How Green is the Green Box? US and EU “green” agricultural policies William H. Meyers Howard Cowden Professor of Agricultural and Applied Economics and.

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1 How Green is the Green Box? US and EU “green” agricultural policies William H. Meyers Howard Cowden Professor of Agricultural and Applied Economics and Co-Director, FAPRI University of Missouri University of South Bohemia, 3 November 2010

2 Agenda Historical background Political economy of agr. policy Origins of the “Green Box” in WTO Evolution of “green” policies in EU Evolution of “green” policies in US Where do we go from here?

3 Světová obchodní organizace (WTO) (World Trade Organization) je organizace, která zakládá pravidla mezinárodního obchodu prostřednictvím konsenzu mezi jeho členskými státy a řeší mezinárodní obchodní spory mezi členskými státy. Vznikla v roce 1995 jako nástupce Všeobecné dohody o clech a obchodu (GATT).mezinárodní obchodní spory GATT vznik 1948… podpora ZO doložka nejvyšších výhod- důraz na to, aby všechny výhody dohodnuté mezi dvěma zeměmi, se automaticky vztahovaly i na ostatní členské země. zásada národního zacházení zajišťovala stejné nakládání každého státu s výrobky domácími i zahraničními V rámci GATT proběhlo sedm kol vyjednávání a v osmém kole - známém jako Uruguayské kolo (1986-1995) - došlo k založení WTO. Principy a dohody uzavřené pod GATT byly přijaty WTO, kterému byla udělena pravomoc je dále rozšiřovat. Na rozdíl od GATT má WTO v základu institucionální strukturu. WTO Světová obchodní organizace Sídlem organizace je Ženeva, V současné době má WTO 153 členů (2008 )

4 WTO Řídícím orgánem je konference ministrů, která se schází každé dva roky. V mezidobí vykonává většinu jejich pravomocí Generální rada složená ze zástupců všech členských států(ta vykonává i funkci Orgánu pro řešení sporů a Orgánu pro přezkoumávání obchodní politiky. Další orgány Rada pro obchod se zbožím (v rozsahu dohody GATT) Rada pro obchod se službami (V rozsahu dohody GATS) Rada pro obchodní aspekty práv k duševnímu vlastnictví (v rozsahu dohody TRIPS) Každodenní práci organizace řídí Sekretariát, řízený Generálním ředitelem. http://www.studentsummit.cz/data/1258395647217BGR_WTO_Info.pdf

5 OECD Organization for Economic Cooperation Development Organizace pro ekonomickou spolupráci a rozvoj Datum vzniku: 1961 Sídlo: Paříž Počet členů: 30 Typ integrace: ekonomická http://www.zemepis.com/oecd.php OECD –jako nástupnická organizace OEEC (Organizace pro evropskou hospodářskou spolupráci,; založená v roce 1948 jako stálý orgán, který zajišťoval realizaci programu evropské obnovy (Marshallův plán) s cílem liberalizovat vzájemný obchod a podpořit růst ekonomik západní Evropy. Členy byly evropské státy, které přijaly americkou pomoc: Belgie, Dánsko, Francie, Irsko, Island, Itálie, Lucembursko, Nizozemí, Norsko, Portugalsko, Rakousko, Řecko, Švédsko, Švýcarsko, Turecko, od roku 1949 SRN a od roku 1959 i Španělsko); Hlavním cílem je liberalizace mezinárodního obchodu a financí. Každoročně vydává ekonomickou analýzu a hodnocení hospodářských výsledků jednotlivých zemí.

