Distortions to Agricultural Incentives: A Global Perspective, 1955-2007

DISTORTIONS

TO AGRICULTURAL

INCENTIVES

A GLOBAL PERSPECTIVE, 1955–2007

Edited by Kym Anderson

DISTORTIONS TO AGRICULTURAL INCENTIVES

DISTORTIONS TO AGRICULTURAL INCENTIVES A Global Perspective, 1955–2007

Kym Anderson Editor

A COPUBLICATION OF PALGRAVE MACMILLAN AND THE WORLD BANK

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ISBN: 978-0-8213-7665-2 (softcover) DOI: 10.1596/978-0-8213-7665-2 (softcover) eISBN: 978-0-8213-7666-9

ISBN: 978-0-8213-7973-8 (hardcover) DOI: 10.1596/978-0-8213-7973-8 (hardcover)

Library of Congress Cataloging-in-Publication Data Distortions to agricultural incentives: a global perspective, 1955–2007 / edited by Kym Anderson. p. cm.

Includes bibliographical references and index.

ISBN 978-0-8213-7665-2 (pbk.)—ISBN 978-0-8213-7973-8 (hardback)—ISBN 978-0-8213-7666-9 (electronic) 1. Agricultural subsidies. 2. Agriculture and state. 3. International trade. I. Anderson, Kym. HD1415.D57 2009 338.1'8—dc22 2009011004 Cover design: Tomoko Hirata/World Bank.

Cover photo: © Ray Witlin/World Bank Photo Library.

Printed in the United States.

Dedication

To the memory of T. W. Schultz (1902–98), D. Gale Johnson (1916–2003), and Bruce L. Gardner (1942–2008), whose fine minds were sharpened at the University of Chicago and who contributed perhaps more than any other economists of the 20th century to our understanding of the need to reduce distortions to agricultural incentives around the world.

OTHER TITLES IN THE SERIES

Distortions to Agricultural Incentives in Africa, edited by Kym Anderson and William A. Masters, 2009.

Distortions to Agricultural Incentives in Asia, edited by Kym Anderson and Will Martin, 2009.

Distortions to Agricultural Incentives in Europe’s Transition Economies, edited by Kym Anderson and Johan Swinnen, 2008.

Distortions to Agricultural Incentives in Latin America, edited by Kym Anderson and Alberto ValdĂŠs, 2008.

CONTENTS

Foreword

xxi

Acknowledgments

xxv

Contributors

xxix

Abbreviations

xxxiii

Map: The 75 Focus Countries

xxxvi

PART I

INTRODUCTION

1

1

Five Decades of Distortions to Agricultural Incentives Kym Anderson

3

PART II

EVOLUTION OF DISTORTIONS IN ADVANCED ECONOMIES

65

2

Japan, Republic of Korea, and Taiwan, China Masayoshi Honma and Yujiro Hayami

67

3

Western Europe Tim Josling

115

4

United States and Canada Bruce L. Gardner

177

5

Australia and New Zealand Kym Anderson, Ralph Lattimore, Peter J. Lloyd, and Donald MacLaren

221

PART III EVOLUTION OF DISTORTIONS IN EMERGING ECONOMIES

257

6

259

Eastern Europe and Central Asia Kym Anderson and Johan Swinnen

ix

x

Contents

7

Latin America and the Caribbean Kym Anderson and Alberto ValdĂŠs

289

8

Sub-Saharan and North Africa Kym Anderson and William A. Masters

323

9

China and Southeast Asia Kym Anderson and Will Martin

359

10

India and Other South Asian Countries Ashok Gulati and Garry Pursell

389

PART IV GLOBAL MARKET AND WELFARE EFFECTS OF DISTORTIONS 11

Welfare-Based and Trade-Based Indicators of National Agricultural Distortions Peter J. Lloyd, Johanna L. Croser, and Kym Anderson

12

Global Distortions to Key Commodity Markets Kym Anderson, Johanna L. Croser, Signe Nelgen, and Ernesto Valenzuela

13

General Equilibrium Effects of Price Distortions on Global Markets, Farm Incomes, and Welfare Ernesto Valenzuela, Dominique van der Mensbrugghe, and Kym Anderson Appendix A: Methodology for Measuring Distortions to Agricultural Incentives Kym Anderson, Marianne Kurzweil, Will Martin, Damiano Sandri, and Ernesto Valenzuela

417 419 459

505

565

Appendix B: Global Distortions Database, 1955–2007 Kym Anderson and Ernesto Valenzuela

595

Index

619

Contents

Figures 1.1 Gross Subsidy Equivalents of Assistance to Farmers, over Time and by Region, 1955–2007 1.2 NRAs to Agriculture, by Regions, 1980–84 and 2000–04 1.3 NRAs to Exportable, Import-Competing, and All Covered Agricultural Products, High-Income and Developing Countries, 1955–2004 1.4 NRAs, Key Covered Products, High-Income and Developing Countries, 1980–84 and 2000–04 1.5 NRAs to Agricultural and Nonagricultural Tradable Products and RRA, All Focus Countries, 1955–2004 1.6 RRAs to Tradables, Asia, Africa, and Latin America, 1965–2004 1.7 RRAs to Agriculture, High-Income Countries, 1955–2007 1.8 Cross-Country Dispersion of NRAs and RRAs, 2000–04 1.9 Relationships between Real GDP Per Capita and RRA, All Focus Countries, 1955–2007 1.10 Relationship between RRA and the TBI for Agriculture, Focus Regions, 1980–84 and 2000–04 1.11 Welfare Reduction Indexes for Covered Tradable Farm Products,

