Roadblock to reform: The persistence of agricultural export subsidies

Agricultural export subsidies are one of the most distorting of the numerous distortions affecting agricultural trade, and the reluctance of users to make clear commitments for their elimination was a key factor contributing to the deadlock of the WTO negotiations on agriculture. In August 2004 the WTO General Council decided to eliminate export subsidies by a specific yet ndetermined date. Export subsidies amount to around $6 billion each year, depending on world rice movements. Some countries pay export subsidies in order to dispose of their surplus gricultural production on world markets. These payments impose substantial costs on taxpayers in the subsidizing countries and reduce the world prices of several temperate and competing products to the detriment of producers in developing and least developed countries. However, they also benefit consumers in food-importing countries, many of which are developing. Quantitative analysis using the UNCTAD/FAO ATPSM model suggests that the removal of export subsidies would raise world prices. The major beneficiaries would be EU taxpayers and developing country producers. Since consumers in developing countries probably face higher rices the welfare effects are ambiguous, but most likely only during an initial period until domestic supply capacities can catch up in many of these developing countries. This is because many of them are net importers of wheat, dairy products and beef, and the cheap subsidies imports hinder the production of these products and of substitutes. Although the benefits to some of preferential access to the EU sugar market would also likely be reduced if export subsidy reform led to the reduction of EU domestic sugar prices, increasing world market prices re likely to more than offset the losses. The analysis also points to diverse results regarding pecific products for producers and consumers in most countries. This suggests that while longer-term reforms of export subsidies are desirable, the immediate removal of export subsidies is likely to cause some hardships for some developing country consumers, which will need to be addressed with appropriate support mechanisms.
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