6 Vznik po II. Svět válce... Nutnost dostatku a soběstačnosti potravin v Evropě Každý rok ministři zemědělství členských států shora rozhodli ceny pro zemědělské výrobky. Ceny neurčoval trh, ale zodpovědní ministři. Výsledek.. NADPRODUKCE V roce 1985 např. ES skladovalo 18.502 tisíc tun obilnin, což představuje 70 kg na jednoho obyvatele tehdejší Devítky. V roce 1969 byla jedna šestina sklizně pšenice označena za nevhodnou pro lidskou spotřebu a byla proto za dotovanou cenu prodána v rámci ES jako krmivo pro zvířata. Mnohem častěji se však nadbytečných zásob zbavovalo na světových trzích. Rysy SZP (CAP) společná zemědělská politika

7 http://www.euractiv.cz/zemedelstvi0/link-dossier/reformy-spolen-zemdlsk-politiky Reformy Společné zemědělské politiky Nejnovější vývoj a další kroky: 1962 – začíná fungovat Společná zemědělská politika 1968 – Mansholtův plán podpora malých farmářů, co opustí zemědělství 1992 – MacSharryho reforma podpora není nutně vázaná na produkci, kvotace produkce 1997 – Agenda 2000- nedošlo k reformám protesty Francouzů červen 2003 – zveřejnění dosud nejvýznamnější reformy SZP – podpora na farmu a ne na produkci Stav, kdy je na SZP vynakládáno 45% rozpočtu a kdy např. v roce 1995 tvořilo zemědělství pouze 1,7% HDP, je neudržitelný.

8 Old history on resurgence of market protection in19th century

9 Political Economy of Ag Policy Why do policies evolve differently in different countries or in different time periods? Why do policies differ from what economic analysis may suggest? If governments don’t just do what scientists say, what actually determines policy decisions? Political economy approach views decisions as rational responses to all pressures from an array of interests in society

10 Measures of support 1 The Producer Support Estimate (PSE) is an indicator of the annual monetary value of gross transfers from consumers and taxpayers to support agricultural producers, measured at farm gate level, arising from policy measures, regardless of their nature, objectives or impacts on farm production or income. (see http://stats.oecd.org/glossary/detail.asp?ID=2150 for more details and read pages 1-5 of the following report for basic concepts and read more if you want gory details http://www.oecd.org/dataoecd/57/5/43411396.pdfhttp://stats.oecd.org/glossary/detail.asp?ID=2150http://www.oecd.org/dataoecd/57/5/43411396.pdf

11 Comparison of OECD and Emerging Market countries 2005-07

12 Measures of support 2 Two other measures that are also used by OECD and others when discussing comparisons of support and protection levels are the Nominal Protection Coefficient (NPC), which is the ratio between the average price received by producers at the farm gate (including payments per ton) and the border price (also calculated at the farm gate), measures the level of market protection Nominal Assistance Coefficient (NAC), which is the ratio of the value of gross farm receipts (including support) and the gross farm receipts valued at border prices (also calculated at the farm gate), measures what share of farm receipts that come from the marketplace.

13 The Producer Support Estimate (PSE) is an indicator of the annual monetary value of gross transfers from consumers and taxpayers to support agricultural producers, Nominal Protection Coefficient (NPC), which is the ratio between the average price received by producers at the farm gate (including payments per ton) and the border price measures the level of market protection Nominal Assistance Coefficient (NAC), which is the ratio of the value of gross farm receipts (including support) and the gross farm receipts valued at border prices what share of farm receipts that come from the marketplace.

14 Comparison of PSE, NAC and NPC changes

15 Measures of support 3 nominal rates of assistance (NRAs) the percentage by which government policies have raised gross returns to farmers above what they would have been without the government’s intervention (or lowered them if NRA is negative). Product-specific input subsidies are included See Anderson, Kym; (2009) “Political Economy of Distortions to Agricultural Incentives: Introduction and Summary” Agricultural Distortions Working Paper #91, World Bank http://ageconsearch.umn.edu/handle/50306 http://ageconsearch.umn.edu/handle/50306

16 Comparison of NRAs for high-income countries

17 Comparison of NRAs for low-income countries

18 Some patterns analyzed in the literature The “development pattern”, which relates to the pattern that as incomes grow, agricultural protection also grows and policies shift from taxing agriculture to protection of it. The “anti-trade pattern”, which finds that import- competing sectors or products are supported more or taxed less than exportables.