by Region, 1960–2007 1.12 Regional Shares of Global and Country Shares of Asian Welfare Reduction from Agricultural Policies, 1981–2004 1.13 Trade and Welfare Reduction Indexes for 28 Major Agricultural Products, 2000–04 1.14 NRAs for Japan, Republic of Korea, and China, and Date of Accession to GATT or WTO, 1955–2005 2.1 RRA to Agricultural Versus Nonagricultural Tradables, Japan, Korea, and Taiwan, China, 1955–2007 2.2 NRA to Rice, Japan, Korea, and Taiwan, China, 1955–2007 2.3 RRA to Agriculture and Real GDP Per Capita, Japan, Korea, and Taiwan, China, 1955–2004 2.4 RRA to Agriculture and Relative GDP Per Agricultural Worker, Japan, Korea, and Taiwan, China, 1955–2004 3.1 NRAs to Agriculture, EU-6 and Western European Average, 1956–1964 3.2 NRAs to Agriculture, EU-9 and Western European Average, 1965–1974 3.3 NRAs to Agriculture, EU-12 and Western European Average, 1975–1984 3.4 NRAs to Agriculture, EU-15 and Western European Average, 1985–1994 3.5 NRAs to Agriculture, EU and Western European Average, 1995–2007

xi

17 19

22 27 31 32 36 37 39 40 47 49 50 56 86 94 101 102 128 133 137 140 144

xii

3.6 3.7

4.1 4.2 4.3 4.4 4.5 4.6 5.1 5.2 5.3

5.4 5.5 6.1 6.2 6.3 7.1 7.2 7.3 7.4 7.5

Contents

NRAs to Agriculture with and without Decoupled Payments, Western Europe, 1956–2007 NRAs to Exportable, Import-Competing, and All Agricultural Industries, EEC/EU and Other Western European Countries, 1956–2007 Farm Household Income as a Percent of National Household Income, United States, 1930–2005 Expenditure on Commodity Programs and Payments to Farmers, United States, 1955–2005 CCC Commodity Program Outlays, United States, Fiscal Years 1980–2007 NRAs to Exportable, Import-Competing, and All Covered Agricultural Products, United States and Canada, 1955–2007 NRAs to All Agriculture without and with Decoupled Support, United States and Canada, 1955–2007 NRAs to All Nonagricultural Tradables, All Agricultural Tradable Industries, and RRA, United States and Canada, 1955–2007 Real GDP Per Capita in Australia, New Zealand, and Other HighIncome Countries Relative to the United States, 1870–2004 NRAs to Exportable, Import-Competing, and All Covered Products, Australia and New Zealand, 1946–2007 NRAs to Manufacturing, All Nonagricultural Tradables, All Agricultural Tradable Industries, and RRA, Australia and New Zealand, 1946–2007 Real Agricultural Total/Multifactor Productivity Growth, Australia and New Zealand, 1927–2004 Real Farmland Prices, New Zealand, 1978–2004 NRAs to Agriculture, Eastern European Countries, 1992–2007 NRAs to Agriculture, Individual Eastern European Focus Countries, 2000–03 RRAs to Agriculture, Eastern European Focus Countries, 1992–95 and 2000–03 NRAs to Agriculture, Individual Latin American Countries and Unweighted Regional Average, 1980–84 and 2000–04 NRAs, by Product, Latin American Countries, 1980–84 and 2000–04 NRAs to Exportable, Import-Competing, and All Agricultural Products, Latin American Region, 1965–2004 GSEs of Assistance to Farmers, Latin American Countries, 1980–84 and 2000–04 NRAs to Agricultural and Nonagricultural Tradable Products and RRA, Latin American Region, 1965–2004

145

146 178 187 189 193 203 205 222 232

236 249 250 268 271 280 301 302 302 307 311

Contents

7.6 8.1 8.2 8.3 8.4 8.5 8.6 9.1 9.2 9.3 9.4 9.5 9.6 9.7 10.1 10.2 10.3 10.4 10.5 10.6 10.7 11.1 11.2

Relationship between RRA and the TBI for Agriculture, Latin American Focus Countries, 1980–84 and 2000–04 NRAs to Agriculture, Individual African Focus Countries and Unweighted Regional Average, 1975–79 and 2000–04 NRAs, Key Covered Products, African Focus Countries, 1975–79 and 2000–04 NRAs to Exportable, Import-Competing, and All Agricultural Products, African Region, 1955–2004 GSEs of Assistance to Farmers, African Focus Countries, 1975–79 and 2000–04 NRAs to Agricultural and Nonagricultural Tradable Products and RRA, Africa Region, 1960–2004 Relationship between RRA and the TBI for Agriculture, African Focus Countries, 1975–79 and 2000–04 NRAs to All Agriculture and to Rice, China and Southeast Asian Countries, 1980–84 and 2000–04 NRAs to Exportable, Import-Competing, and All Agricultural Products, China and Southeast Asia, 1970–2004 NRAs to Agricultural and Nonagricultural Tradable Products and RRAs, China and Southeast Asia, 1970–2004 Rice NRA and International Rice Price, Southeast Asia, 1970–2005 NRA for Rice, Malaysia, 1960–2004 Relationship between RRA and the TBI for Agriculture, China and Southeast Asian Countries, 1980–84 and 2000–04 RRAs and Log of Real Per Capita GDP, Select Asian Countries, 1955–2005 Real Effective Exchange Rate Index, India, 1964–2007 Unweighted Average Tariffs on Imports of Agricultural and Nonagricultural Goods, India, 2002–06 NRAs to all Agricultural Tradable Industries, All Nonagricultural Tradables, and RRAs, India, 1965–2004 NRAs to all Agricultural Tradable Industries, All Nonagricultural Tradables, and RRAs, Pakistan, 1973–2005 NRAs to All Agricultural Tradable Industries, All Nonagricultural Tradables, and RRAs, Bangladesh, 1974–2004 NRAs to all Agricultural Tradable Industries, All Nonagricultural Tradables, and RRAs, Sri Lanka, 1955–2004 RRAs, South Asia, 1965–2004 NRAs to Farmers in High-Income and Developing Countries, for All Covered Farm Products, 1960–2007 CTEs Affecting Covered Farm Products in High-Income and Developing Countries, 1960–2007

xiii

312 335 338 340 343 348 352 365 369 372 378 379 381 383 397 398 402 402 403 403 409 432 432

xiv

11.3 11.4 11.5 11.6 11.7 11.8 11.9 11.10 11.11 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 12.10 12.11 12.12 A.1 A.2 B.1 B.2

