DISTORTIONS TO AGRICULTURALINCENTIVES

A GLOBAL PERSPECTIVE,1955–2007

Edited by Kym Anderson

DISTORTIONS TOAGRICULTURAL

INCENTIVES

DISTORTIONS TOAGRICULTURAL

INCENTIVESA Global Perspective,

1955–2007

Kym AndersonEditor

A COPUBLICATION OF PALGRAVE MACMILLANAND THE WORLD BANK

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ISBN: 978-0-8213-7665-2 (softcover) ISBN: 978-0-8213-7973-8 (hardcover)DOI: 10.1596/978-0-8213-7665-2 (softcover) DOI: 10.1596/978-0-8213-7973-8 (hardcover)eISBN: 978-0-8213-7666-9

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 2009338.1'8—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 atthe University of Chicago and who contributed perhaps more than any

other economists of the 20th century to our understanding of the need toreduce 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 Valdés, 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 3Kym Anderson

PART II EVOLUTION OF DISTORTIONS IN ADVANCED ECONOMIES 65

2 Japan, Republic of Korea, and Taiwan, China 67Masayoshi Honma and Yujiro Hayami

3 Western Europe 115Tim Josling

4 United States and Canada 177Bruce L. Gardner

5 Australia and New Zealand 221Kym Anderson, Ralph Lattimore, Peter J. Lloyd, and Donald MacLaren

PART III EVOLUTION OF DISTORTIONS IN EMERGING ECONOMIES 257

6 Eastern Europe and Central Asia 259Kym Anderson and Johan Swinnen

ix

7 Latin America and the Caribbean 289Kym Anderson and Alberto Valdés

8 Sub-Saharan and North Africa 323Kym Anderson and William A. Masters

9 China and Southeast Asia 359Kym Anderson and Will Martin

10 India and Other South Asian Countries 389Ashok Gulati and Garry Pursell

PART IV GLOBAL MARKET AND WELFARE EFFECTS OF DISTORTIONS 417

11 Welfare-Based and Trade-Based Indicators of National Agricultural Distortions 419Peter J. Lloyd, Johanna L. Croser, and Kym Anderson

12 Global Distortions to Key Commodity Markets 459Kym Anderson, Johanna L. Croser, Signe Nelgen, andErnesto Valenzuela

13 General Equilibrium Effects of Price Distortions on Global Markets, Farm Incomes, and Welfare 505Ernesto Valenzuela, Dominique van der Mensbrugghe, andKym Anderson

Appendix A: Methodology for Measuring Distortionsto Agricultural Incentives 565Kym Anderson, Marianne Kurzweil, Will Martin,Damiano Sandri, and Ernesto Valenzuela

Appendix B: Global Distortions Database,1955–2007 595Kym Anderson and Ernesto Valenzuela

Index 619

x Contents

Figures1.1 Gross Subsidy Equivalents of Assistance to Farmers, over Time

and by Region, 1955–2007 171.2 NRAs to Agriculture, by Regions, 1980–84 and 2000–04 191.3 NRAs to Exportable, Import-Competing, and All Covered

Agricultural Products, High-Income and Developing Countries, 1955–2004 22

1.4 NRAs, Key Covered Products, High-Income and Developing Countries, 1980–84 and 2000–04 27

1.5 NRAs to Agricultural and Nonagricultural Tradable Products and RRA, All Focus Countries, 1955–2004 31

1.6 RRAs to Tradables, Asia, Africa, and Latin America, 1965–2004 321.7 RRAs to Agriculture, High-Income Countries, 1955–2007 361.8 Cross-Country Dispersion of NRAs and RRAs, 2000–04 371.9 Relationships between Real GDP Per Capita and RRA,

All Focus Countries, 1955–2007 391.10 Relationship between RRA and the TBI for Agriculture,

Focus Regions, 1980–84 and 2000–04 401.11 Welfare Reduction Indexes for Covered Tradable Farm Products,

by Region, 1960–2007 471.12 Regional Shares of Global and Country Shares of Asian Welfare

Reduction from Agricultural Policies, 1981–2004 491.13 Trade and Welfare Reduction Indexes for 28 Major Agricultural

Products, 2000–04 501.14 NRAs for Japan, Republic of Korea, and China, and Date of

Accession to GATT or WTO, 1955–2005 562.1 RRA to Agricultural Versus Nonagricultural Tradables,

Japan, Korea, and Taiwan, China, 1955–2007 862.2 NRA to Rice, Japan, Korea, and Taiwan, China, 1955–2007 942.3 RRA to Agriculture and Real GDP Per Capita,

Japan, Korea, and Taiwan, China, 1955–2004 1012.4 RRA to Agriculture and Relative GDP Per Agricultural Worker,

Japan, Korea, and Taiwan, China, 1955–2004 1023.1 NRAs to Agriculture, EU-6 and Western European Average,