19 Some patterns analyzed in the literature The “anti-comparative advantage pattern”, which can be seen when protection is lower or taxation higher on products that have greater comparative advantage and that protection increases or taxation decreases when farm incomes, especially from that product or sector, fall relative to the rest of the economy.

20 Some factors analyzed in the literature Individual preferences of the citizenry Differing ability of stakeholder groups to organize effectively Collective action by lobby groups Preferences of politicians or interaction of lobbies and politicians Political institutions and ideology (e.g. US Congress and Administration vs European Commission and Parliament)

21 Some conclusions on changes over time Share of ag & share of farmers declines, makes subsidies cheaper makes interest group organization easier makes food cheaper and less consumer resistance Trade and trade agreements play a role External factors, eg regime change, crisis and budget problems Often gradual but sometimes radical

22 Agenda Historical background Political economy of agr policy Origins of the “Green Box” in WTO Evolution of “green” policies in EU Evolution of “green” policies in US Where do we go from here?

23 Světová obchodní organizace (WTO) (World Trade Organization) je organizace, která zakládá pravidla mezinárodního obchodu prostřednictvím konsenzu mezi jeho členskými státy a řeší mezinárodní obchodní spory mezi členskými státy. Vznikla v roce 1995 jako nástupce Všeobecné dohody o clech a obchodu (GATT).mezinárodní obchodní spory GATT doložka nejvyšších výhod- důraz na to, aby všechny výhody dohodnuté mezi dvěma zeměmi, se automaticky vztahovaly i na ostatní členské země. zásada národního zacházení zajišťovala stejné nakládání každého státu s výrobky domácími i zahraničními Historie WTO Bretton Woodská konferenceBretton Woodská konference v roce 1944 navrhla vytvoření Mezinárodní obchodní organizace (International Trade Organization - ITO), aby byla stanovena pravidla pro vzájemný obchod mezi zeměmi. Členové konference Spojených národů ohledně Obchodu a zaměstnanosti na Havaně se shodli na založení ITO v březnu 1948, ale založení bylo nakonec zablokováno senátem USA.Mezinárodní obchodní organizaceITOHavaně Dohoda, která po neúspěšném pokusu o založení ITO vznikla, byla Všeobecná dohoda o clech a obchodu (GATT). V rámci GATT proběhlo sedm kol vyjednávání a v osmém kole - známém jako Uruguayské kolo (1986-1995) - došlo k založení WTO. Principy a dohody uzavřené pod GATT byly přijaty WTO, kterému byla udělena pravomoc je dále rozšiřovat. Na rozdíl od GATT má WTO v základu institucionální strukturu. WTO Sídlem organizace je Ženeva, V současné době má WTO 153 členů (2008) http://www.studentsummit.cz/data/1258395647217BGR_WTO_Info.pdf

24 WTO Řídícím orgánem je konference ministrů, která se schází každé dva roky. V mezidobí vykonává většinu jejich pravomocí Generální rada složená ze zástupců všech členských států(ta vykonává i funkci Orgánu pro řešení sporů a Orgánu pro přezkoumávání obchodní politiky. [editovat] Další orgányeditovat Rada pro obchod se zbožím (v rozsahu dohody GATT) Rada pro obchod se službami (V rozsahu dohody GATS) Rada pro obchodní aspekty práv k duševnímu vlastnictví (v rozsahu dohody TRIPS) Každodenní práci organizace řídí Sekretariát, řízený Generálním ředitelem.