Contents

NRAs Affecting Covered Farm Products in Africa, Asia, Latin America, and European Transition Economies, 1960–2007 CTEs Affecting Covered Farm Products in Africa, Asia, Latin America, and European Transition Economies, 1960–2007 WRIs for Covered Tradable Farm Products, by Region, 1960–2007 TRIs for Covered Tradable Farm Products, by Region, 1960–2007 WRIs and TRIs for Covered Tradable Farm Products,

by Country, 2000–04 TRIs and WRIs for Covered Tradable Farm Products,

by Region, 1985–89 and 2000–04 Country Contributions to the Global TRI and WRI, 2000–04 WRI and Real Per Capita GDP, All 75 Countries, 1961–2004 NRA, TRI, and WRI for Covered Tradable Farm Products, World, 1960–2004 GSEs of Assistance to Farmers Globally, by Product, 1980–84 and 2000–04 NRAs, Key Covered Products, High-Income and Developing Countries, 1980–84 and 2000–04 NRAs, Rice, Milk, and Sugar, by Country, 2000–04 NRAs, Beef, Pig Meat, and Poultry, by Country, 2000–04 NRAs, Wheat, Maize, and Soybeans, by Country, 2000–04 NRAs, Cotton, Cocoa, and Coffee, by Country, 2000–04 Rice NRA and International Rice Price, South Asia, 1970–2005 NRAs for Rice and Per capita Income, 1955–2007 TRI and WRI for 12 Key Covered Products, 2000–04 Global TRI and WRI for Covered Tradable Farm Products,

by Commodity, 1985–89 and 2000–04 Country Share of the Global Commodity-Specific TRI for Rice, Sugar, Beef, Cotton, and Milk, 2000–04 Country Share of the Global Commodity-Specific WRI for Rice, Sugar, Milk, Beef, and Cotton, 2000–04 A Distorted Domestic Market for Foreign Currency Distorted Domestic Markets for Farm Products Number of Countries for Which NRA and CTE Estimates Are Provided for 30 Key Farm Products Shares of Global Production of 30 Key Farm Products Covered in NRA and CTE Estimates

433 434 436 439 441 451 452 453 453 465 469 471 473 475 476 480 481 491 492 493 494 569 589 596 597

Contents

Tables 1.1 Key Economic and Trade Indicators of Focus Countries,

by Region, 2000–04 1.2 Poverty in Africa, Asia, Latin America, and Europe’s Transition Economies, 1981–2005 1.3 Growth of Real GDP and Exports, Focus Countries, 1980–2004 1.4 NRAs to Agriculture, Focus Countries, 1955–2007 1.5 NRAs to Agricultural Exportables, Import-Competing Products, and the TBI, Focus Regions, 1955–2007 1.6 Dispersion of NRAs across Covered Agricultural Products, Focus Regions, 1965–2007 1.7 NRAs to Agricultural Products Relative to Nonagricultural Industries, 1955–2007 1.8 NRAs to Agricultural and Nonagricultural Tradables, and the RRA, by Region, 1955–2007 1.9 GSEs of Assistance to Farmers, Total and Per Farm Worker,

by Region, 1965–2007 1.10 CTEs of Policies Assisting Producers of Covered Farm Products, Percent and Per Capita, by Region, 1965–2007 1.11 Intensity of Public Agricultural R&D Investment, High-Income and Developing Countries, 1971–2004 1.A.1 Export Orientation, Import Dependence, and Self-Sufficiency in Primary Agricultural Production, Focus Countries, 1961–2004 2.1 Economic Growth and Structural Transformation in Japan, Korea, and Taiwan, China, 1955–2004 2.2 Changes in Agricultural Structure in Japan, Korea, and Taiwan, China, 1955–2004 2.3 NRAs to Selected Agricultural Products in Japan, Korea, and Taiwan, China, 1955–2007 2.4 NRAs to Agricultural Relative to Nonagricultural Industries in Japan, Korea, and Taiwan, China, 1955–2007 2.5 CTEs for Selected Agricultural Products in Japan, Korea, and Taiwan, China, 1955–2007 2.6 Changes in Direct Tax Burdens and the Allocations of National Government Subsidies to Agricultural and Nonagricultural Sectors, Japan, 1878–1937 2.7 Farm-Nonfarm Income Disparity in Japan’s Economic Development, 1885–2000 3.1 NRAs to Agricultural Industries Relative to Nonagricultural Industries, EU-15 and EFTA-3, 1956–2007 3.2 NRAs to Covered Farm Products, EU, 1956–2007 3.3 NRAs to Covered Farm Products, Non-EU Western European Countries, 1956–2007

xv

15 16 17 20 23 26 29 33 41 44 57 59 72 75 87 90 96

105 106 147 149 151

xvi

3.4 3.5

3.6 4.1 4.2 4.3 4.4 4.5

4.6 5.1 5.2 5.3 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 7.1 7.2 7.3

