160 180 USD bill. AMSs: Aggregate Measurements of Support Blue box: payments meeting Art. 6.5 conditions Note: Support notified to the WTO Committee on Agriculture by mid-2022
- 6. Tryout slide 3 0 20 40 60 80 100 120 140 160 180 USD bill. AMSs: Aggregate Measurements of Support Art. 6.2: mainly input subsidies Blue box: payments meeting Art. 6.5 conditions Note: Support notified to the WTO Committee on Agriculture by mid-2022
- 7. Tryout slide 3 0 20 40 60 80 100 120 140 160 180 USD bill. Art. 6: sum of AMSs, Art. 6.2 and Blue box AMSs: Aggregate Measurements of Support Art. 6.2: mainly input subsidies Blue box: payments meeting Art. 6.5 conditions Note: Support notified to the WTO Committee on Agriculture by mid-2022
- 8. 0 50 100 150 200 250 300 350 400 450 500 USD bill. Art. 6 (AMSs, Art. 6.2, Blue box) Note: Support notified to the WTO Committee on Agriculture by mid-2022
- 9. 0 50 100 150 200 250 300 350 400 450 500 USD bill. Direct payments in green box Art. 6 (AMSs, Art. 6.2, Blue box) Note: Support notified to the WTO Committee on Agriculture by mid-2022
- 10. 0 50 100 150 200 250 300 350 400 450 500 USD bill. All expenditures and Direct payments in green box Direct payments in green box Art. 6 (AMSs, Art. 6.2, Blue box) Note: Support notified to the WTO Committee on Agriculture by mid-2022
- 11. 11 ‘No, or at most minimal, trade-distorting effects or effects on production’ •Research, advice, disease control, inspection services, infrastructural services … Expenditures on ‘General services’ and more •Decoupled income support, income safety nets, environmental programs … Direct payments meeting given criteria •Pay for emission reduction – a mitigation outcome – instead of production practice •Research to better measure and value the reduction •Environmental programs – ‘extra costs or loss of income’ and ‘production methods or inputs’ •Negative production effect •Need to tighten or relax any green box rules? •Support for more sustainable food production •Exempt from limit when green box compatible Role for green box policies • Mitigate climate change • Tackle food insecurity
- 12. •Research, advice, disease control, inspection services, infrastructural services … Problematic Measurement of Market Price Support (MPS) — Introduction
- 13. Economic and Agreement Measurements of MPS Economic MPSt = [ Domestic Pricet – Border Pricet ] × [ Total Productiont ] Agreement MPSt = [ AAPt – FERPfixed years ] × [ Eligible Productiont ] For example, related to the dispute India ‒ Sugar and Sugarcane Year MPS as percent of production value 2014 2015 2016 2017 2018 Economic %MPS (OECD) 13% 8% -1% 28% 24% Agreement %MPS (Dispute Panel) 94% 92% 86% 91% 90%
- 14. •Research, advice, disease control, inspection services, infrastructural services … MPS Enters the Negotiations Particularly under the Heading Public Stockholding (PSH) • Background – 2013 interim mechanism shelters excessive MPS of developing countries from dispute challenge when MPS results from acquisition at an administered price of stocks of staple crops in pursuance of food security • Current Arguments – Many developing countries argue for permanently exempting producer support from PSH programs from limit – Other members consider that this support should remain subject to limit under rules of the Agreement on Agriculture
- 15. -80 -60 -40 -20 0 20 40 60 80 100 -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Wheat in India Agreement %MPS Economic %MPS -80 -60 -40 -20 0 20 40 60 80 100 -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Rice in India Agreement %MPS Economic %MPS Note: In these figures the Agreement MPS is measured with annual AAPs and the 1986-88 FERP in nominal Indian Rupees and eligible production as total production. India notified lower values.
- 16. •Research, advice, disease control, inspection services, infrastructural services … Can Differences Be Narrowed? • Finding fault with arguments on both sides we explore a Lagged Reference Price MPS resolution LRP MPSt = [ AAPt – LRPt ] × [ Total Productiont ] LRPt = Moving Average of Lagged Border Prices (e.g. average (t-1, t-2, t-3) or 5-year Olympic)
- 17. -80 -60 -40 -20 0 20 40 60 80 100 -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Wheat in India Agreement %MPS Economic %MPS LRP %MPS -80 -60 -40 -20 0 20 40 60 80 100 -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Rice in India Agreement %MPS Economic %MPS LRP %MPS Note: In these figures the Agreement MPS is measured with annual AAPs and the 1986-88 FERP in nominal Indian Rupees and eligible production as total production. India notified lower values.