25 OECD

26 Vznik po II. Svět válce... Nutnost dostatku a soběstačnosti potravin v Evropě Každý rok ministři zemědělství členských států shora rozhodli ceny pro zemědělské výrobky. Ceny neurčoval trh, ale zodpovědní ministři. Výsledek.. NADPRODUKCE V roce 1985 např. ES skladovalo 18.502 tisíc tun obilnin, což představuje 70 kg na jednoho obyvatele tehdejší Devítky. V roce 1969 byla jedna šestina sklizně pšenice označena za nevhodnou pro lidskou spotřebu a byla proto za dotovanou cenu prodána v rámci ES jako krmivo pro zvířata. Mnohem častěji se však nadbytečných zásob zbavovalo na světových trzích. Rysy SZP (CAP)

27 http://www.euractiv.cz/zemedelstvi0/link-dossier/reformy-spolen-zemdlsk-politiky Reformy Společné zemědělské politiky Nejnovější vývoj a další kroky: 1962 – začíná fungovat Společná zemědělská politika 1968 – Mansholtův plán 1992 – MacSharryho reforma 1997 – Agenda 2000 červen 2003 – zveřejnění dosud nejvýznamnější reformy SZP 2008 – Evropská rada v prosinci 2005 rozhodla, že v roce 2008 dojde k revizi rozpočtu EU s ohledem na nutnou reformu SZP Stav, kdy je na SZP vynakládáno 45% rozpočtu a kdy např. v roce 1995 tvořilo zemědělství pouze 1,7% HDP, je neudržitelný.

28 Origins of the “Green Box” in WTO Early in Uruguay Round negotiations, farm groups in developed countries (high supports) resisted changes In 1987 US and EU proposed the idea of exempting “trade-neutral” and “production-neutral” subsidies So “Green Box” was created for subsidies that “do not cause more than minimal trade distortion” By contrast “Amber Box” supports must be cut according to an agreed schedule and “Blue Box” required production limits (such as EU and US land set aside programs) to avoid cuts

29 Boxes of support

30 What is in the “green box” Green box subsidies are supposed to have “no or at most minimal trade or production distorting effects” Cannot be tied to production of particular commodities or to prices WTO places no limits on green box subsidies

31 EU Green Box expenditures, 03-05 Decoupled income support, ~€14 bil Investment aids, ~ €7 bil Environmental programs, ~ €5.5 bil General services, ~ €5.5 bil Regional assistance programs, ~ €3 bil Etc smaller ones

32 Evolution of CAP Expenditures

33 CAP Measures: past and current reform process Changing Shares in the EU agric. budget for different instruments

34 Axis 2: Environment/Land Management Measures targeting the sustainable use of agricultural land: mountain areas, LFA; other areas with handicaps; Natura 2000 areas; agri-environment and animal welfare; support for non-productive investments Measures targeting the sustainable use of forestry land: first afforestation; first establishment of agro-forestry systems, Natura 2000 areas; forest-environment; restoring forestry production potential and introducing prevention actions; support for non-productive investments

35 35 Pillar II PROGRAMME BALANCE - DG Agri guidance Competitiveness objective: total programme funding at least 15% Environment/land management: 25% Quality of life and diversification: 15% Implementation of the Leader approach: 7%

36 Importance of Axis 2 in Pillar II

37 US Green Box expenditures 03-05 Domestic food aid, ~ $45 bil General services, ~ $10 bil Decoupled income support, ~$5 bil Environmental programs, ~ $2 bil Etc smaller programs

38 Evolution of US expenditures

39

40 Changes in spending caused by 2008 farm bill (FY 2008-17, billion dollars, CBO estimates, relative to continuation of 2002 farm bill provisions)

41 Agenda Historical background Political economy of agr policy Origins of the “Green Box” in WTO Evolution of “green” policies in EU Evolution of “green” policies in US Where do we go from here?

42 Pressures to change EU policy In early years self sufficiency was driving force – open ended price support But, led to surplus, escalating expense, budget concerns led to supply controls Supply controls not sufficient, pressure from WTO/environment groups/budgetary concerns led to shift to direct (decoupled) payments Further WTO concerns, and enlargement related budgetary concerns led to decoupling What does future hold? Depends on internal and external pressures.

