G/AG/W/131  
 
3 June 2014  
(14-3238)  Page: 1/7  
Committee on Agriculture  Original: English  
 
 TRENDS IN DOMESTIC SUPPORT  – MARKET PRICE SUPPORT 
COMMUNICATION FROM THE UN ITED STATES OF AMERICA 
1  OVERVIEW 
1.1.  WTO Members have agreed to the long-ter m objective of fair and market-oriented trading 
system for agricultural products. Developments in domestic support policies bear consideration because of changes in policies in a number of Memb ers and their effects on the operation of global 
agricultural markets. One area of particular im portance for review is the change in types of 
domestic support, in particular with respect to  both exempt and non-exempt trade-distorting 
domestic support. This paper focuses on one of the most trade-distorting forms of support: market price support (MPS). While there has been progressive reduction in the application of MPS policies 
among the Members with the highest levels of su pport for agriculture in the 1980s, current trends 
show an increasing use of MPS policies by other Members. 
1.2.  Trends in the most trade-distorting form s of amber box domestic support is an area for 
consideration by the Committee on Agriculture because of the impact of such support on 
production (i.e., increased production) and trade (i.e., reduced imports and/or increased exports). 
Further, economic studies have shown that the most trade-distorting measures typically are the 
least efficient at transferring  income benefits to farmers.
1 
2  WTO CATEGORIZATION OF TRADE DISTORTING SUPPORT 2.1.  Under the Agreement on Agriculture, WTO Members report both exempt and non-exempt 
domestic support. As part of the Uruguay Round negotiations, countries submitted data on 
domestic support for the years 1986 – 1988. The sum of non-exempt trade-distorting support 
became the basis for establishing the Base Total Aggregate Measurement of Support (AMS), which is the basis for certain commitments made in the Uruguay Round. This data was reported through 
the Agricultural Supporting Tables (AGST) and can be reviewed through the WTO home page.
2 
2.2.  Through the AGST, Members reported the scope  of: 1) non-trade distorting measures exempt 
from reduction commitments (i.e., green box measures, Annex 2); 2) exempt product-specific and 
non-product specific trade-distorting support (i.e., Article 6.2 and blue box); and 3) non-exempt 
product-specific and non-product-specific trade-distorting support (i.e., amber box). In reporting trade-distorting support, Members detailed the am ount of support through MPS, non-exempt direct 
payments, and other production or trade-dist orting support. These types of support were 
aggregated without distinguishing more-distorting from less-distorting support. However, research 
suggests some of these forms of support are more distorting than others. Since the drafting of the Agreement on Agriculture, some Members have continued to make reforms to their agricultural 
policies moving towards less trade- and production-distorting measures, whether to the green box 
(e.g., fully decoupling), blue box (e.g., production lim iting) or still in the amber box (e.g., partially 
decoupling). As a result, what was once only a minor distinction amongst amber box policies is 
now much more significant. 
                                               
1 Joe Dewbre, Jesús Antón and Wyatt Thompson. "The Transfer Efficiency and Trade Effects of Direct 
Payments", American Journal of Agricultural Economics. Vol. 83, Now. 5. (Dec. 2001), pp. 1204-1214. 
2 See http://www.wto.org/english/tratop_e/agric_e/supporting_tables_e.htm  for copies of the AGST and 
http://www.wto.org/english/tratop_e/agric_e/dataset_ds_e.xls  for a database in spreadsheet form. G/AG/W/131 
 