1956–1964 1283.2 NRAs to Agriculture, EU-9 and Western European Average,

1965–1974 1333.3 NRAs to Agriculture, EU-12 and Western European Average,

1975–1984 1373.4 NRAs to Agriculture, EU-15 and Western European Average,

1985–1994 1403.5 NRAs to Agriculture, EU and Western European Average,

1995–2007 144

Contents xi

3.6 NRAs to Agriculture with and without Decoupled Payments, Western Europe, 1956–2007 145

3.7 NRAs to Exportable, Import-Competing, and All Agricultural Industries, EEC/EU and Other Western European Countries, 1956–2007 146

4.1 Farm Household Income as a Percent of National Household Income, United States, 1930–2005 178

4.2 Expenditure on Commodity Programs and Payments to Farmers,United States, 1955–2005 187

4.3 CCC Commodity Program Outlays, United States, Fiscal Years 1980–2007 189

4.4 NRAs to Exportable, Import-Competing, and All Covered Agricultural Products, United States and Canada, 1955–2007 193

4.5 NRAs to All Agriculture without and with Decoupled Support, United States and Canada, 1955–2007 203

4.6 NRAs to All Nonagricultural Tradables, All Agricultural Tradable Industries, and RRA, United States and Canada, 1955–2007 205

5.1 Real GDP Per Capita in Australia, New Zealand, and Other High-Income Countries Relative to the United States, 1870–2004 222

5.2 NRAs to Exportable, Import-Competing, and All CoveredProducts, Australia and New Zealand, 1946–2007 232

5.3 NRAs to Manufacturing, All Nonagricultural Tradables, All Agricultural Tradable Industries, and RRA, Australia and New Zealand, 1946–2007 236

5.4 Real Agricultural Total/Multifactor Productivity Growth,Australia and New Zealand, 1927–2004 249

5.5 Real Farmland Prices, New Zealand, 1978–2004 2506.1 NRAs to Agriculture, Eastern European Countries, 1992–2007 2686.2 NRAs to Agriculture, Individual Eastern European Focus

Countries, 2000–03 2716.3 RRAs to Agriculture, Eastern European Focus Countries,

1992–95 and 2000–03 2807.1 NRAs to Agriculture, Individual Latin American Countries

and Unweighted Regional Average, 1980–84 and 2000–04 3017.2 NRAs, by Product, Latin American Countries,

1980–84 and 2000–04 3027.3 NRAs to Exportable, Import-Competing, and All Agricultural

Products, Latin American Region, 1965–2004 3027.4 GSEs of Assistance to Farmers, Latin American Countries,

1980–84 and 2000–04 3077.5 NRAs to Agricultural and Nonagricultural Tradable Products

and RRA, Latin American Region, 1965–2004 311

xii Contents

7.6 Relationship between RRA and the TBI for Agriculture,Latin American Focus Countries, 1980–84 and 2000–04 312

8.1 NRAs to Agriculture, Individual African Focus Countries andUnweighted Regional Average, 1975–79 and 2000–04 335

8.2 NRAs, Key Covered Products, African Focus Countries, 1975–79 and 2000–04 338

8.3 NRAs to Exportable, Import-Competing, and All Agricultural Products, African Region, 1955–2004 340

8.4 GSEs of Assistance to Farmers, African Focus Countries, 1975–79 and 2000–04 343

8.5 NRAs to Agricultural and Nonagricultural Tradable Productsand RRA, Africa Region, 1960–2004 348

8.6 Relationship between RRA and the TBI for Agriculture, African Focus Countries, 1975–79 and 2000–04 352

9.1 NRAs to All Agriculture and to Rice, China and Southeast Asian Countries, 1980–84 and 2000–04 365

9.2 NRAs to Exportable, Import-Competing, and All Agricultural Products, China and Southeast Asia, 1970–2004 369

9.3 NRAs to Agricultural and Nonagricultural Tradable Productsand RRAs, China and Southeast Asia, 1970–2004 372

9.4 Rice NRA and International Rice Price, Southeast Asia, 1970–2005 378

9.5 NRA for Rice, Malaysia, 1960–2004 3799.6 Relationship between RRA and the TBI for Agriculture,

China and Southeast Asian Countries, 1980–84 and 2000–04 3819.7 RRAs and Log of Real Per Capita GDP, Select Asian Countries,

1955–2005 38310.1 Real Effective Exchange Rate Index, India, 1964–2007 39710.2 Unweighted Average Tariffs on Imports of Agricultural and

Nonagricultural Goods, India, 2002–06 39810.3 NRAs to all Agricultural Tradable Industries, All Nonagricultural

Tradables, and RRAs, India, 1965–2004 40210.4 NRAs to all Agricultural Tradable Industries, All Nonagricultural

Tradables, and RRAs, Pakistan, 1973–2005 40210.5 NRAs to All Agricultural Tradable Industries, All Nonagricultural

