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The true cost of trade barriers

A new study reveals the impact of global farm subsidies and agricultural trade policies on the competitiveness of Australia’s rural industries.

A new AgriFutures Australia-funded study fills a knowledge gap in the current cost of trade subsidies, arming our rural industries and governments with evidence to inform trade negotiations and policy discussions going forward.

The report International agriculture subsidies and their impact on Australian agriculture, developed by internationally renowned authors Kym Anderson and Ernesto Valenzuela, found
that Australian farmers are on the losing end when it comes to global farm support policies.

While Australia is a non-subsidising agricultural export country, the most recent data shows that farm subsidies and import barriers abroad lowered Australia’s net farm incomes by 15 per cent and reduced its farm exports by 29 per cent.

The findings were timely given the uncertainty around global markets and Australia’s continued reliance on trade as a key driver towards the $100 billion farm gate growth target set by the National Farmers’ Federation.

The findings equip our industries, policy makers and governments with the knowledge to negotiate better trade deals for Australian farmers, fishers and foresters.

Australia is increasingly connected with, and competing against, our farming peers across the globe and there’s no better time for the Australian agricultural community to reassess the impacts of global trade policies.

Report author Kym Anderson said the report’s key recommendations highlighted the important role of government trade negotiators in ensuring Australian agricultures’ global competitiveness.

“We shouldn’t solely focus on tariff barriers when negotiating free trade agreements (FTAs), the research showed that domestic farm subsidies in competing countries are also significant impediments to Australia’s global competitiveness. We need to periodically review the global policy environment and take a proactive approach to levelling the international playing field via multilateral, regional and bilateral trade agreements,” said Mr Anderson.

Import barriers (tariffs and tariff rate quotas) remain the dominant protective policy instrument globally, but domestic supports (budgetary transfers to farmers) have become much more significant in the past decade or so.

The impact of farm policies abroad is most notable in Australia’s red meat, wheat and dairy industries, but rice and cotton exports are also negatively impacted, especially relative to their
production size.

Australia requires access to the most up to date information and empirical analysis to inform discussions with key trading partners. This study offers a global perspective on Australia’s
agricultural export operations and an opportunity for our industries to re-double their efforts on the global policy reform stage.

Among some of the report’s recommendations:

  Given that market price support provided by import barriers continues to be the dominant
policy instrument dampening Australian farmers’ competitiveness, the Australian Government should continue to seek opportunities to get them lowered.

  Multilateral trade reform via negotiations among the World Trade Organization (WTO) membership is the best way of boosting national and global economic welfare and would
also provide the largest gains to Australia’s net farm incomes and agricultural exports.

  Even if there is insufficient WTO member interest in multilateral reductions in import barriers at
present, the Australian Government should strive to get WTO members to at least reduce
the expansion of domestic subsidies to farmers, given their recent and prospective growth
under current WTO entitlements.

  Preferential trade agreements are an additional avenue for expanding farm export markets.
Australia’s most important such opportunities at present are via the current trade negotiations
with the EU and the prospects of an FTA with the UK once it completes its transition from
exiting the EU.