Agricultural Subsidies in Developed Countries: Impact on Global Welfare*

Abstract

A considerable amount of criticism has been levied against the United States for the 2002 Farm Bill, which will be renewed in 2007. Many proposals have been put forward on what this new farm program should contain, as analysts are now more aware of the linkage between agricultural policy and international trade. According to Thompson, the new Farm Bill and future trade talks will have a significant impact on one another, whether they are on parallel tracks or a collision course. But it is not only U.S. farm policy that is facing criticism; European Union farm policy is under attack, as well. Having recently lost the World Trade Organization (WTO) challenge over cotton brought against it by Brazil, the U.S. government is acutely aware of the connection between agricultural policy and trade, and is attempting to reduce its budgetary outlay for agriculture with the 2007 Farm Bill. For example, from 2006 to 2010, the United States is considering reductions of (1) US$1.29 billion on all farm payments; (2) US$282 million for Step 2 of its cotton program; (3) US$1.09 million from shifts in its advance direct payments; and (4) US$821 million in the Conservation Security Program (Schuff). The United States reduced its total direct payments and overall subsidies beginning 1999, but they began rising again in 2003 (figure 1). Meanwhile, EU direct subsidies have trended upward since 1995 (figure 2). Also, U.S. and EU farmers enjoy hidden subsidies, as well. For instance, U.S. commodities, such as sugar, are protected through import quotas that require little direct monetary assistance from the federal government. The magnitude of