Agricultural Policy and Trade Reform The Impact on World Commodity Markets

The governments of most developed, and many developing, countries impose border measures-tariffs, tariff rate quotas and export subsidies-to boost the domestic market prices of agricultural commodities. In some OECD countries, governments also provide financial support to their agricultural sector through other means, such as direct budgetary payments, production quotas and marketing-loan programs. These interventions typically distort the allocation of resources, leading to sub-optimal production and consumption decisions. Widespread agricultural policy reform would undoubtedly improve the global allocation of resources. But, due to differential protection levels and policy instruments across commodities and among countries, reform can also produce a complex pattern of adjustments, some of which may appear to be counter-intuitive. Using a partial-equilibrium agricultural commodity model with rich policy detail, this study examines the market impacts of agricultural policy reform annually over a 10-year horizon. The study finds that the biggest impacts of agricultural policy reform would be on world dairy markets. Including the effect of non-agricultural liberalisation from a general-equilibrium model does not meaningfully alter results, suggesting that sectoral analysis in many cases is sufficient. Also in this series: Agricultural Policy and Trade Reform: Potential Effects at Global, National and Household Levels