43 Main current EU GB programs Decoupled farm support payments (biggest cost) Single farm payment Single area payment in NMS Pillar II programs (small share of CAP budget) Investment support – Axis 1 Environmental programs – Axis 2 Rural diversification – Axis 3 General services

44 Agenda Historical background Political economy of agr policy Origins of the “Green Box” in WTO Evolution of “green” policies in EU Evolution of “green” policies in US Where do we go from here?

45 Pressures to change US policy WTO pressures and “free trade” ideology of Reagan Administration led to Uruguay Round concessions Budget concerns in 1995 led to shift to direct (decoupled and declining) payments programs in 95 Farm Bill Congressional farm lobby increased coupled support and shift to insurance in 2008 Farm Bill Current budget pressures and interest in more focus on revenue insurance What does future hold? Depends on internal and external pressures.

46 Main current US GB programs Domestic food assistance (social safety net) General services Conservation programs (more detail below) Crop insurance (cost growing) Decoupled direct payments

47 Some USDA conservation programs FY 2008 outlaysFY 2012 projection* Conservation Reserve Program (CRP) $1.99 bil.$2.09 bil. Environmental Quality Incentive Program (EQIP) $0.95 bil.$1.35 bil. Conservation Stewardship Program (CSP) $0.31 bil.$1.15 bil. Wetlands Reserve Program (WRP)$0.25 bil.$0.66 bil. Farmland Protection Program (FPP) $0.07 bil.$0.15 bil. All other mandatory programs$0.19 bil.$0.46 bil. Total USDA mandatory conservation programs $3.76 bil.$5.86 bil. *FAPRI projections, Jan. 2009, largely based on CBO estimates

48 Conservation Reserve Program Established in 1980s; similar to earlier programs Pays farmers to take environmentally sensitive land out of crop production Usual term: 10 years Farmers get annual rental payment, tied to value of similar land in local rental market Cannot grow crops; can only graze animals when get special permission May have other requirements—seed natural grasses, control noxious weeds, etc.

49 CRP enrollment Compiled by FAPRI-MU from past FSA reports

50 Some current CRP statistics Farm Service Agency monthly report, Feb. 2010 31.2 million acres enrolled Average rental payment: $53/acre/year Leading states Texas (3.3 million acres, $35/acre/year) Montana (3.1, $32) Kansas (2.8, $40) N. Dakota (2.7, $35) …Iowa (1.6, $119) …Missouri (1.4, $70)

51 Wetland Reserve Program (WRP) In many ways, like CRP Removes land from crop production Farmers get paid for environmental benefits Differences from CRP Targeted at restoring, enhancing wetlands Uses permanent and 30-year easements, as well as restoration cost-share agreements As a result, up-front per-acre costs are higher

52 WRP statistics Compiled from recent NRCS and ERS reports 2.0 million acres enrolled in FY 2008 221,000 in Lousiana 207,000 in Arkansas 97,000 in Missouri 80% in permanent easements as of 3/07 Farm bill limits enrollment to 3.04 mil. acres

53 Environmental Quality Incentive Program (EQIP) Established in 1996 farm bill, building on several previous programs Pays farmers to address environmental concerns on their farms Build terraces to reduce erosion Put in ponds to control run-off into streams Improve manure handling facilities Cost-share program—farmers pay portion

54 Conservation Stewardship Program (CSP) –rather new 2008 farm bill name for program established in 2002 farm bill Like EQIP in many respects Pay farmers addressing environmental concerns A little different philosophy Reward good stewards Initially was intended to make payments to everyone who met certain criteria (open-ended entitlement)

55 Farmland Protection Program (FPP) Latest name for program dating back to 1990s Provides funding to purchase easements These limit non-agricultural uses of land Federal share up to 50% of easement cost Goal is to limit development, retain farms

