Why is Agricultural Trade Policy Always So Difficult to Reform?

Abstract: Multilateral trade negotiations have once again foundered, at least in part, over agriculture. In previous rounds, discussions stalled because of the reluctance of some OECD countries to reform their agricultural policies and dismantle protection; this time an impasse was reached over the extent to which developing countries should be expected to do the same.

Historically OECD countries have tended to protect their agricultural sectors, whereas developing countries have tended to tax them. The main reasons for this are political. Consumers in high-income countries spend a smaller share of their budgets on food and are less concerned about the implications of elevated prices. At the same time, farmers account for a much lower share of the workforce, which means that a given transfer to producers imposes a smaller burden on the overall economy. As developing countries have become richer and as labour has started to leave the farm sector, the political calculus has changed, and they too are starting to protect their farmers. Yet there is a lack of consensus on when poorer countries may have a legitimate need to protect their farmers. Clarifying the economic circumstances under which tariff protection may be appropriate is a pre-requisite for progress in multilateral trade negotiations.