Tradables, and RRAs, Bangladesh, 1974–2004 40310.6 NRAs to all Agricultural Tradable Industries, All Nonagricultural

Tradables, and RRAs, Sri Lanka, 1955–2004 40310.7 RRAs, South Asia, 1965–2004 40911.1 NRAs to Farmers in High-Income and Developing Countries,

for All Covered Farm Products, 1960–2007 43211.2 CTEs Affecting Covered Farm Products in High-Income and

Developing Countries, 1960–2007 432

Contents xiii

11.3 NRAs Affecting Covered Farm Products in Africa, Asia, Latin America, and European Transition Economies, 1960–2007 433

11.4 CTEs Affecting Covered Farm Products in Africa, Asia, Latin America, and European Transition Economies, 1960–2007 434

11.5 WRIs for Covered Tradable Farm Products, by Region, 1960–2007 436

11.6 TRIs for Covered Tradable Farm Products, by Region, 1960–2007 439

11.7 WRIs and TRIs for Covered Tradable Farm Products, by Country, 2000–04 441

11.8 TRIs and WRIs for Covered Tradable Farm Products, by Region, 1985–89 and 2000–04 451

11.9 Country Contributions to the Global TRI and WRI, 2000–04 45211.10 WRI and Real Per Capita GDP, All 75 Countries, 1961–2004 45311.11 NRA, TRI, and WRI for Covered Tradable Farm Products,

World, 1960–2004 45312.1 GSEs of Assistance to Farmers Globally, by Product,

1980–84 and 2000–04 46512.2 NRAs, Key Covered Products, High-Income and Developing

Countries, 1980–84 and 2000–04 46912.3 NRAs, Rice, Milk, and Sugar, by Country, 2000–04 47112.4 NRAs, Beef, Pig Meat, and Poultry, by Country, 2000–04 47312.5 NRAs, Wheat, Maize, and Soybeans, by Country, 2000–04 47512.6 NRAs, Cotton, Cocoa, and Coffee, by Country, 2000–04 47612.7 Rice NRA and International Rice Price, South Asia, 1970–2005 48012.8 NRAs for Rice and Per capita Income, 1955–2007 48112.9 TRI and WRI for 12 Key Covered Products, 2000–04 49112.10 Global TRI and WRI for Covered Tradable Farm Products,

by Commodity, 1985–89 and 2000–04 49212.11 Country Share of the Global Commodity-Specific TRI for

Rice, Sugar, Beef, Cotton, and Milk, 2000–04 49312.12 Country Share of the Global Commodity-Specific WRI for

Rice, Sugar, Milk, Beef, and Cotton, 2000–04 494A.1 A Distorted Domestic Market for Foreign Currency 569A.2 Distorted Domestic Markets for Farm Products 589B.1 Number of Countries for Which NRA and CTE Estimates Are

Provided for 30 Key Farm Products 596B.2 Shares of Global Production of 30 Key Farm Products Covered

in NRA and CTE Estimates 597

xiv Contents

Contents xv

Tables1.1 Key Economic and Trade Indicators of Focus Countries,

by Region, 2000–04 151.2 Poverty in Africa, Asia, Latin America, and Europe’s Transition

Economies, 1981–2005 161.3 Growth of Real GDP and Exports, Focus Countries, 1980–2004 171.4 NRAs to Agriculture, Focus Countries, 1955–2007 201.5 NRAs to Agricultural Exportables, Import-Competing

Products, and the TBI, Focus Regions, 1955–2007 231.6 Dispersion of NRAs across Covered Agricultural Products,

Focus Regions, 1965–2007 261.7 NRAs to Agricultural Products Relative to Nonagricultural

Industries, 1955–2007 291.8 NRAs to Agricultural and Nonagricultural Tradables, and the

RRA, by Region, 1955–2007 331.9 GSEs of Assistance to Farmers, Total and Per Farm Worker,

by Region, 1965–2007 411.10 CTEs of Policies Assisting Producers of Covered Farm Products,

Percent and Per Capita, by Region, 1965–2007 441.11 Intensity of Public Agricultural R&D Investment, High-Income

and Developing Countries, 1971–2004 571.A.1 Export Orientation, Import Dependence, and Self-Sufficiency

in Primary Agricultural Production, Focus Countries, 1961–2004 592.1 Economic Growth and Structural Transformation in

Japan, Korea, and Taiwan, China, 1955–2004 722.2 Changes in Agricultural Structure in Japan, Korea, and Taiwan,

China, 1955–2004 752.3 NRAs to Selected Agricultural Products in Japan, Korea, and

Taiwan, China, 1955–2007 872.4 NRAs to Agricultural Relative to Nonagricultural Industries in

Japan, Korea, and Taiwan, China, 1955–2007 902.5 CTEs for Selected Agricultural Products in Japan, Korea, and

Taiwan, China, 1955–2007 962.6 Changes in Direct Tax Burdens and the Allocations of National