- 18. •Research, advice, disease control, inspection services, infrastructural services … Better MPS Measurement as a Path Forward • Revising measurement to bring Agreement MPS closer to its economic value might largely resolve the PSH impasse – For developing countries complying with AMS limits would not require reducing artificially high measurements of MPS – Proponents of constraints on producer support would be assured that the disciplines have a sound economic basis • A technical matter – Application under law of an erroneous measurement undermines the rule of law – Assessing the reference price included in Draft Decision for 2022 Ministerial Conference
- 19. The Domestic Support Issues and Prospects Lars Brink and David Orden 25 May 2023
- 20. Repurposing Agricultural Domestic Support Joseph Glauber, David Laborde and Valeria Piñeiro Markets, Trade and Institution Division International Food Policy Research Institute May 25th, 2023
- 21. Impact framework Producer support Production decision Consumption decision Nutrition Impacts on Nature/ Environmental externalities Impacts on Humans Health externalities Biodiversity Climate Impacts on Nature Environmental externalities Consumer support Impacts on Human Health Public Health Costs Equity & Gender
- 22. Towards a definition of “non-environmentally friendly payment”: all input subsidies are not the same Illustration of existing spendings Input type Value (US$ bn) Share Chemicals and pesticides 0.2 0.2% Environment 8 7.7% Extension services 9.6 9.3% Feed 0.5 0.5% Fertilizer 19.9 19.3% Financial services 17.6 17.0% Fuel 15.6 15.1% Insurance 7.7 7.5% Irrigation 6.7 6.5% Mechanization 7.3 7.1% Quality control 0.1 0.1% Risk management 1.2 1.2% Seed 0.3 0.3% Transport 0.1 0.1% Unknown, (new: land management) 8.5 8.2%
- 23. Conclusion and Guidance for trade rules Current WTO rules are not an obstacle for repurposing, but they provide weak incentives or guidelines. Blue box policies, especially for livestock, are a significant potential to curb GHG emissions. Repurposing could involve significant box shifting towards Green Box , and abuse of existing flexibilities Assessing price support through historic reference price is not consistent with a transformation agenda In the future, soul searching for the WTO members: should the rules focus on “do no harm” or “do good” Disciplining Overall Trade Distorting Support is not synonymous to improve Social and Environmental impacts of farm policies Increase Transparency and Monitoring (Notifications) will be essential to promote trust and coordination in the global repurposing process Tariffs remain an awkward instrument to guide repurposing Border Tax Adjustments are a second-best option Discriminatory use will be a source of dispute and also inefficiencies
- 24. Lessons Learned: Limited Opportunities and careful planning is needed Removing existing policies will Hurt farmers overall (with some benefits for some countries) Will slightly help the poor and the hungry IF border protection is removed Ambiguous effects on global emissions, mainly through a contraction of production and land abandonment So, Repurposing is required Investment in Sustainable Intensification is required. Investing in “traditional” productivity gains will not deliver Border Polices and Domestic Support have, in most of the cases, opposite effects on diets Input subsidies are a tricky issue Focusing on healthy/environmental friendly products Could contribute to reduce the cost of healthy diets but has limited impact when using producer subsidies Risk for governments to pick the wrong "good" products Phasing out resources from staples could have a small impact on undernourishment
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Editor's Notes
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- Given the triple challenge for food systems of ensuring food security and nutrition, supporting the livelihoods of producers and doing so in an env sustainable way plus becoming more resilient. Green subsidies can be helpful when there are market failures. subsidies should be carefully targeted to correct market failures and they should not discriminate between firms or countries. They must be consistent with World Trade Organization rules We should avoid a harmful subsidy race between the world’s largest economies to lure green investment. This could undermine the level playing field in global trade, and impose large fiscal costs. It would ultimately reduce efficiency. Are the rules of the agriculture agreement sufficiently conducive to addressing evolving policy priorities related to sustainability and climate change? How might the rules and commitments be updated to better achieve the long term objective of the AoA considering that the global landscaper of applied domestic support has changed since the agreement was negotiated?
- Subsidies aka domestic support affect: How much to produce (scale) What to produce (products) How to produce (practices) Where to produce (location)
- AoA exempts 3 categories of measures from limits on support: green box, Art6.2 and 6.5
- From the book: domestic support disciplines conducive to the provision of public goods and to addressing externalities and market failures without creating more room for trade distorting measures or support is thus a crucial twenty first century need.