1. Tackling the political problem of farm subsidies Prepared for: University of California Silverado Symposium on Agricultural Policy Reform Silverado Resort, Napa Valley, California 19-20 January 2004 Prepared by: Dr Andrew Stoeckel, Executive Director Centre for International Economics, Canberra, Australia

2. 2 The agricultural trade problem n No reform for fifty years n Political problem n Farmers are a well organised political group n Things have not got much better n But, in general, not worse either

3. 3 Agricultural PSEs for OECD, the United States, Japan and the European Union 0 10 20 30 40 50 60 70 1986 1988 1990 199219941996 19982000 Producer support estimate (%) United States Japan OECD European Union

4. 4 The mix of highly distorting and less distorting agricultural subsidies in OECD countries 0 10 20 30 40 50 60 70 Australia Canada Czech EU HungryIceland Japan Korea Mexico NZ Norway Poland Slovakia Swiss Turkey USA OECD Producer support estimate (%). Less distorting Highly distorting

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6. 6 Forces for and against reform Forces for reformForces against reform Farmers

7. 7 CBO projections of total US fiscal surplus/deficit -600 -400 -200 0 200 400 600 800 1000 2000200220042006200820102012 US$ billions CBO projections, August 2003 CBO projections, January 2001

8. 8 Forces for liberalisation TaxpayersGreensExporters Developing countries Consumers Those facing barriers Generally Doha Round only empowers this group

9. 9 Doha Round n Based on reciprocal ‘concessions’ n May have worked in the past n No longer working n Success in other areas (nothing left to ‘give’ away) n Flawed logic

10. 10 A quick quiz of Indonesian journalists EXPORTS are:19 BADGOOD IMPORTS are:0 0 19

11. 11 Forces for liberalisation TaxpayersGreensExporters Developing countries Consumers Those facing barriers Generally Doha Round only empowers this group Australia’s liberalisation led by this group

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13. 13 How to engage other groups n Economy-wide analysis n Look beyond the direct to the indirect or secondary effects n Important in Australian liberalisation n Also for New Zealand n Requires a special process n Open, independent, transparent n Changes the politics of protection

14. 14 Forces for liberalisation (continued) For reform Greens Against reform Farmers

15. 15 Good and bad subsidies Positive economic 4 Negative economic x Positive environmental 4 44 Negative environmental x 4x4x x4x4xx 80%

16. 16 Benefits of New Zealand reform 0 10 20 30 40 50 60 70 80 90 19841986 1988 1990 19921994 19961998 2000 Sheep numbers (million head) 0 200 400 600 800 1000 1200 1400 1600 1800 Private forest area (000 ha) Number of sheep Area of private forests

17. 17 Forces for liberalisation (continued) For reform Developing countries Against reform Farmers

18. 18 Welfare gains from trade liberalisation in the Philippines 20002001200220032004200520062007200820092010 0 2 4 6 8 10 Full WTO liberalisation Own liberalisation

19. 19 Preferences and developing countries n Mauritius has preferential access to EU’s sugar market n Benefit: Mauritian sugar (roughly) 0.6 mt x $500 per tonne = $300 million n BUT n Resources used to produce sugar n 93 per cent arable land devoted to sugar n Tourism has limited access to land n ‘Guestworkers’ imported to fill labour gaps

20. 20 Preferences and developing countries (continued) n Measuring all secondary effects shows Mauritius worse-off n Same story with bananas n Preferences ‘kiss-of-death’

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22. 22 Forces for and against reform Forces for reformForces against reform Farmers

23. 23 Price differentiation, domestic Wagyu beef production: Japan 0 50 100 150 200 250 300 199019911992199319941995199619971998199920002001 tonnes BSE scare Market liberalisation

24. 24 Summary n Farm trade liberalisation a political problem n To see reform, have to change the politics n Doha round on its own unlikely to do this n In fact, makes going harder n Sends wrong ‘exports good, imports bad’ message n Need several groups to join forces as a counterweight against those blocking change n Combination of economy-wide analysis and open, independent, transparent process changes the politics of protection