Government Subsidies to Agricultural and Nonagricultural Sectors, Japan, 1878–1937 105

2.7 Farm-Nonfarm Income Disparity in Japan’s Economic Development, 1885–2000 106

3.1 NRAs to Agricultural Industries Relative to Nonagricultural Industries, EU-15 and EFTA-3, 1956–2007 147

3.2 NRAs to Covered Farm Products, EU, 1956–2007 1493.3 NRAs to Covered Farm Products, Non-EU Western European

Countries, 1956–2007 151

3.4 NRAs to All Agriculture, Individual Western European Countries, 1956–2007 154

3.5 Gross Subsidy Equivalents of Assistance to Farmers, Total, Per Farm Worker and by Product, Western European Countries, 1956–2007 155

3.6 CTEs of Policies Assisting Farmers, Covered Products, Total and PerCapita and by Product, Western European Countries, 1956–2007 158

4.1 Customs Receipts as a Percentage of Value of Imports, United States, 1821–2000 184

4.2 NRAs to Covered Farm Products, United States and Canada, 1955–2007 194

4.3 NRAs to Agricultural Relative to Nonagricultural Industries, United States and Canada, 1955–2007 201

4.4 GSEs of Assistance to Farmers, by Product, Per Farm Worker and Total, United States and Canada, 1955–2007 206

4.5 CTEs of Policies Assisting Farmers, Covered Products, Total and Per Capita and by Product, United States and Canada, 1960–2005 209

4.6 PAC Disbursements during the Election Cycle, United States, November 2004–October 2006 213

5.1 NRAs to Covered Farm Products, Australia, 1946–2007 2295.2 NRAs to Covered Farm Products, New Zealand, 1955–2007 2315.3 NRAs to Agricultural Products Relative to Nonagricultural

Industries, Australia and New Zealand, 1946–2007 2346.1 Key Economic and Trade Indicators, Eastern European and

CIS Countries, 2000–04 2616.2 NRAs to Agriculture, Eastern European and CIS Focus

Countries, 1992–2007 2696.3 NRAs, Key Covered Farm Products, Eastern European and

CIS Focus Countries, 1992–2005 2726.4 TBI, Eastern European and CIS Focus Countries, 1992–2007 2736.5 Dispersion of NRAs across Covered Agricultural Products,

Eastern European and CIS Focus Countries, 1992–2007 2746.6 Components of NRAs to Agriculture, Eastern Europe and CIS,

1961–2007 2756.7 GSEs of Assistance to Farmers, Total and Per Farm Worker,

Eastern European and CIS Focus Countries, 1992–2007 2776.8 Percentage CTE of Policies Assisting Producers of Covered Farm

Products, Eastern European and CIS Focus Countries, 1992–2007 2797.1 Key Economic and Trade Indicators, Latin American Countries,

2000–04 2917.2 NRAs to Agriculture, Latin American Countries, 1965–2004 3007.3 NRAs, Key Covered Farm Products, Latin American Focus

Countries, 1965–2004 303

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Contents xvii

7.4 Dispersion of NRAs across Covered Agricultural Products within Latin American Focus Countries, 1965–2004 304

7.5 NRAs to Agricultural Relative to Nonagricultural Industries, Latin American Region, 1965–2004 305

7.6 GSEs of Assistance to Farmers, Total and Per Farm Worker, Latin American Countries, 1965–2004 308

7.7 GSEs of Policies Affecting Farmers in Latin America, by Product and Subsector, 1965–2004 309

7.8 Percentage CTE of Policies Affecting Covered Farm Products, Latin American Countries, 1965–2003 314

7.9 Value of CTE of Policies Affecting Covered Farm Products, Latin American Countries, 1965–2003 316

8.1 Key Economic and Trade Indicators, African Focus Countries, 2000–04 325

8.2 NRAs to Agriculture, African Focus Countries, 1955–2004 3348.3 Dispersion of NRAs across Covered Agricultural Products,

African Focus Countries, 1955–2004 3378.4 NRAs, Key Covered Farm Products, All African Focus

Countries, 1955–2004 3398.5 NRAs to Agricultural Relative to Nonagricultural Industries,

African Region, 1955–2004 3418.6 GSEs of Assistance to Farmers, Total and Per Farm Worker,

African Focus Countries, 1955–2004 3458.7 Percentage CTE of Policies Assisting Producers of Covered

Farm Products, African Focus Countries, 1961–2004 3499.1 Changes in Poverty in Asia, 1981–2005 3609.2 NRAs to Agriculture, China and Southeast Asia, 1960–2004 3669.3 NRAs, by Covered Product, China and Southeast Asia,

1970–2005 3679.4 Annual GSEs of Assistance to Farmers, Total and Per Farm

Worker, Asian Economies, 1955–2004 3709.5 NRAs to Agricultural and Nonagricultural Tradable Industries

and RRAs, China and Southeast Asia, 1960–2004 3739.6 CTE of Policies Assisting Producers of Covered Farm Products,

