The Adjustment Of Agricultural Domestic Support Policy In Developed Countries And Its Effect Analysis

Developed countries have faced agriculture adjustment problem. Many developed countries have taken agricultural protect policy to mitigate the gap between agricultural sector and non-agricultural sector. But the agricultural protect policy distorted the world agricultural trade, resulting in low efficiency and social welfare losses. Agricultural protection not only led the the major developed countries to increase subsidies in order to take the export market, resulting in a serious financial burden, but also led the developed countries generate political friction. In addition, a large number of agricultural subsidies in developed countries makes squeezing domestic dumping of agricultural products in developed countries in the world, thus depress international prices of agricultural products, made a adversely effect on a large number of developing countries which still depend on agriculture. Seven-year Uruguay Round negotiations finally reached "the Agreement on Agriculture", because of these reasons. The members not only made a agreement on market access and export competition in the "Agreement on Agriculture", but also for the first time on domestic support policies.The result of Uruguay Round negotiations has changed the system of world agricultural policy. Member States increase the agricultural price to increase farmers’ income, but raise prices of agricultural producers or domestic subsidies lead to overproduction of the Member States, the government’s inventory increase, in order to handle a large number of government stocks, government provide a large number of export subsidies to be dumped overseas. After the Uruguay Round, this policy has not allowed to continue. Therefore, in order to continue to improve the income of agricultural producers, the government can implement direct payments to agricultural producers, of which the fixed direct payment is called decoupled payment. Decoupled payment is based on a fixed amount of subsidy paid or historical production area, and with the current unrelated to agricultural production, investment and price. Since decoupled payment policy stimulus to agricultural production is small, it is divided into WTO "green box" policy, are not included in AMS (Total AMS), beyond agricultural domestic support reduction obligations. After the Uruguay Round, domestic support policies of the U.S., EU, and Japan and other major developed countries have made decoupled payment policy which belongs to the "green box" instead of the market prices which belong to the "yellow box". The amount of OECD countries decoupled payment has reached$ 4.8 billion in 2005-2007 from less than $200 million previous. The decoupled payment has become the second largest agricultural subsidies of the project.Though the decoupled payment is unrelated to agricultural production, investment and price, and belongs to "green box".But there is a controversy for this classification. Brazil accused United States of cotton subsidies in violation of the "Agreement on Agriculture and "Agreement on Subsidies and Countervailing Measures"to the WTO" in 2002, and cotton production flexibility contract payment and paid directly whether belong to the "green box" was questioned. Canada submit the application to the WTO negotiations on U.S. corn subsidies that U.S. corn subsidies depress prices in Canada 1996-2006 corn in 2007. The distortion of decoupled payment policy on production and trade has become the focus of the WTO negotiations, and an impediment to advancing the Doha Round of WTO negotiations. In this context, the empirical research of effect of decoupled payment on agricultural production is of great significance.If the empirical results of the decoupled payment policy show its stimulating effect on agricultural production is not significant, then the adjustments of domestic support policies in developed countries actually reduces the degree of policy stimulus to agricultural production, thus avoiding a large number of surplus domestic production needs a large number of export subsidies to be paid to the international market dumping, and thus depress international prices of agricultural distortions in international agricultural trade. If the establishment of the above is ture, the adjustment of domestic agricultural support policies in major developed countries promotes a certain degree rise in international prices of agricultural products. The exiting reference which analyze the the reasons for rising food prices mainly focus on the development of biomass energy, the rapid rise needs of developing countries and the rise in oil prices and other terms. Systematic assessment of the adjustments effect of agricultural domestic support policy on international food not only help support a comprehensive understanding of domestic policy adjustments, but also help improve the reasons for explanation of international food prices rose sharply in recent years.China’s agricultural domestic support policies include the minimum purchase price of wheat and rice acquisition policy, temporary storage policies of corn, soybeans and canola, as well as grain subsidies, agricultural subsidies, seed subsidies and farm machinery purchase subsidy and other four subsidies. With the increasing cost of domestic production, the minimum purchase price and temporary storage prices are rising, in support of domestic price support policy, the major domestic crop prices have been higher than international prices, while Chinese wheat, rice and the corn tariff quota only 1% tariff soybean, rapeseed is only 3% and 9%, in the absence of effective measures to protect the border, widening spreads abroad inevitably lead to an increase in imports, which is why in the world the case of continued high food prices, China’s grain imports are still increasing. In addition, with the increasing income reserves, to finance high inventory costs also brought considerable pressure. Therefore, analysis developed agricultural domestic support policy adjustments Implications for China, China’s agricultural domestic support policies proposed adjustments direction and bring the system to assess the effects of policy reforms may have important policy implications. The main content and related research conclusions are as follows:Content 1:the major developed agricultural domestic support policy change background review and analysis features.This study reviews the world’s major developed countries agricultural domestic support policy adjustments in the background, and the use of two kinds of OECD and WTO domestic support policies index system for the characteristics of a quantitative analysis. After the Uruguay Round, the basic direction of agricultural domestic support policies of the Member States with no effect or slight increase revenue yield increase gradually replace subsidies on production and trade-distorting production subsidies and price support policies in this regard, the United States and the EU and other major developed countries have to make adjustments.The United States in 1996, "Agriculture