Contents

NRAs to All Agriculture, Individual Western European Countries, 1956–2007 Gross Subsidy Equivalents of Assistance to Farmers, Total, Per Farm Worker and by Product, Western European Countries, 1956–2007 CTEs of Policies Assisting Farmers, Covered Products, Total and Per Capita and by Product, Western European Countries, 1956–2007 Customs Receipts as a Percentage of Value of Imports, United States, 1821–2000 NRAs to Covered Farm Products, United States and Canada, 1955–2007 NRAs to Agricultural Relative to Nonagricultural Industries, United States and Canada, 1955–2007 GSEs of Assistance to Farmers, by Product, Per Farm Worker and Total, United States and Canada, 1955–2007 CTEs of Policies Assisting Farmers, Covered Products, Total and Per Capita and by Product, United States and Canada, 1960–2005 PAC Disbursements during the Election Cycle, United States, November 2004–October 2006 NRAs to Covered Farm Products, Australia, 1946–2007 NRAs to Covered Farm Products, New Zealand, 1955–2007 NRAs to Agricultural Products Relative to Nonagricultural Industries, Australia and New Zealand, 1946–2007 Key Economic and Trade Indicators, Eastern European and CIS Countries, 2000–04 NRAs to Agriculture, Eastern European and CIS Focus Countries, 1992–2007 NRAs, Key Covered Farm Products, Eastern European and CIS Focus Countries, 1992–2005 TBI, Eastern European and CIS Focus Countries, 1992–2007 Dispersion of NRAs across Covered Agricultural Products, Eastern European and CIS Focus Countries, 1992–2007 Components of NRAs to Agriculture, Eastern Europe and CIS, 1961–2007 GSEs of Assistance to Farmers, Total and Per Farm Worker, Eastern European and CIS Focus Countries, 1992–2007 Percentage CTE of Policies Assisting Producers of Covered Farm Products, Eastern European and CIS Focus Countries, 1992–2007 Key Economic and Trade Indicators, Latin American Countries, 2000–04 NRAs to Agriculture, Latin American Countries, 1965–2004 NRAs, Key Covered Farm Products, Latin American Focus Countries, 1965–2004

154

155 158 184 194 201 206

209 213 229 231 234 261 269 272 273 274 275 277 279 291 300 303

Contents

7.4 7.5 7.6 7.7 7.8 7.9 8.1 8.2 8.3 8.4 8.5 8.6 8.7 9.1 9.2 9.3 9.4 9.5 9.6 10.1 10.2 10.3 10.4

Dispersion of NRAs across Covered Agricultural Products within Latin American Focus Countries, 1965–2004 NRAs to Agricultural Relative to Nonagricultural Industries, Latin American Region, 1965–2004 GSEs of Assistance to Farmers, Total and Per Farm Worker, Latin American Countries, 1965–2004 GSEs of Policies Affecting Farmers in Latin America,

by Product and Subsector, 1965–2004 Percentage CTE of Policies Affecting Covered Farm Products, Latin American Countries, 1965–2003 Value of CTE of Policies Affecting Covered Farm Products, Latin American Countries, 1965–2003 Key Economic and Trade Indicators, African Focus Countries, 2000–04 NRAs to Agriculture, African Focus Countries, 1955–2004 Dispersion of NRAs across Covered Agricultural Products, African Focus Countries, 1955–2004 NRAs, Key Covered Farm Products, All African Focus Countries, 1955–2004 NRAs to Agricultural Relative to Nonagricultural Industries, African Region, 1955–2004 GSEs of Assistance to Farmers, Total and Per Farm Worker, African Focus Countries, 1955–2004 Percentage CTE of Policies Assisting Producers of Covered Farm Products, African Focus Countries, 1961–2004 Changes in Poverty in Asia, 1981–2005 NRAs to Agriculture, China and Southeast Asia, 1960–2004 NRAs, by Covered Product, China and Southeast Asia, 1970–2005 Annual GSEs of Assistance to Farmers, Total and Per Farm Worker, Asian Economies, 1955–2004 NRAs to Agricultural and Nonagricultural Tradable Industries and RRAs, China and Southeast Asia, 1960–2004 CTE of Policies Assisting Producers of Covered Farm Products, China and Southeast Asia, 1970–2004 Shares of Agriculture in GDP and Employment, South Asian Countries, 1965–2004 Distribution of Fertilizer and Electricity Subsidies and Subsidy Rates for Key Crops, India, 2004 Trade Status of Farm Commodities, South Asian Countries, 1965–2005 NRAs, TBIs and Dispersion of Covered Farm Products, South Asia, 1965–2004

xvii

304 305 308 309 314 316 325 334 337 339 341 345 349 360 366 367 370 373 376 391 395 405 406