China and Southeast Asia, 1970–2004 37610.1 Shares of Agriculture in GDP and Employment, South Asian

Countries, 1965–2004 39110.2 Distribution of Fertilizer and Electricity Subsidies and Subsidy

Rates for Key Crops, India, 2004 39510.3 Trade Status of Farm Commodities, South Asian Countries,

1965–2005 40510.4 NRAs, TBIs and Dispersion of Covered Farm Products,

South Asia, 1965–2004 406

11.1 NRAs for Africa, Asia, Latin America, European Transition Economies, and High-Income Countries, All Farm Products, 1960–2007 429

11.2 CTEs for Africa, Asia, Latin America, European Transition Economies, and High-Income Countries, All Covered Farm Products, 1960–2007 431

11.3 WRIs for Asia, Africa, Latin America, European Transition Economies, and High-Income Countries, All Covered Tradable Farm Products, 1960–2007 437

11.4 TRIs for Asia, Africa, Latin America, European Transition Economies, and High-Income Countries, All Covered Tradable Farm Products, 1960–2007 440

11.5 PDIs for Asia, Africa, Latin America, European Transition Economies, and High-Income Countries, All Covered Farm Products, 1960–2007 442

11.6 CDIs for Asia, Africa, Latin America, European Transition Economies, and High-Income Countries, All Covered Farm Products, 1960–2007 443

11.7 WRIs, by Country and Region, All Covered Tradable Farm Products, 1960–2007 444

11.8 TRIs, by Country and Region, All Covered Tradable Farm Products, 1960–2007 447

12.1 Coverage of Gross Value of Agricultural Production at Undistorted Prices for 12 Key Covered Products, 2000–04 461

12.2 Share of Global Gross Value of Agricultural Production for Key Covered Products, by Region, 2000–04 463

12.3 Share of Regional Gross Value of Agricultural Production for Major Covered Products, by Region, 2000–04 464

12.4 GSEs of Assistance to Farm Industries, by Focus Country Group, 1965–2007 466

12.5 NRAs, 12 Key Covered Farm Products, All Focus Countries, 1965–2004 470

12.6 CTEs of Policies Assisting Producers of Covered Farm Products, All Focus Countries, 1965–2007 478

12.7 Shares of Production Exported and of Consumption Imported for Major Covered Products, by Region, 2000–03 482

12.8 Share of Global Production of Seven Mostly Nontraded Staple Crops, by Region, 1995–2004 484

12.9 Average of Focus Developing Countries’ Self-Sufficiency Ratios forSeven Mostly Nontraded Staple Crops, by Region, 1961–2005 485

12.10 Additional Contribution of Seven Noncovered Staples to Values of Agricultural Production and to Aggregate NRAs in Focus Developing Countries, by Region, 1966–2004 486

xviii Contents

12.11 Global TRIs, by Commodity, 1965–2004 48912.12 Global WRIs, by Commodity, 1965–2004 49012.A.1 Summary of NRA Estimates by Major Product, Africa, Asia,

and Latin America, 2000–04 49613.1 Structure of Price Distortions in Global Goods Markets,

1980–84 and 2004 50913.2 Economic Welfare Impact of Going Back to 1980–84 Policies,

by Country/Region 51613.3 Impact of Going Back to 1980–84 Policies on Indexes of Real

Export and Import Prices, by Region 51913.4 Terms-of-Trade Contribution to Real Income Changes from

Going Back to 1980–84 Policies, by Region 52013.5 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 521

13.6 Impact of Going Back to 1980–84 Policies on Agricultural and Food Output and Trade, by Country/Region 523

13.7 Impact of Going Back to 1980–84 Policies on Self-Sufficiencyin Agricultural and Other Products, by Product and Region 526

13.8 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 528

13.9 Impact of Going Back to 1980–84 Policies on Shares of Agricultural and Food Production Exported, by Country/Region 529

13.10 Impact of Going Back to 1980–84 Policies on Real International Product Prices 530

13.11 Impact of Going Back to 1980–84 Policies on Real Factor Prices, by Region 531

13.12 Impact of Going Back to 1980–84 Policies on Sectoral Value Added, Agricultural and All-Sector Policy Changes 532

13.13 Impact on Real Income of Full Liberalization of Global Merchandise Trade, by Country/Region, 2004 536

13.14 Regional and Sectoral Sources of Welfare Gains from Full Liberalization of Global Merchandise Trade, 2004 539

13.15 Impact of Full Global Liberalization on Shares of Global OutputExported, and Developing Country Shares of Global Output and Exports, by Product, 2004 541