Law" canceled the target price support, the introduction of direct subsidies. The new farm bill in 2002 to further increase the subsidies, forming a " direct subsidies ", " marketing loan subsidies" and " counter-cyclical subsidies" triple line of defense, beginning in the 1990s, the European Union’s Common Agricultural Policy also started from the traditional market intervention transfer to direct payments, direct payments gradually become a major component of the Common Agricultural Policy. So far, direct payments paid directly experienced the transition from the initial to the decoupling of direct payments linked to the process. Currently, the EU’s direct payments policy includes single payment scheme (SPS) and the single area payment scheme (SAPS). Affected by factors such as resource constraints and competitiveness, Japan is lagging behind in this process.2009 after the Democratic Party came to power, began implementing the "farmers direct income subsidy system," the sales price per unit area below the cost of production of crops for the object, and the size difference between the selling price and the unit cost of production for direct subsidies. OECD countries account for market price support measures the total producer support decreased from 76.9% in 1986-1988 to 2009-2011 of 42.6%, while the decoupled payment policy accounted for the proportion of total producer support growth of less than 1% from the previous to 24.2%, the second largest agricultural support measures.Content 2:the empirical analysis of affect of developed agricultural domestic support policy changes on agricultural production-A Case Study of American decoupled payment policy.Since decoupled payment policies on agricultural production has been controversial. Firstly, the use of 1997,2002 and 2007 USDA census data, using historical oil production as instrumental variables, the empirical analysis of the impact of decoupled payment policies on agricultural production, the results show that the amount paid by the impact of decoupling agricultural production is not statistically significant. The main reason is decoupled payment policy by influencing risk preferences of producers, financial constraints, labor force participation, income is expected to indirectly affect other ways, this indirect mechanism of agricultural production makes the final payment decoupling impact on yield than small, and resulting in the payment of variables affecting the decoupling is not statistically significant. On the basis of evidence of the impact of decoupling on the payment policy, the study of other theories by means of domestic support policy analysis can be found, the impact of price support policies on agricultural production and trade, followed by the linked subsidies, such as output-based payment policy, based on input -based payment policies and acreage, livestock numbers, revenue and income payment policy, the impact of which on acreage, livestock numbers, revenue and income to pay less than the previous two policies policies, decoupled payment policy affect agricultural production is not statistically significant.Content 3:the empirical analysis of affect of developed agricultural domestic support policy changes on international prices-A Case Study of OECD countries.Based on the empirical analysis of the impact of decoupled payment policy, we can conclude that the transfer of international agricultural domestic support policies reduced the impact on agricultural production, thus delayed the increase of international food supply, and raised the international food prices to a certain extent. The empirical results show that the transfer from market price support and coupled payment which have strong distortion effect to decoupled subsidies which have weak distortion effect has pushed up the international grain prices by using the OECD agricultural support data. The GTAP model simulation results show that the contribution of domestic support reform on international wheat, rice, maize and soybean is 8.81%,0.25%,9.29% and 3.30% in 2001-2009, the contribution is higher to 10.52%,0.34%,11.55% and 5.26% in 2004-2009.Content 4:The enlightenment of adjustment of agricultural domestic support policies in developed countries to China.The adjustment experience of agricultural domestic support policy in developed countries has important implications for China’s agricultural domestic support policy adjustments. The gap of domestic grain price and foreign grain price is growing larger under the the minimum purchase price of the acquisition and temporary collection and storage policy. The growing gap lead to the fact that import while collection and storage,. In the current WTO framework, the price support policy has been difficult to continue, so need to adjust Chinese agricultural domestic support policy.According to China’s current agricultural development objective is to ensure food security, taking into account the income of farmers, so Chinese agricultural domestic support policies should also be linked to the payment policy-based.2014 central document presents Chinese agricultural support policy shift from price support subsidies target price and target price of insurance policy.This paper argues that if China takes the target price subsidies instead of market price support measures (the minimum purchase price and temporary storage), the domestic production will remain unchanged by making the producer’s price unchanged. The total demand will decline due to cancel the minimum purchase price and temporary storage. So the large inventory costs can be avoided and the import will go down. The simulation model results show that taking target price subsidies instead of market price support measures will lead to the domestic wheat, rice, corn and soybean prices fell 17.59%, 8.92%,7.02% and 10.50%. The imports of wheat, rice, corn and soybeans will decrease and the exports will increase due to narrowing the gap of international and domestic prices. The imports of wheat, rice, corn and soybeans will decrease by 27.2%,25.2%,28.3% and 2.41%. The exports will increase by 59.54%,31.3%, 28.94% and 58.33% respectively. In the actual subsidy process, because subsidize according to production requires a lot of statistics and need a lot of costs, in the present case, subsidize according to acreage maybe is a more feasible approach. According to the analysis in the previous section we find that the effect of output-based payment is stronger than acreage-based payment. So the domestic production of wheat, rice, corn and soybean according to acreage-based payment will be smaller than output-based payment. The domestic production will decreased by 1.66%,1.33%,2.02% and 10.67%, while the decrease of domestic price is also smaller than the previous output-based payments, the prices of wheat, rice, corn and soybeans will decrease 8.32%,3.21%,1.98% and 3.05%. The import of wheat, rice, corn and soybeans will increase due to the effect of wheat, rice, corn and soybeans on domestic production is small. But the extent of increase is smaller than canceling the minimum purchase price support policy and temporary storage policies.