xviii

Contents

11.1

NRAs for Africa, Asia, Latin America, European Transition Economies, and High-Income Countries, All Farm Products, 1960–2007 CTEs for Africa, Asia, Latin America, European Transition Economies, and High-Income Countries, All Covered Farm Products, 1960–2007 WRIs for Asia, Africa, Latin America, European Transition Economies, and High-Income Countries, All Covered Tradable Farm Products, 1960–2007 TRIs for Asia, Africa, Latin America, European Transition Economies, and High-Income Countries, All Covered Tradable Farm Products, 1960–2007 PDIs for Asia, Africa, Latin America, European Transition Economies, and High-Income Countries, All Covered Farm Products, 1960–2007 CDIs for Asia, Africa, Latin America, European Transition Economies, and High-Income Countries, All Covered Farm Products, 1960–2007 WRIs, by Country and Region, All Covered Tradable Farm Products, 1960–2007 TRIs, by Country and Region, All Covered Tradable Farm Products, 1960–2007 Coverage of Gross Value of Agricultural Production at Undistorted Prices for 12 Key Covered Products, 2000–04 Share of Global Gross Value of Agricultural Production for Key Covered Products, by Region, 2000–04 Share of Regional Gross Value of Agricultural Production for Major Covered Products, by Region, 2000–04 GSEs of Assistance to Farm Industries, by Focus Country Group, 1965–2007 NRAs, 12 Key Covered Farm Products, All Focus Countries, 1965–2004 CTEs of Policies Assisting Producers of Covered Farm Products, All Focus Countries, 1965–2007 Shares of Production Exported and of Consumption Imported for Major Covered Products, by Region, 2000–03 Share of Global Production of Seven Mostly Nontraded Staple Crops, by Region, 1995–2004 Average of Focus Developing Countries’ Self-Sufficiency Ratios for Seven Mostly Nontraded Staple Crops, by Region, 1961–2005 Additional Contribution of Seven Noncovered Staples to Values of Agricultural Production and to Aggregate NRAs in Focus Developing Countries, by Region, 1966–2004

11.2

11.3

11.4

11.5

11.6

11.7 11.8 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 12.10

429

431

437

440

442

443 444 447 461 463 464 466 470 478 482 484 485

486

12.11 12.12 12.A.1 13.1 13.2 13.3 13.4 13.5

13.6 13.7 13.8

13.9

13.10 13.11 13.12 13.13 13.14 13.15

13.16 13.17

Contents

xix

Global TRIs, by Commodity, 1965–2004 Global WRIs, by Commodity, 1965–2004 Summary of NRA Estimates by Major Product, Africa, Asia, and Latin America, 2000–04 Structure of Price Distortions in Global Goods Markets, 1980–84 and 2004 Economic Welfare Impact of Going Back to 1980–84 Policies,

by Country/Region Impact of Going Back to 1980–84 Policies on Indexes of Real Export and Import Prices, by Region Terms-of-Trade Contribution to Real Income Changes from Going Back to 1980–84 Policies, by Region Impact of Going Back to 1980–84 Policies on Shares of Global Output Exported, and Developing Country Shares of Global Output and Exports, by Product Impact of Going Back to 1980–84 Policies on Agricultural and Food Output and Trade, by Country/Region Impact of Going Back to 1980–84 Policies on Self-Sufficiency in Agricultural and Other Products, by Product and Region Impact of Going Back to 1980–84 Policies on Shares of Production Exported and of Consumption Imported by the World, High-Income and Developing Countries Impact of Going Back to 1980–84 Policies on Shares of Agricultural and Food Production Exported,

by Country/Region Impact of Going Back to 1980–84 Policies on Real International Product Prices Impact of Going Back to 1980–84 Policies on Real Factor Prices,

by Region Impact of Going Back to 1980–84 Policies on Sectoral Value Added, Agricultural and All-Sector Policy Changes Impact on Real Income of Full Liberalization of Global Merchandise Trade, by Country/Region, 2004 Regional and Sectoral Sources of Welfare Gains from Full Liberalization of Global Merchandise Trade, 2004 Impact of Full Global Liberalization on Shares of Global Output Exported, and Developing Country Shares of Global Output and Exports, by Product, 2004 Impacts of Full Global Trade Liberalization on Agricultural and Food Output and Trade, by Country/Region, 2004 Impact of Global Liberalization on Share of Agricultural and Food Production Exported by Country/Region, 2004

489 490 496 509 516 519 520

521 523 526

528

529 530 531 532 536 539

541 542 545

xx

13.18 13.19

13.20 13.21 13.22

13.A.1 B.1 B.2

B.3

B.4 B.5 B.6 B.7 B.8 B.9 B.10 B.11

Contents

Impact of Global Liberalization on Self-Sufficiency in Agricultural and Other Products, by Region, 2004 Share of Production Exported and of Consumption Imported

by World, High-Income, and Developing Countries, before and after Full Global Liberalization of All Merchandise Trade,

by Product, 2004 Impact of Full Global Liberalization of Agricultural and All Goods Markets on Real International Product Prices, 2004 Impacts of Full Global Merchandise Trade Liberalization on Real Factor Prices, 2004 Effects of Full Global Liberalization of Agricultural and All Merchandise Trade on Sectoral Value Added,

by Country and Region, 2004 Protection Structure in GTAP Version 7 Prerelease and in the Distortion Rates Drawn from the World Bank Project, 2004 Summary of NRA Coverage Statistics, World Bank Agricultural Distortions Project Coverage of Gross Value of Global Agricultural Production at Undistorted Prices, for 30 Key Products and Four Product Groups, 2000–04 Project’s Coverage of National Agricultural Production in Focus Countries at Undistorted Prices, Regional Averages, 1980–2004 Shares of Global Agricultural Production for 30 Major Covered Products, by Region, 2000–04 Share of Regional Agricultural Production for 30 Major Covered Products, by Region, 2000–04 Share of Global Agricultural and Processed Food Exports for 30 Major Covered Products, by Region, 2000–03 Share of Global Agricultural and Processed Food Imports for 30 Major Products, by Region, 2000–03 Shares of Production Exported and Consumption Imported, by Farm Product and Region, 2000–03 Per Capita Income, Focus Countries, 2005 Variables in the Global Agricultural Distortions Database, 1955–2007 Variables in the Supplementary Global Agricultural Trade and Welfare Reduction Indexes Database, 1955–2007

546

547 548 549

550 558 597

599

600 601 603 605 607 609 611 612 615

FOREWORD

In his seminal 1973 book on World Agriculture in Disarray, Professor D. Gale Johnson despaired at the persistence of high agricultural protection in Organisation for Economic Co-operation and Development (OECD) countries, the antiagricultural and antitrade policies of developing countries, and the tendency for both sets of countries to insulate their domestic food market from international price fluctuations, thereby exacerbating price volatility for the rest of the world.

