Domestic Support in GTAP and AMS reduction

Mark GehlharMary Burfisher

EU Modeling WorkshopNew challenges in Modeling EU Agriculture

November 15-16, Economic Research Service

Order of Presentation • How the PSE data is mapped to GTAP policy

variables• Classification of programs and OECD PSE

measure • Issues debated within the GTAP Consortium• Examples of scenarios for AMS support

reductions for WTO• An overall assessment of GTAP for

modeling

GTAP model/database

• Public documentation available on web(http://www.gtap.agecon.purdue.edu/)

• Multi-commodity, multi-region

• Multipurpose model: policy (multilateral, regional trade) economic growth, climate, environment change

GTAP model/database continued

• Version 5 released in 2001 has 66 country/regions

• 57 sectors, 12 primary agriculture and 8 agricultural processing

• New extension is more detailed domestic support

Production structure--------------------

qo(j,r) /\ / \ <----- CES / \ / \ / \ qva(j,r) qf(i,j,r) /|\ /\ CES -----> / | \ / \ <------ CES / | \ / \ / | \ / \ / | \ / \ Land Labor Capital Domestic Foreign qfe(i,j,r) qfd(i,j,r) qfm(i,j,r)

Domestic support

• Previously the output subsidy contained all domestic support

• Adopt new PSE classification • More variables in GTAP model used to

represent domestic policy• Subsidies/payments to primary factors:

land, labor, capital• Tax/subsidies to intermediates inputs

Classification of Policy Measures Included in the OECD Producer Support Estimate

Producer Support Estimate (PSE) A. Market price support 1. Standard PSE commodities B. Payments based on output 1. Based on unlimited output 2. Based on limited output C. Payments based on area planted/animal numbers 1. Based on unlimited area or animal numbers 2. Based on limited area or animal numbers D. Payments based on historical entitlements 1. Based on historical plantings/animal numbers or production 2. Based on historical support programmes E. Payments based on input use 1. Based on use of variable inputs 2. Based on use of on-farm services 3. Based on use of fixed inputs F. Payments based on input constraints 1. Based on constraints on variable inputs 2. Based on constraints on fixed inputs 3. Based on constraints on a set of inputs G. Payments based on overall farming income 1. Based on farm income level 2. Based on established minimum income H. Miscellaneous payments 1. National payments 2. Sub-national payments

Who decides how support is mapped to policy variables ?

• How payment are mapped to policy variables in model is controversial

• Each consortium member can make recommendations

• In the end a compromise must be reached

USDA’s Approach(The Economic Research Service)

• How support is administered and under what conditions matters

• Treat countries on individual basis

• Treat programs individually

• And give consideration to how programs are notified to WTO

EU’s Approach (Danish Institute for Agricultural and Fisheries Economics) • Use a generic formula for all

countries

• Account for the entire PSE as support to agriculture

• Achieve transparency for all users

Mapping formulaUSDA SJFI Proposal Comprise proposal

Formula for EU for all OECDcrops livestock crops livestock

Market Price Support A A A A A

Output Subsidies B B B B BD C2 H HG DH G

H

Interm Input Subsidies E1(lvstk) E1 E1 E1 E1C1( exc lvstk) E2 E2 E2 E2

C2 F1 F1F3 F3

Land Based Payments D C1 C1 DF1 C2 C2 F1F2 F2 D F2G F1 F3

F2 GG

Capital Based Payments E3 E3 C1 E3 C1C2 C2E3 E3

Other Minimal Impacts C1 (part) F2E1 (part)

E2F2(part)

F3H

U.S category C in the PSE

C. Payments based on area planted/animal numbers

1. Based on unlimited area or animal numbers

Crop disaster payments

Livestock disaster payments

Hogs production assistance

Dairy disaster payment

Crop insurance

2. Based on limited area or animal numbers

Deficiency payments

Diversion payments

EU category C in the PSE C. Payments based on area planted/animal numbers

1. Based on unlimited area or animal numbers Production aid for durum wheat Suckler and special cow premiums Ewe and goat premiums Other

2. Based on limited area or animal numbers Set-aside related to per hectare aid

Per hectare aid for maize (less silage) Per hectare aid for cereals (less maize and silage) Per hectare paymernts for oilseeds Per hectare paymernts for peas, beans and lupins Per hectare paymernts for non-textile flax seed, other Supplementary aid for durum wheat Suckler, additional suckler cow, deseason. and extensif. premiums Ewe and goat premiums Compensatory allowances (Guidance) Other

U.S category F in the PSE F. Payments based on input constraints

1. Based on constraints on variable inputs

Soil and water loans program

2. Based on constraints on fixed inputs

Conservation reserve program

Wetland reserve program

Flood risk reduction contracts

Water bank program

Dairy termination program

3. Based on constraints on a set of inputs

Colorado river basin salinity control program

Agricultural conservation program

Great plains conservation program

Environmental quality improvement program

Rural clean water program

Wildlife habitat incentive program

EU category F in the PSE F. Payments based on input constraints

1. Based on constraints on variable inputs Environment (Gurantee) Other

2. Based on constraints on fixed inputs Environment (Gurantee) Premium for abandonment or reduction of milk production Premiums for the removal of bovine animals from production Permanent abandonment premiums in respect of areas under vine Other