13.16 Impacts of Full Global Trade Liberalization on Agricultural and Food Output and Trade, by Country/Region, 2004 542

13.17 Impact of Global Liberalization on Share of Agricultural and Food Production Exported by Country/Region, 2004 545

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xx Contents

13.18 Impact of Global Liberalization on Self-Sufficiency in Agricultural and Other Products, by Region, 2004 546

13.19 Share of Production Exported and of Consumption Importedby World, High-Income, and Developing Countries, before and after Full Global Liberalization of All Merchandise Trade, by Product, 2004 547

13.20 Impact of Full Global Liberalization of Agricultural and All Goods Markets on Real International Product Prices, 2004 548

13.21 Impacts of Full Global Merchandise Trade Liberalization on Real Factor Prices, 2004 549

13.22 Effects of Full Global Liberalization of Agricultural and All Merchandise Trade on Sectoral Value Added, by Country and Region, 2004 550

13.A.1 Protection Structure in GTAP Version 7 Prerelease and in the Distortion Rates Drawn from the World Bank Project, 2004 558

B.1 Summary of NRA Coverage Statistics, World Bank Agricultural Distortions Project 597

B.2 Coverage of Gross Value of Global Agricultural Production at Undistorted Prices, for 30 Key Products and Four Product Groups, 2000–04 599

B.3 Project’s Coverage of National Agricultural Production in Focus Countries at Undistorted Prices, Regional Averages, 1980–2004 600

B.4 Shares of Global Agricultural Production for 30 Major Covered Products, by Region, 2000–04 601

B.5 Share of Regional Agricultural Production for 30 Major Covered Products, by Region, 2000–04 603

B.6 Share of Global Agricultural and Processed Food Exports for 30 Major Covered Products, by Region, 2000–03 605

B.7 Share of Global Agricultural and Processed Food Imports for30 Major Products, by Region, 2000–03 607

B.8 Shares of Production Exported and Consumption Imported, by Farm Product and Region, 2000–03 609

B.9 Per Capita Income, Focus Countries, 2005 611B.10 Variables in the Global Agricultural Distortions Database,

1955–2007 612B.11 Variables in the Supplementary Global Agricultural Trade and

Welfare Reduction Indexes Database, 1955–2007 615

In his seminal 1973 book on World Agriculture in Disarray, Professor D. GaleJohnson despaired at the persistence of high agricultural protection in Organisa-tion for Economic Co-operation and Development (OECD) countries, the anti -agricultural and antitrade policies of developing countries, and the tendency forboth sets of countries to insulate their domestic food market from internationalprice fluctuations, thereby exacerbating price volatility for the rest of the world.Since the vast majority of the world’s poorest households depend on farming fortheir livelihoods, this disarray not only was highly inefficient but also contributedto global inequality and poverty. Yet the situation worsened over the next dozenyears, with agricultural protection in Europe, North America, and Japan peakingand international food prices plummeting in 1986, thanks in large measure to anagricultural export subsidy war between the United States and the EuropeanCommunity.

The World Bank’s World Development Report 1986 was devoted to the issue ofagricultural protection. It urged reform via the General Agreement on Tariffs andTrade’s Uruguay Round, which was launched in September of that year and whichhad agricultural trade-related policies high on its agenda. Simultaneously, underthe direction of its chief economist at the time, Anne Krueger, the Bank under-took a research project aimed at measuring the extent to which 18 developing-country 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. Itrevealed that, during 1960–84, most developing countries were reducing farmincomes not only by heavily taxing agricultural exports, but even more so by protecting manufacturers from import competition and overvaluing the nationalcurrency.

xxi

FOREWORD

xxii Foreword

However, from the 1980s, many low-income and some high-income countriesbegan to reform their agricultural price and trade policies. Sometimes thisreform was undertaken unilaterally, but some was also undertaken in response tointernational pressures such as Uruguay Round stipulations, commitmentsrequired for accession to the World Trade Organization, and structural adjust-ment loan conditionality by international financial institutions. Meanwhile,reforms in some middle-income economies (most noticeably the Republic ofKorea) had “overshot,” going from taxing their farmers to protecting them fromimport competition, which raised concerns that other emerging economies mayfollow suit and pursue the same agricultural protection growth path of more-advanced economies.Though the OECD Secretariat began to monitor its members’ agricultural

policies beginning in the late 1980s, there has been no systematic comparablemonitoring of policy developments in developing countries. The World Banklaunched a major research project in 2006 aimed at filling this void. The papersemerging from that project (see http://www.worldbank.org/agdistortions) havesince been edited into a series of four regional books, which are summarized inthis volume along with comparable studies of high-income countries’ policiessince the mid-1950s. By including 75 countries that together account for morethan 90 percent of global gross domestic product (GDP), agricultural output, andpopulation, the study provides a representative study of global developments inpolicies affecting farmer incentives over the past half century. Moreover, the proj-ect generated a global panel dataset of annual estimates of distortion by productand country. By making this dataset freely available to the public, the expectationis that further economic analysis of these critical questions will be stimulated. The present volume concludes by reporting results from a global economy-

wide model aimed at addressing the following questions, among others: Howmuch have reforms since the early 1980s improved net incomes of farmers indeveloping countries? What more could be achieved by removing the remainingdistortions to agricultural incentives? The authors find that the economic welfarecost to the world of global distortions to goods trade fell by 58 percent betweenthe 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 marketsglobally during the past quarter century. Developing countries have gained dis-proportionately from those reforms, and their farmers have gained far more thannonfarmers in those countries. Moreover, developing countries would benefit50 percent more than high-income countries from completely freeing globalmarkets for agricultural and other goods, and again their farmers would be themajor beneficiaries. Of the prospective overall gain to developing countries, half