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  3  THE EFFECTS OF MARKET PRICE SUPPORT 
3.1.  MPS policies are typically implemented with th e objectives of increasing production of select 
commodities that are in short supply domestically and/or raising the income of producers of that commodity. Production objectives are typically cited by proponents of MPS policies as a protection 
against food security disruptions from potentia lly unreliable import sources. Proponents also 
commonly cite MPS policies as a way to increase producer incomes through higher and more stable prices. 
3.2.  Production incentives arise from guaranteeing higher prices for certain commodities over 
other commodities. Thus, MPS distorts production of targeted commodities by influencing production decisions, which may affect availability of other commodities not supported. By ensuring a minimum price, usually backed up by a government offer to operate as the buyer of 
last resort in the event of a fall in domestic prices, governments attempt to shield producers from 
the potential effects of falling demand or excess supply. Moreover, by raising the market price for 
a select commodity, proponents also state that they are able to provide the benefits of income 
support to the poorest and most rural producers without requiring a direct transfer of money. 
3.3.  According to OECD research, MPS is estimated to have one of the largest 
trade-distortive-effects and one of the lowest intended income effects for producers out of the 
major types of agricultural production support (i.e., market price support and four types of 
budgetary payments based on: output, variable input use, area planted in the current period, and area planted in an historical period).
3 
3.4.  In practice, MPS affects and distorts the global agricultural economy in several important 
ways including changes in agricultural prices, resource allocations, food security, production/stock 
levels, and competitiveness. 
3.1  Increased prices 
3.5.  The most direct and clear impact of the government setting minimum prices is an increase in 
domestic market prices for both producers and consumers.4 The effect is most direct when a 
government sets a minimum price and places no limit  on the quantity it is willing to purchase at 
the set price. However, the effect of the MPS can still be felt across the whole economy even when 
the government only purchases a limited quantity du e to farmer's perceived reduced risk in prices 
falling below the set price. Higher prices incr ease the cost of the basic commodity and any 
processed product that incorporates that basic product. 
3.6.  Moreover, to sustain higher prices, imports must be closely regulated to guard against more 
competitively priced products from undermining the MPS scheme. Since MPS works by ensuring a 
high market price is available to producers, whether or not the government actually purchases at 
the administrative price, often Members that operate such systems maintain high tariffs, tariff rate 
quotas, or non-tariff measures. This deprives consumers in the subsidizing country and producers in exporting countries of the gains from trade. 
3.2  Resource allocation 
3.7.  In contrast to direct payments (even when fully coupled to production decisions), MPS sets a 
minimum price for the market, which ensures that not only the producer of the basic commodity is 
                                               
3 OECD (2002). "Agricultural Policies in OECD Countries: A Positive Reform Agenda," p.32. 
https://encrypted.google.com/books?id=r2b9UC6vd7YC& printsec=frontcover&source=gbs_ViewAPI#v=onepag
e&q&f=false  
(https://encrypted.google.com/books?id=r2b9UC6vd7YC&printsec=frontcover&source=gbs_ViewAPI%23v=one
page&q&f=false ) ; OECD (2001). "Market Effects of Crop Support Measures," pp. 22-25. 
http://www.keepeek.com/Digital-Asset-Management/oecd/agriculture-and-food/market-effects-of-crop-
support-measures_9789264195011-en#page1  (http://www.keepeek.com/Digital-Asset-
Management/oecd/agriculture-and-food/market-effects-of-crop-support-measures_9789264195011-
en%23page1 ) . 
4 OECD (2001). "Market Effects of Crop Support Measures," 13-14. http://www.keepeek.com/Digital-
Asset-Management/oecd/agriculture-and-food/market-effects-of-crop-support-measures_9789264195011-
en#page1  (http://www.keepeek.com/Digital-Asset-Management/oecd/agriculture-and-food/market-effects-of-
crop-support-measures_9789264195011-en%23page1 ) . G/AG/W/131 
 
