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December 8, 2003 -- CropChoice guest commentary --Agricultural Policy
Analysis Center, University of Tennessee: In the
wake of the collapse of the World Trade Organization (WTO)
talks in Cancun in mid-September a number of news reports
have referred to a World Bank Report that estimates that "a
deal to lower global trade barriers could add more than $500
billion a year to global incomes by 2015, lifting 144 million
people out of poverty." These results are based on a
"pro-poor" scenario that is reported in 2003 Global
Economic Prospects: Realizing the Development Promise of the
Doha Agenda.
The World Bank's "pro-poor" scenario assumes that
all developed nations reduce their agricultural tariffs to
a maximum of 10% and tariffs on other goods to 5% while all
developing nations reduce agricultural tariffs to a maximum
of 15% and other goods to 10%. In addition, payments to producers
would be decoupled from production. "The 'decoupling'
part of the scenario is achieved by removing all domestic
support in agriculture input and output subsidies and payments
to land and capital. These would be replaced by direct payments
to farm households (2003 Global, p. 50)."
The prospect of a $500 billion income gain, and the lifting
of 144 million people out of poverty got me to wondering how
this feat would be accomplished and what its impact would
be on agricultural production in various countries of the
world. Because one of the main issues at Cancun was the Agreement
on Agriculture and the call for support reduction, I assumed
that changes in agriculture would be a significant component
of the pro-poor scenario. Indeed, $358 billion of the gain
comes from agriculture of which $240 billion would accrue
to low and middle income countries.
For a change of this magnitude to occur, significant adjustments
would need to take place in the developed countries. The effect
of this policy change would be felt differently in various
countries and regions around the world. It appears that one
of the areas that would experience the greatest change under
this trade liberalization scenario is the European Union.
Right now, the EU is just barely a net exporter of major
field crops. Aggregating across corn, barley, wheat, soybean,
rapeseed, sunflower seed, and rice, over the last five years
the EU annually consumed an average of 140 million metric
tons of these commodities. While she imports and exports various
amounts of individual crops, in total, EU exports averaged
about 4 million tons of major crops more than it imported.
The results of the study's "pro-poor" scenario
show a decline in total European crop and livestock output
of 30% below baseline projections for 2015 (2003, p. 54).
Break-outs of individual commodities were not published in
the World Bank report but a study published by Iowa State
University on a similar application of the World Bank's model
does provide commodity detail.
Based on the more detailed information in the Iowa State
study, we have estimated the crop-output implications from
the World Bank's reported total drop in EU agricultural output
of 30% for the pro-poor scenario. The results are staggering.
In the case of wheat, this estimation approach suggests that
the "pro-poor" trade liberalization agenda would
result in the loss of 26.4 (60%) million of Europe's 44 million
wheat acres by 2015. This would transform Europe from a net
wheat exporter to a significant importer.
In other grain production, Europe would lose 18.9 (70%) of
its 27 million acres devoted to the production of other grains.
With oilseeds the corresponding drop would be 6.2 million
acres (59%) out of 10.5 million acres. In both of these cases
Europe would be a significant net importer. The imports would
come from lower cost producers elsewhere in the world.
According to our calculations, the World Bank study implies
that the relatively self-sufficient EU would become dependent
on imports for two-thirds of its grain and oilseeds. Europe
would return to the same kind of ship-to-mouth existence that
it experienced following WWII. It was this ship-to-mouth to
existence that led to the establishment of the European Common
Agricultural Policy (CAP) in 1962.
Can this be? Do we really think that the EU will reduce its
total acreage of wheat, oilseeds, and other grains by 63%
or 51.5 million acres in the next decade under this or any
other trade liberalization scenario?
As one who has worked with economic simulation models for
over thirty-five years, I can understand how the World Bank's
model, that views the world "as one large field"
to use ADM's words, would produce these results. As a policy
analyst, however, I find it extremely hard to believe that
the French and other Europeans would be content to sit idly
by while EU's major field crop production drops by nearly
two-thirds.
Again, I ask, can this be? Are we missing something here?
Can the real-world adjustments that would be required to achieve
a $358 billion agriculturally based increase in global income
from trade liberalization be reasonably expected to occur?
Perhaps, but what a gigantic departure from previous adjustment-experience
it would be.
Daryll E. Ray holds the Blasingame Chair of Excellence in
Agricultural Policy, Institute of Agriculture, University
of Tennessee, and is the Director of UT's Agricultural Policy
Analysis Center. (865) 974-7407; Fax: (865) 974-7298; dray@utk.edu;
http://www.agpolicy.org
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