56 Some other federal policies related to conservation & the environment Conservation compliance provisions for farm program benefits Farmers have to agree to conservation plans to get direct payments, marketing loan benefits, etc. Minimum standards to limit erosion, such as keeping some crop residues on surface Could include biofuel policies, pesticide regulation, clean water rules and much more

57 General issues Who pays to reduce negative externalities? Farmers by way of regulation? Taxpayers? Consumers? Value to the public of government spending programs? Conservation programs generally viewed as having benefits beyond the farm sector Increasing skepticism about public value of commodity programs

58 Agenda Historical background Political economy of agr policy Origins of the “Green Box” in WTO Evolution of “green” policies in EU Evolution of “green” policies in US Where do we go from here?

59 Study on Green Box Subsidies Green Box is not always green, as in “environmental” Green Box may change ICTSD (2009). “Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals”, summary note. Geneva http://ictsd.org/downloads/2009/10/green-box-web- 1.pdf http://ictsd.org/downloads/2009/10/green-box-web- 1.pdf

60 Vision for future of EU Policy “CAP reform beyond 2013: An idea for a longer view” by Jean-Christophe Bureau and Louis-Pascal Mahe. http://www.notre- europe.eu/uploads/tx_publication/Etude64-CAP- Propositions-EN_01.pdf http://www.notre- europe.eu/uploads/tx_publication/Etude64-CAP- Propositions-EN_01.pdf Changing roles and influences New role of EU Parliament under Lisbon Treaty Commissioner of Agriculture from Romania Qualified majority voting in Council of Ministers 2013 debate for new budget period 2014-20 Loss of budget for CAP and more shift to Pillar II? Move away from SFP and toward payment leveling?

61 Vision for future of US Policy US Farm bill 2012 debate starting More gridlock? (Election yesterday!) Less budget? Was expected to have more conservation and environmental emphasis but not likely with Rs Some new programs from 2008 have not been popular and may be changed Any changes likely to be small and cautious

62 Thank you!

63 Lisbon Treaty features Fewer Commissioners- 27 to 18 Max of 2/3 of total members in future Change in weighting of votes (QMV) majority (55%) of states, plus 65% of population OR fewer than 4 states oppose it Future changes to Treaty based on QMV not unanimity

64 CRP benefits and costs Program benefits Reduce soil erosion Enhance wildlife habitat Install buffers to protect streams Reduce crop supplies to raise crop prices Income to beneficiaries Program costs Program outlays (around $2 bil./year now) Reduce farming activity in some areas Raises food prices

65 Some CRP issues “Right” size for reserve 2008 farm bill sets upper limit of 32 million acres starting this year Should other uses be allowed? Grazing Growing energy crops like switchgrass How to weigh environmental benefits, fiscal cost, effects on communities and markets

66 Some WRP issues Which acres to enroll Mix of permanent and temporary easements Permanent locks in environmental improvements But costs more up front and can reduce local tax base Budget issues Per-acre cost high relative to CRP and most other conservation programs Spending often limited to “pay” for other programs

67 Some EQIP issues Who/what gets funded Usually far more applications than dollars Regional, livestock vs. crop, big vs. small Help past “bad actors” to clean up? Budget Farm bill sets increasing mandatory funding levels But appropriations bills routinely limit and spend “savings” on discretionary programs Senate child nutrition bill limits EQIP spending to boost school lunch program

68 CSP issues Funding 2002 farm bill vision never met, as subsequent bills limited spending As a result, was limited to a few watersheds Under 2008 bill, goal is to enroll 12.8 mil. acres/yr. Purpose To make program more affordable and workable, looks much more like EQIP than initially envisioned

69 FPP issues Cost per acre can be very high Near major city, land can be worth much more for development than its agricultural value Interest in program much higher precisely where it’s the most expensive to operate As a result, funding can’t go very far—how to prioritize? Should this be a federal program? Lots of arguments for why it should be local But proponents argue their areas get little help from other USDA programs