The US FTA issue highlights policy failures in Australian agriculture

NAFTA appears to have prompted Mexico to provide support to its agricultural sector in line with the US. On the other hand, Canadian support to agriculture fell during the same time frame. Canadian farmers are clearly disadvantaged within NAFTA in terms of farm support levels.

Australian % PSE at 4% suggests that once the US Bilateral Agreement is signed, all three NAFTA members will provide support to their farm sectors well above that of Australia. The US FTA will offer indirect access to Australia for NAFTA member countries. Agricultural and environmental leaders in Australia would do well to ponder the implications of support differentials between Australia and NAFTA member countries

Industries of particular interest are compared below:

Support Comparison US Australia 2000-02
%PSE by Selected Industry

Source; Agricultural Policies in OECD Countries Monitoring and Evaluation 2003 Tables III.15 & III.45

The WTO AoA provides for a two-tiered system of domestic support. First, a bound Aggregate Measure of Support (AMS) defines a nation’s total level of support to agriculture under price and production distorting instruments. Second, a system of exempt payments allows support additional to the AMS under clearly defined policy instruments that are neither price nor production distorting. Exempt payments instruments offer a wide range of support including decoupled income; environment; conservation; structural adjustment and income insurance.

Decoupled income support is an important instrument and underwrites Covered Crops Programs to US grains industries. The EU announced a move to this type of support last year.  Payments are usually based upon a defined historic production base such as cropping areas or headage payments (number of animals). A target price is set independently of the industry and used as a basis to provide a deficiency or counter-cyclical payment to meet the difference between actual market price and the target price.

Rural policy is about income redistribution back to the farm sector to offset long-term erosion of real farm income. Income effects of sectoral realignment in mature growing economies cannot be reversed by confused economics pursuing increasing efficiency and rising productivity.  This policy direction simply compounds oversupply in international markets.

Lifestyle, environmental and conservation concerns in an increasingly urbanized society also lie beyond confused economics. These lifestyle issues are now in open conflict with rural policy.

Australia needs to consider the following questions
· How best to rebuild rural industries and the damaged social fabric of regional communities
· How to deliver a just price for rural output                         
· How the rural sector can deliver lifestyle, conservation and environmental services to urban Australia
· How to alleviate environmental degradation in overcrowded urban communities by rural reindustrialization

These questions are now being addressed in other mature economies with varying degrees of success. Australia needs to observe and learn form these experiences.