A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
Pierre Pagesse

EU’s notifications to the WTO:
When methodological flaws are very costly for Europe

momagri Editorial Board

The Bali Conference held in December 2013 attested to the difficulty in addressing specific and strategic issues, such as agriculture and food security, in the WTO. Yet, although some observers declared it in a state of life support, the organization keeps pushing for the unregulated liberalization of international agricultural markets by specifically condemning the distortion of support policies. But how can one judge the distortive nature of support if the methodology and assumptions used are not only disconnected from economic reality but also completely flawed?

Let’s take the case of the subsidies for grain. The EU is no longer granting coupled direct aid to that economic sector. Yet each year, it notifies close to €2 billion in the orange box category for soft wheat direct aid (€1.88 billion for the latest 2010/2011 notification) by applying an indirect assessment methodology of price support by the WTO.

The Aggregate Measurement of Support (AMS) of a product is assessed by the total of budgetary support and any eventual price support.

The first type of support concerns traditional coupled aid programs, which no longer exist for grain in the EU. Consequently, they account for zero in the latest notifications made by the EU.

The second type involves the various regulation measures allowing a country to guarantee a domestic price that is higher than a market price that is considered as price of reference. They are then estimated by proceeds from the difference between the domestic (or “administered”) price and the product reference price for the 1986-1988 period, as well as eligible production amounts assessed by the European Commission.

In the latest EU notification to the WTO for the 2010-2011 year, the “administered price applied” for soft wheat was €101.3/ton, and the reference price set was €86.5/ton, corresponding to the 1986-1988 reference price. The EU theoretical “domestic” administered price is therefore higher than the reference price (+€14.8), hence generating an economic support assessed at €1.88 billion by the WTO, given an eligible soft wheat production of 127.3 million tons indicated by the European Commission.

According to this methodology evaluation and taking into account the price assumptions on which it is based, the WTO estimates that the EU supported the soft wheat sector for close to €2 billion, while market prices for that time span were actually higher in European and world markets.

The EU provides less and less support to its wheat sector, as shown by the various coupled direct payments, and yet the WTO, building on the notifications of the European Commission, considers that close to €2 billion were granted as price support. In this context, the EU soft wheat AMS notified to the WTO can increase year after year, while aid granted declines or is even eliminated, as it is now the case due to the sole increase of eligible production.

The assessment of soft wheat AMS is therefore based on an obsolete approach to the economic and agricultural realities. The soft wheat reference price for the EU does not represent the conditions of current markets and the average cost structures for European farms, thus leading to faulty conclusions and a flawed actual positioning of the EU in the WTO trade negotiations.

This example provides two confirmations:
  • First, the methodological limitations of the indicators assessing applied support in the framework of international negotiations to compare the respective positions of key producing countries. The market positions, the economic structures of farms and the governmental support programs are drastically different from those prevailing in the late 1980s, and consequently need to be effectively taken into account through modified indicators.

  • Second, the significance of an in-depth knowledge of assessment assumptions and methodology of utilized support, as well as the EU existing leeway. The efficient comparison between the EU and the other major agricultural powers––especially the United States––validates the fact that not only the EU does not excessively support its agricultural sector but also has significant and legal leeway if we consider the agreements in force.

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Paris, 17 June 2019