Debunking ag liberalization myths

The IMF’s Stephen Tokarick dispels some agricultural trade liberalization myths in the latest issue of the JEP:

The implicit or explicit argument that often follows hard upon the heels of the inflated estimates of the size of high-income country farm “subsidies” is that the support to farmers in high-income countries is extremely damaging to poor, developing countries— even more damaging than tariffs levied against developing-country exports. However, the effects of liberalizing trade in agricultural products is likely to be both smaller and more heterogeneous than such statements suggest. Some low-income countries are net exporters of agricultural products; others are net importers. The degree of substitutability between foreign and domestic agricultural products also varies substantially.

Those who oppose agricultural trade liberalization have their own favorite misstatements. One common claim often made by European trade negotiators is that if high-income countries cut agricultural tariffs worldwide, this step would erode the special treatment— often called “trade preferences”—that high-income countries currently make available to many of the lowest-income countries. As a result, they argue that the lowest-income countries could end up worse off as a result of agricultural trade liberalization. However, analysis shows that the magnitude of this effect, if it exists at all, is likely to be very small, and not nearly enough to counterbalance the more positive benefits of agricultural trade liberalization.

Of course, if you are a regular reader of Trade Diversion, you already knew that Oxfam’s big numbers conflate subsidies with tariffs and quotas, liberalization won’t have massive benefits for LDCs, the effects will be heterogeneous, and liberalization gains will exceed preference erosion losses.

Here’s a previous episode of myth-busting.