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February 2004
Inefficient agricultural policies, all over the globe
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At present, the world agricultural trading system doesn’t work as well as it could; in fact, it places a substantial extra burden on consumers and taxpayers around the world, while farmers face many constraints that sap their potential income. Many developed and developing countries keep prices of some foods high to help domestic farmers’ income. This practice costs consumers money, discourages demand, and shrinks potential export markets. These policies are inefficient: Despite high consumer sacrifice, farmers get only a fraction of the extra money that consumers pay through higher prices. The Organization for Economic Cooperation and Development estimates that only 24 percent of the cost of price supports actually reaches farmers. Other policies use taxpayer funds to pay farmers to produce, which inevitably leads to bad choices—too much production of some commodities, too little of others. |
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Significant reform of agricultural trade would have large consequences. USDA research indicates that global gains in consumer purchasing power from agricultural trade liberalization could approach half a trillion dollars over a decade. Trade flows will increase, but the benefits to economies from removing the burden of distortionary policies are even more important. The greatest effect comes from global liberalization. Numerous trade models have shown that liberalization in agricultural markets would result in higher world market prices for most traded goods, which would benefit many farmers around the world. Consumers in markets already open to trade would also pay higher prices, but the effect on retail prices would be modest. Consumers in a number of countries that currently impose trade barriers would see lower prices, despite increases in world market prices, because the price-boosting effect of the barriers would be removed, more than offsetting global price increases. |
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Seizing the Opportunities from Trade |
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Agricultural trade is critical for U.S. Agriculture |
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Policy reform works |
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Reform can't wait |
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For more information |
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From the Foreign Agricultural Service: |
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U.S. Agricultural Trade |
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Trade Policy |
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Trade Agreements |
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Trade News and Data |
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Trade Trends |
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Start Trading |
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From the Economic Research Service: |
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The U.S. Ag Trade Balance. . . More Than Just A Number |
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U.S. Food Sector Linked to Global Consumers |
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Structure of the Global Markets for Meat |
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North American Agricultural Market Integration and Its Impact on the Food and Fiber System |
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