3. Based on constraints on a set of inputs Environment (Gurantee) National

What the compromise means for model users

• The domestic support database serves as starting point for all users

• Applications requiring changes to the database should be documented by users

• Replications of results still possible after alterations

Table 4. Rate of support as output subsidiesU.S. EU ROW

Rice 0.56 0.09 -0.73Wheat 7.78 0.46 1.21Other Cereals 6.81 0.24 0.24Oilseeds 4.72 0.24 0.49Dairy 0.18 0.12 0.51Sugar 0.18 0.09 0.09Beef 0.36 0.12 0.12Other Meat 0.19 0.14 -0.25Wool 0.99 -0.02 -0.57Vegetable and Fruit 0 0 -0.46Other Crops 0 0 0.78GTAP version 5, pre-release 3

Table 3. Rates of support of land subsidy from direct paymentsU.S. EU ROW

Rice 58 45 2Wheat 83 92 4Other Cereals 66 91 13Oilseeds 26 93 1Dairy 11 9 2Sugar 17 32 0Beef 10 6 2Other Meat 7 11 1Wool 98 0 2Vegetable and Fruit 0 0 0Other Crops 0 0 0GTAP version 5, pre-release 3

An alternative to current domestic support version of GTAP

• Alter subsidy rates such that they are uniform across all land uses

• Conduct identical experiments with current and altered database

Table 8. Change in U.S. Production from 50% reduction in U.S. land-based paymentsDisproportional land payments base Proportional land payments base

volume pct chg volume pct chgRice -99 -8.43 0 0Wheat -1,146 -11.86 0 0Other Cereals -545 -1.70 0 0Oilseeds 448 4.22 0 0Dairy -73 -0.36 0 0Sugar 112 2.69 0 0Beef 152 0.75 0 0Other Meat 250 1.13 0 0Wool 0 0.00 0 0Vegetable and Fruit 1,435 7.72 0 0Other Crops 1,375 9.74 0 0Processed food 106 0.07 0 0Natural resources -36 -0.04 0 0Manufactures -1,192 -0.08 0 0Services 755 0.01 0 0

Table 7. U.S. changes in sectoral output from 50% reduction in global tariffs and U.S. support reductionsDisproportionate U.S. land payments Proportionate U.S. land payments

$ million $ million Rice 498 667Wheat -428 1,058Other Cereals -252 421Oilseeds 940 480Dairy 190 313Sugar -924 -1,030Beef 1,753 1,710Other Meat 876 654Wool -1 -1Vegetable and Fruit 1,817 309Other Crops 318 -1,006Processed food 1,591 1,594Natural resources -93 -66Manufactures -6,083 -5,338Services 1,890 1,272

Implications

• Generic treatment of agricultural support for all countries can be misleading

• Potential for creating distortions in the database that do not exist in reality

• Users should be aware of implications for reductions of land-based payments

How ERS uses the PSE data for AMS support reduction scenarios

• AMS data not used in modelNotifications are sporadicPSE is more up to date Available only for OECD

• PSE different concept than AMS • We calculate a PSE-based AMS• PSE data broken into green, amber, blue• Identify commodities with administered price • Calculate cuts based a reduction rule

Support Reduction Scenarios

• Reduce ceiling by additional 20% from Uruguay ceiling

• Leveling support by commodity: no commodity

receives more that 30% of value of production

Reduction requirements if AMS is lowered an additional 20 percent from Uruguay Round Ceiling

AMS as percent of Cuts in AMS required to reach a 20 percentWTO ceiling in 1998 reduction in WTO Ceiling

Australia 23 0Canada 9 0European Union 75 -7Japan 77 -10Korea 80 -14Mexico 7 0Norway 88 -21New Zealand 0 0Poland 8 0Switzerland 71 -3United States 45 0

European Union ($55 billion)

beef27%

sugar12%

dairy total11%

wheat total6%

other44%

United States ($6.3 billion)

sugar16%

dairy total72%

peanuts5%

cotton7%

Japan ($25.8 billion)

beef5%

dairy total5%

rice76%

other14%

AMS Support (1997)

Reduction requirements to lower commodity-specific AMS to less than 30 percent

Wheat Rice Coarse Grains Oilseeds Sugar Dairy Beef and sheepAustralia 0 0 0 0 0 0 0Canada 0 0 0 0 0 -48 0European Union 0 0 0 0 -28 -44 -15Japan -65 -64 -56 -17 -51 -62 -6Korea 0 -57 -57 -61 0 0 -27Mexico 0 0 0 0 -9 0 0Norway -37 0 -31 0 0 -10 0New Zealand 0 0 0 0 0 0 0Poland 0 0 0 0 0 0 0Switzerland -35 0 -36 -52 -47 -43 -36United States 0 0 0 0 -19 -49 0

Assessment of GTAP modeling Framework

• Needs careful scrutiny of data prior to running scenarios

• GTAP services as an accounting framework for the PSE but does not model specific policies

• Other comment see “Assessment of the GTAP modelling framework for Policy Analyses from a European Perspective” 2000 editors S.Frandsen and M.Staehr