Since the vast majority of the world’s poorest households depend on farming for their livelihoods, this disarray not only was highly inefficient but also contributed to global inequality and poverty. Yet the situation worsened over the next dozen years, with agricultural protection in Europe, North America, and Japan peaking and international food prices plummeting in 1986, thanks in large measure to an agricultural export subsidy war between the United States and the European Community.

The World Bank’s World Development Report 1986 was devoted to the issue of agricultural protection. It urged reform via the General Agreement on Tariffs and Trade’s Uruguay Round, which was launched in September of that year and which had agricultural trade-related policies high on its agenda. Simultaneously, under the direction of its chief economist at the time, Anne Krueger, the Bank undertook a research project aimed at measuring the extent to which 18 developingcountry governments were pursuing antiagricultural policies. That Krueger, Schiff, and Valdés project was summarized in an article in the World Bank Economic Review in 1988 and detailed in a series of five books in 1991 and 1992. It revealed that, during 1960–84, most developing countries were reducing farm incomes not only by heavily taxing agricultural exports, but even more so by protecting manufacturers from import competition and overvaluing the national currency. xxi

xxii

Foreword

However, from the 1980s, many low-income and some high-income countries began to reform their agricultural price and trade policies. Sometimes this reform was undertaken unilaterally, but some was also undertaken in response to international pressures such as Uruguay Round stipulations, commitments required for accession to the World Trade Organization, and structural adjustment loan conditionality by international financial institutions. Meanwhile, reforms in some middle-income economies (most noticeably the Republic of Korea) had “overshot,” going from taxing their farmers to protecting them from import competition, which raised concerns that other emerging economies may follow suit and pursue the same agricultural protection growth path of moreadvanced economies.

Though the OECD Secretariat began to monitor its members’ agricultural policies beginning in the late 1980s, there has been no systematic comparable monitoring of policy developments in developing countries. The World Bank launched a major research project in 2006 aimed at filling this void. The papers emerging from that project (see http://www.worldbank.org/agdistortions) have since been edited into a series of four regional books, which are summarized in this volume along with comparable studies of high-income countries’ policies since the mid-1950s. By including 75 countries that together account for more than 90 percent of global gross domestic product (GDP), agricultural output, and population, the study provides a representative study of global developments in policies affecting farmer incentives over the past half century. Moreover, the project generated a global panel dataset of annual estimates of distortion by product and country. By making this dataset freely available to the public, the expectation is that further economic analysis of these critical questions will be stimulated.

The present volume concludes by reporting results from a global economywide model aimed at addressing the following questions, among others: How much have reforms since the early 1980s improved net incomes of farmers in developing countries? What more could be achieved by removing the remaining distortions to agricultural incentives? The authors find that the economic welfare cost to the world of global distortions to goods trade fell by 58 percent between the early 1980s and 2007, and the cost to developing countries fell by 46 percent.

That is, the world has gone about halfway toward liberalizing goods markets globally during the past quarter century. Developing countries have gained disproportionately from those reforms, and their farmers have gained far more than nonfarmers in those countries. Moreover, developing countries would benefit 50 percent more than high-income countries from completely freeing global markets for agricultural and other goods, and again their farmers would be the major beneficiaries. Of the prospective overall gain to developing countries, half

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would be due to agricultural policy reforms; such is the extent of global distortions remaining in agriculture relative to other goods markets. In turn, this suggests that developing countries have a huge stake in whether the Doha Development Agenda, especially its agricultural negotiations, are brought to a successful conclusion.

Justin Yifu Lin Senior Vice President and Chief Economist The World Bank

ACKNOWLEDGMENTS

This book provides an overview of the evolution of distortions to agricultural incentives caused by price, trade, and exchange rate policies in a large sample of countries spanning the world. Following the introduction and summary chapter, it includes studies of four sets of high-income economies and five sets of emerging economies that together account for more than 90 percent of agricultural production and 95 percent of global GDP. The chapters are followed by two appendixes: one provides the methodology used to measure the nominal and relative rates of assistance to farmers and the taxes and subsidies on food consumption, while the other provides statistical information on the coverage of annual estimates of those rates of assistance.

The authors of the five emerging-economy chapters are indebted to the other authors of the country case studies underlying those regional summaries. The country studies are reported in four companion volumes, published by the World Bank in 2008 and early 2009, which cover Africa (coedited by Kym Anderson and William A. Masters), Asia (coedited by Kym Anderson and Will Martin), Latin America (coedited by Kym Anderson and Alberto Valdés), and European transition economies (coedited by Kym Anderson and Johan Swinnen).

Staff of the World Bank’s regional departments provided generous and insightful advice and assistance throughout the project, including participating in Bankwide seminars on the draft studies of each region. The World Bank’s country directors also offered advice on the studied countries when clearing the working paper versions of each chapter. The authors of this book’s chapters benefited from feedback provided by many participants at workshops and conferences in which draft papers were presented over the past two years. We also appreciate the insightful comments and questions from the book’s external reviewers. All the country authors are extremely grateful to Ernesto Valenzuela and the team of very able research assistants he managed, including PhD students Johanna L. xxv

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Acknowledgments

Croser, Esteban Jara, Marianne Kurzweil, Signe Nelgen, Francesca de Nicola, and Damiano Sandri, all of whom helped compile the global mega-spreadsheet of distortion estimates (accessible at http://www.worldbank.org/agdistortions, along with more than 70 working papers that have detailed appendixes not included in the published volumes). Our thanks extend to Johanna L. Croser and Marie Damania for assisting in the initial copyediting of many of the country chapters; to Janice Tuten, who handled the production and all the final copyediting of the manuscript; and to Stephen McGroarty, who supervised its publication.