Foreword xxiii

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

Justin Yifu LinSenior Vice President and Chief Economist

The World Bank

xxv

This book provides an overview of the evolution of distortions to agricultural incen-tives caused by price, trade, and exchange rate policies in a large sample of countriesspanning the world. Following the introduction and summary chapter, it includesstudies of four sets of high-income economies and five sets of emerging economiesthat together account for more than 90 percent of agricultural production and 95 per-cent of global GDP. The chapters are followed by two appendixes: one provides themethodology used to measure the nominal and relative rates of assistance to farmersand the taxes and subsidies on food consumption, while the other provides statisticalinformation on the coverage of annual estimates of those rates of assistance.

The authors of the five emerging-economy chapters are indebted to the otherauthors of the country case studies underlying those regional summaries. Thecountry studies are reported in four companion volumes, published by the WorldBank in 2008 and early 2009, which cover Africa (coedited by Kym Anderson andWilliam A. Masters), Asia (coedited by Kym Anderson and Will Martin), LatinAmerica (coedited by Kym Anderson and Alberto Valdés), and European transi-tion economies (coedited by Kym Anderson and Johan Swinnen).

Staff of the World Bank’s regional departments provided generous and insight-ful advice and assistance throughout the project, including participating inBankwide seminars on the draft studies of each region. The World Bank’s countrydirectors also offered advice on the studied countries when clearing the workingpaper versions of each chapter. The authors of this book’s chapters benefited fromfeedback provided by many participants at workshops and conferences in whichdraft papers were presented over the past two years. We also appreciate theinsightful comments and questions from the book’s external reviewers. All thecountry authors are extremely grateful to Ernesto Valenzuela and the team ofvery able research assistants he managed, including PhD students Johanna L.

ACKNOWLEDGMENTS

Croser, Esteban Jara, Marianne Kurzweil, Signe Nelgen, Francesca de Nicola, andDamiano Sandri, all of whom helped compile the global mega-spreadsheet of dis-tortion estimates (accessible at http://www.worldbank.org/agdistortions, alongwith more than 70 working papers that have detailed appendixes not included inthe published volumes). Our thanks extend to Johanna L. Croser and MarieDamania 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 themanuscript; and to Stephen McGroarty, who supervised its publication.

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

The direct contributions to the project by IFPRI (for the Ethiopian and Indiancase studies and the South Asian overview), the OECD and the Food and Agricul-ture Organization of the United Nations (FAO, for the Ghana case study), and theUnited States Department of Agriculture (for the Russian case study) are alsogreatly appreciated. The OECD and FAO are jointly seeking funds from the Billand Melinda Gates Foundation to continue the estimation of agricultural policyindicators for developing countries beyond the time series covered in the presentstudy, beginning with a sample of African countries.

Our thanks extend to the project’s senior advisory board, whose members haveprovided sage advice and much encouragement throughout the planning andimplementation 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, BruceGardner.

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

xxvi Acknowledgments

Middle East (which accounts for less than 2 percent of global agricultural produc-tion). We also are extremely grateful to the Rockefeller Foundation for providingthe opportunity for the authors of this book to gather to plan the project’s finaloutputs at the Rockefeller Conference Center in beautiful Bellagio, Italy, Novem-ber 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 Departmentof Economics and who contributed directly and indirectly perhaps more than anyother economists of the 20th century to our understanding of the need to reducedistortions to agricultural incentives around the world.1 Bruce Gardner, who wasprofessionally active until shortly before his death, was a strong supporter of thepresent research project, both as a member of its senior advisory board and asauthor of the North America chapter in this volume. He was a gentleman as wellas a scholar, and is sorely missed by friends and colleagues alike.

Kym Anderson March 2009

Acknowledgments xxvii

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 Econom-

ics 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).

xxix

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 PhDand law student at the University of Adelaide, having completed her graduate eco-nomics coursework at the University of British Columbia in Vancouver, Canada.

Bruce L. Gardner was a professor and the department chair of agricultural andresource economics at the University of Maryland in College Park, MD, until hisuntimely 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 ResearchInstitute 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 AdvancedStudies on International Development and a visiting professor in the NationalGraduate 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 memberof the board of trustees of the International Food Policy Research Institute inWashington, DC.

