Is the fixed payment a green box policy ?: A theoretic analysis of U.S. farm program's trade-distirtion effects
2003
Shen, J.H.(Kyoto Univ. (Japan))
Since 1995, as a biggest export country of agricultural products, the United States did not reduce their domestic farm support actually, they just transformed the deficiency payments into a fixed payment which was called production flexibility contract payments (PFC), then got a good reputation on the AMS reduction in the world. To correct this contradiction and draw a public attention on the trade-distortion effects of the U.S. farm programs, following research was made in this paper: First, we reviewed the tracks of U.S. farm support programs since 1980 and the key provisions of the 2002 Fan Bill. Secondly, we analyzed the fixed payments effects on the farm production decision and the market equilibrium. From these theoretic analysis, it was found that the fixed payment could make the market price below the marginal farms shutdown point permanently, which is a long run equilibrium price in a competition market when demand curve shift to left. This theoretic conclusion can also be proved by comparing main crops market price with production cost in U.S. Finally, we analyzed the trade-distortion effects of the market prices drop in the export country caused by fixed payment or other domestic agricultural supports. In our opinion, the trade-distortion effects of the fixed payment are similar to the export subsidy, therefore should be imposed same level of restrict and reduction obligations.
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