Both methodologically and in terms of previous estimates of distortions, we are indebted to the economists who have plowed this ground before us. They include the team of authors and editors who contributed to the seminal Krueger, Schiff, and Valdés volumes published in 1991–92; the team at the International Food Policy Research Institute (IFPRI) led by David Orden that generated a recent research report on producer support estimates and consumer support estimates (PSEs and CSEs) that covered four large Asian countries; and especially the team in the Trade and Agriculture Directorate of the Organisation for Economic Cooperation and Development (OECD), who have been generating PSEs and CSEs for high-income countries for more than two decades and for some transition and developing economies during the past four years. We are extremely grateful to OECD staff members for providing access to their files and for many useful comments on our work as it progressed.

The direct contributions to the project by IFPRI (for the Ethiopian and Indian case studies and the South Asian overview), the OECD and the Food and Agriculture Organization of the United Nations (FAO, for the Ghana case study), and the United States Department of Agriculture (for the Russian case study) are also greatly appreciated. The OECD and FAO are jointly seeking funds from the Bill and Melinda Gates Foundation to continue the estimation of agricultural policy indicators for developing countries beyond the time series covered in the present study, beginning with a sample of African countries.

Our thanks extend to the project’s senior advisory board, whose members have provided sage advice and much encouragement throughout the planning and implementation stages of the project. The Board comprises Yujiro Hayami, Bernard Hoekman, Anne Krueger, John Nash, Johan Swinnen, Stefan Tangermann, Alberto Valdés, Alan Winters and, until his untimely death in March 2008, Bruce Gardner.

For financial assistance, grateful thanks go to the Development Research Group of the World Bank and trust funds of the governments of the United Kingdom, The Netherlands. Japan, and Irelend. This combined support made it possible for the study to include countries from all regions of the world except the

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Middle East (which accounts for less than 2 percent of global agricultural production). We also are extremely grateful to the Rockefeller Foundation for providing the opportunity for the authors of this book to gather to plan the project’s final outputs at the Rockefeller Conference Center in beautiful Bellagio, Italy, November 13–17, 2006.

This book is dedicated to the memory of my mentors, T. W. (Ted) Schultz (1902–98) and D. Gale Johnson (1916–2003), and to Bruce Gardner (1942–2008), all of whose fine minds were sharpened at the University of Chicago’s Department of Economics and who contributed directly and indirectly perhaps more than any other economists of the 20th century to our understanding of the need to reduce distortions to agricultural incentives around the world.1 Bruce Gardner, who was professionally active until shortly before his death, was a strong supporter of the present research project, both as a member of its senior advisory board and as author of the North America chapter in this volume. He was a gentleman as well as a scholar, and is sorely missed by friends and colleagues alike.

Kym Anderson March 2009

1. T. W. Schultz’s famous book, Transforming Traditional Agriculture (Yale University Press, 1964), helped the world understand that farmers, however poor, are efficient producers who respond to incentives and hence to government distortions to prices. The volume arising from a workshop he organized on resources, incentives, and agriculture for the American Academy of Arts and Sciences (Distortions of Agricultural Incentives, Indiana University Press, 1978), further clarified the wastefulness of government intervention in agricultural markets. The trade paper in that volume is by D. G. Johnson, who drew on his seminal book, World Agriculture in Disarray (Macmillan, 1973) which pointed to the inequity as well as inefficiency of farmers being taxed in poor countries and subsidized in rich countries. Both economists’ contributions are celebrated in special features of journals: Schultz in the Review of Agricultural Economics 28 (3), fall 2006; Johnson in Economic Development and Cultural Change 52 (3), April 2004. Bruce Gardner’s seminal contributions include his paper “Causes of U.S. Farm Commodity Programs,” in Journal of Political Economy 95 (2), April 1987, and his book American Agriculture in the Twentieth Century: How It Flourished and What It Cost (Harvard University Press, 2002).

CONTRIBUTORS

Kym Anderson is the George Gollin Professor of Economics at the University of Adelaide and a research fellow of the Centre for Economic Policy Research, London.

During 2004–07, he was on an extended sabbatical as lead economist (trade policy) in the Development Research Group of the World Bank in Washington, DC. Johanna L. Croser has been a short-term consultant with this project and is a PhD and law student at the University of Adelaide, having completed her graduate economics coursework at the University of British Columbia in Vancouver, Canada.

Bruce L. Gardner was a professor and the department chair of agricultural and resource economics at the University of Maryland in College Park, MD, until his untimely death in March 2008. He also served as an assistant secretary in the U.S. Department of Agriculture.

Ashok Gulati is the Asian Director for the International Food Policy Research Institute in New Delhi, India. Prior to that, he headed the institute’s Markets, Trade, and Institutions Division in Washington, DC. Yujiro Hayami is the chair of the graduate faculty of the Foundation for Advanced Studies on International Development and a visiting professor in the National Graduate Institute of Policy Studies, Tokyo.

Masayoshi Honma is a professor of agricultural and resource economics at the University of Tokyo, where he focuses on farm policy issues. He is also a member of the board of trustees of the International Food Policy Research Institute in Washington, DC.

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Contributors

Tim Josling is professor emeritus at the Freeman Spogli Institute for International Studies, and previously was a professor in the Food Research Institute at Stanford University. His research covers a wide range of agricultural trade policy areas, including protectionism.