CONTRIBUTORS

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

Marianne Kurzweil is a young professional at the African Development Bank inTunis. During 2006–07, she was an extended-term consultant with this project inthe Development Research Group at the World Bank in Washington, DC.

Ralph Lattimore is a private consultant, but during much of the period of thisproject he was an economist with the Trade and Agriculture Directorate of theOrganisation 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 fel-low in the Institute of Advanced Studies at the Australian National University, Canberra.

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

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

William A. Masters is a professor and the associate head of the Department ofAgricultural Economics at Purdue University. He is currently coeditor of the jour-nal 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 PhDstudent at the University of Adelaide. Previously, she was associated with theHamburg Institute of International Economics.

Garry Pursell is a visiting fellow at the Australia South Asia Research Centre atAustralian National University, after serving for many years in the South AsiaDepartment of the World Bank in Washington, DC.

Damiano Sandri is a PhD candidate in economics at the Johns Hopkins Univer-sity. During 2006–07, he was a short-term consultant with this project in theDevelopment Research Group at the World Bank in Washington, DC.

xxx Contributors

Johan Swinnen is a professor in the Department of Economics and director ofLICOS Center for Institutions and Economic Performance at the Katholieke Uni-versiteit Leuven in Belgium, and a senior fellow of the Center for European PolicyStudies 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 Bankand director of trade and food security at the International Food Policy ResearchInstitute, both in Washington, DC.

Ernesto Valenzuela is a lecturer and research fellow at the School of Economics andCentre for International Economic Studies at the University of Adelaide. During2005–07, he was an extended-term consultant at the Development ResearchGroup of the World Bank in Washington, DC.

Dominique van der Mensbrugghe is the lead economist in the DevelopmentProspects Group of the Development Economics Vice Presidency of the World Bankin Washington, DC, where he specializes in the global economywide modeling.

Contributors xxxi

xxxiii

AIDA Agricultural Income Disaster Assistance (of Canada)AMTA Agricultural Market Transition Act (of the United States)ASEAN Association of Southeast Asian NationsCAIS Canadian Agricultural Income StabilizationCAP Common Agricultural Policy (of the European Union)CCC Commodity Credit Corporation (of the United States)CDI consumer distortion indexCEE Central and Eastern EuropeCET common external tariffCFIP Canadian Farm Income ProgramCGE computable general equilibrium (model)cif cost, insurance, and freightCIS Commonwealth of Independent States

(of the former Soviet Union)CMEA Council of Mutual Economic Assistance

(of Eastern Europe and Central Asia)CMO common market organizationCPI consumer price indexCSE consumer support estimate

(or earlier, consumer subsidy equivalent)CTE consumer tax equivalentCWB Canadian Wheat BoardDDA Doha Development Agenda (of the WTO)EAEC Eurasian Economic CommunityEC European CommunityECU European currency unit

ABBREVIATIONS

EEC European Economic CommunityEEP Export Enhancement Program (of the United States)EFTA European Free Trade AssociationERA effective rate of assistanceEU European UnionFAO Food and Agriculture Organization FAS Foreign Agriculture Service (of the United States)fob free on boardGATT General Agreement on Tariffs and TradeGDP gross domestic productGNP gross national productGRIP Gross Revenue Insurance Program (of Canada)GSE gross subsidy equivalentGTAP Global Trade Analysis ProjectIAC Industries Assistance Commission (of Australia)IFPRI International Food Policy Research Institute IMF International Monetary FundITC International Trade CommissionMercosur Mercado Común del Sur (Southern Common Market)MFP multifactor productivityNAFTA North American Free Trade AgreementsNDP net domestic productNFF National Farmers Federation (of Australia)NISA Net Income Stabilization Account (of Canada)NPS non-product-specific NRA nominal rate of assistanceNRP nominal rate of protection NSE net subsidy equivalentNTB nontariff barriers to tradeNTM nontariff measureOECD Organisation for Economic Co-operation and DevelopmentPAC political action committee (in the United States)PDI producer distortion indexPDS public distribution systemPPP purchasing power parityPRSP Poverty Reduction Strategy Paper (of the World Bank)PSE producer support estimate

(or earlier, producer subsidy equivalent)REER real effective exchange rateRRA relative rate of assistance

xxxiv Abbreviations

SAL Structural adjustment loan (from the World Bank)SMAs statutory marketing authorities (in Australia)STE state trading enterpriseTBI trade bias indexTEC tax equivalent to consumersTFP total factor productivityTRI trade reduction indexTRQ tariff rate quotaUNCTAD United Nations Conference on Trade and DevelopmentURAA Uruguay Round Agreement on AgricultureUSDA U.S. Department of AgricultureWDI World development indicatorsWRI Welfare reduction indexWPI Wholesale price indexWTO World Trade Organization

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

Abbreviations xxxv

The 75 Focus Countries(Shown in grey)

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 donot 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.

IBRD 36062September 2009