Marianne Kurzweil is a young professional at the African Development Bank in Tunis. During 2006–07, she was an extended-term consultant with this project in the Development Research Group at the World Bank in Washington, DC. Ralph Lattimore is a private consultant, but during much of the period of this project he was an economist with the Trade and Agriculture Directorate of the Organisation for Economic Co-operation and Development in Paris.

Peter J. Lloyd is professor emeritus in and former dean of the Department of Economics at the University of Melbourne. Prior to that, he was a professorial fellow in the Institute of Advanced Studies at the Australian National University, Canberra.

Donald MacLaren is an associate professor in the Department of Economics at the University of Melbourne. His theoretical and empirical research focuses on agricultural trade policy issues, including the analysis of nontariff barriers to trade.

Will Martin is research manager of the Rural Development Unit in the Development Research Group at the World Bank in Washington, DC. He specializes in trade and agricultural policy issues globally, but especially in Asia, and has written extensively on trade policies affecting developing countries.

William A. Masters is a professor and the associate head of the Department of Agricultural Economics at Purdue University. He is currently coeditor of the journal Agricultural Economics. Previously, he was a lecturer at the University of Zimbabwe (1988–90).

Signe Nelgen was a short-term consultant with this project before becoming a PhD student at the University of Adelaide. Previously, she was associated with the Hamburg Institute of International Economics.

Garry Pursell is a visiting fellow at the Australia South Asia Research Centre at Australian National University, after serving for many years in the South Asia Department of the World Bank in Washington, DC. Damiano Sandri is a PhD candidate in economics at the Johns Hopkins University. During 2006–07, he was a short-term consultant with this project in the Development Research Group at the World Bank in Washington, DC.

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Johan Swinnen is a professor in the Department of Economics and director of LICOS Center for Institutions and Economic Performance at the Katholieke Universiteit Leuven in Belgium, and a senior fellow of the Center for European Policy Studies in Brussels.

Alberto Valdés is a research associate at Universidad Católica de Chile in Santiago.

Previously, he was an adviser in the Agriculture Department of the World Bank and director of trade and food security at the International Food Policy Research Institute, both in Washington, DC. Ernesto Valenzuela is a lecturer and research fellow at the School of Economics and Centre for International Economic Studies at the University of Adelaide. During 2005–07, he was an extended-term consultant at the Development Research Group of the World Bank in Washington, DC. Dominique van der Mensbrugghe is the lead economist in the Development Prospects Group of the Development Economics Vice Presidency of the World Bank in Washington, DC, where he specializes in the global economywide modeling.

ABBREVIATIONS

AIDA AMTA ASEAN CAIS CAP CCC CDI CEE CET CFIP CGE cif CIS CMEA CMO CPI CSE CTE CWB DDA EAEC EC ECU

Agricultural Income Disaster Assistance (of Canada) Agricultural Market Transition Act (of the United States) Association of Southeast Asian Nations Canadian Agricultural Income Stabilization Common Agricultural Policy (of the European Union) Commodity Credit Corporation (of the United States) consumer distortion index Central and Eastern Europe common external tariff Canadian Farm Income Program computable general equilibrium (model) cost, insurance, and freight Commonwealth of Independent States (of the former Soviet Union) Council of Mutual Economic Assistance (of Eastern Europe and Central Asia) common market organization consumer price index consumer support estimate (or earlier, consumer subsidy equivalent) consumer tax equivalent Canadian Wheat Board Doha Development Agenda (of the WTO) Eurasian Economic Community European Community European currency unit xxxiii

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Abbreviations

EEC EEP EFTA ERA EU FAO FAS fob GATT GDP GNP GRIP GSE GTAP IAC IFPRI IMF ITC Mercosur MFP NAFTA NDP NFF NISA NPS NRA NRP NSE NTB NTM OECD PAC PDI PDS PPP PRSP PSE REER RRA

European Economic Community Export Enhancement Program (of the United States) European Free Trade Association effective rate of assistance European Union Food and Agriculture Organization Foreign Agriculture Service (of the United States) free on board General Agreement on Tariffs and Trade gross domestic product gross national product Gross Revenue Insurance Program (of Canada) gross subsidy equivalent Global Trade Analysis Project Industries Assistance Commission (of Australia) International Food Policy Research Institute International Monetary Fund International Trade Commission Mercado ComĂşn del Sur (Southern Common Market) multifactor productivity North American Free Trade Agreements net domestic product National Farmers Federation (of Australia) Net Income Stabilization Account (of Canada) non-product-specific nominal rate of assistance nominal rate of protection net subsidy equivalent nontariff barriers to trade nontariff measure Organisation for Economic Co-operation and Development political action committee (in the United States) producer distortion index public distribution system purchasing power parity Poverty Reduction Strategy Paper (of the World Bank) producer support estimate (or earlier, producer subsidy equivalent) real effective exchange rate relative rate of assistance

Abbreviations

SAL SMAs STE TBI TEC TFP TRI TRQ UNCTAD URAA USDA WDI WRI WPI WTO

Structural adjustment loan (from the World Bank) statutory marketing authorities (in Australia) state trading enterprise trade bias index tax equivalent to consumers total factor productivity trade reduction index tariff rate quota United Nations Conference on Trade and Development Uruguay Round Agreement on Agriculture U.S. Department of Agriculture World development indicators Welfare reduction index Wholesale price index World Trade Organization

Note: All dollar amounts are U.S. dollars (US$) unless otherwise indicated.

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The 75 Focus Countries (Shown in grey)

IBRD 36062 September 2009

This map was produced by the Map Design Unit of the World Bank. The boundaries, colors, denominations, and any other information shown on this map do not imply, on the part of the World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.