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  affected by the policy, but every other economic actor that has a relationship to the product is also 
affected. For example, the supported commodity re presents a higher input cost for processors, 
which leads to adjustments in resource allocations and competitiveness throughout the food sector. Similarly, substitute products must also be regulated to guard against any price 
competition. 
3.3  Impaired food security 3.8.  Unlike other types of support, MPS policie s increase food prices for both producers and 
consumers. As a result, MPS can contribute to food insecurity, particularly for already food 
insecure populations, which cannot afford higher food prices. Further, small self-sufficient producers who consume an important share of their production will not benefit from higher market prices for the portion of crops they consume, and they may pay higher prices for other supported 
crops they need to purchase.
5 
3.9.  To address higher prices for consumers, governments must reduce the sales price through 
food subsidies, whether targeted to a low-income population that is unable to afford higher prices 
or the general population. This simultaneous lowering of consumer food prices and raising of 
producer prices can result in an expensive and complex market intervention scheme that only further disrupts market signals. 
3.4  Over-production/stock buildups 
3.10.  Higher domestic prices, due to MPS, may directly induce over-production of a supported 
commodity, which can result in displacement of imports in the domestic market and the development of surplus stocks, often a result of government purchases. These stock build-ups can 
impact production and purchasing decisions in both domestic and international markets distorting 
prices further. In some cases, governments must resort to production quotas to address burgeoning government purchase and commodity surpluses. 
3.5  Uncompetitive exports 
3.11.  High domestic prices make exports uncompetitive in world markets, and may encourage 
countries to use export subsidy policies to reduce the cost of maintaining domestic stocks. Since 
domestic market prices are artificially high due to MPS policies and private sector export sales are 
uncompetitive, export subsidies and the associated government intervention are required to move 
supported commodities into international markets. This adds further to the distorting effects of the original policy objective. 
4  TRENDS IN MARKET PRICE SUPPORT 
4.1.  The European Union, the United States of America, Japan and Canada, the four Members 
with highest AMS levels in the 1986 – 1988 period, each reported substantial amounts of support 
through MPS policies. The situation of these Memb ers is summarized below, along with those of 
India and China, two Members that reported MP S programs and have increased such support 
substantially for certain crops benefitting from this support. 
4.1  European Union 
4.2.  In the AGST, the European Union reported MPS for beef, sheep meat, butter, skimmed milk 
powder, barley, wheat (common and durum), maize, rice, rye, sorghum, and sugar.
6 These sectors 
were covered by a variable levy system, which made it difficult for imports to compete on a price 
basis with the European Union product. The MPS was also backed up by European Union 
guarantees to farmers that all domestic production could be purchased by governments through 
                                               
5 Jonathan Brooks and Erik Jonasson, "Modeling the Welfare Implications of Agricultural Policies in 
Developing Countries," May 2012, pp. 19. http://www.gu.se/digitalAssets/1373/1373650_jonasson.pdf  
6 G/AG/AGST/EEC G/AG/W/131 
 
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  intervention buying.7 As a result of these policies, the European Union imports of these products 
were extremely limited, and the European Union producers responded to high prices with substantial surplus production that was removed from the domestic market with the aid of export subsidies.
8 
4.3.  However, the European Union reform of do mestic support measures began even during the 
long Uruguay Round negotiation.9 Through a series of reforms to the Common Agricultural Policy, 
intervention prices are set at relatively low levels, limiting instances of government purchases. At 
the same time, the European Union has instituted a system of partially decoupled and fully 
decoupled payments to support producer income. As a consequence of these reforms the most recent European Union domestic support notification (2010) only reports MPS for butter, skimmed milk powders, and wheat.
10 Reported MPS has fallen nearly 85% in value terms. At the same time, 
the European Union use of export subsidies has also declined: in its last notification the European 
Union reported export subsidies only for beef , pork, poultry, eggs, and processed products.11 
Export subsidy activity reported for 2011/2012 is only a fraction of the level bound in the Uruguay 
Round, 130 million Euro compared to a sum of bound  commitments of over 7.6 billion ECU. While 
the European Union tariffs continue to be applied at the high rates to protect the MPS system, the reforms have created scope for the European Union to negotiate tariff reductions without resulting 
in uncontained cost obligations in the event domestic prices fall due to increased competition from 
imports. 
4.2  United States of America 4.4.  In the AGST, the United States of America reported MPS for four products: beef, dairy, 
peanuts and sugar. After the reforms of successive  Farm Bills, MPS only remains for sugar. The 
MPS system for beef was relatively small (US$158 million in reported support). There is currently no AMS support for beef. The U.S. tariff binding for beef is 26.4%. 
4.5.  The peanut program, prior to reform in the 2002 Farm Bill, was a rigid system where 
production quotas were distributed to growers eligible for the high domestic price support. Farmers interested in growing peanuts, but who lacked quota, could grow the crop, but were only permitted 
to sell the so-called "additional" peanuts on world markets. Because of the production controls, 
high priced peanuts were not taken into U.S. stocks or disposed of with export subsidies. The U.S. WTO bound tariff for peanuts is  163%, reflecting the level of protection needed to maintain 
high domestic prices. However, since 2002, peanuts have been covered by the same mixed system 
of direct government payments as other program commodities, including the partially decoupled 
direct payments under the 2014 Farm Bill. 
4.6.  The U.S. dairy program has also transitioned over time. Support measured in the AGST came 
from a system where all milk was covered by MPS,  amounting to over US$5 billion per year. After 
a partial reform that limited MPS to certain dairy products (cheese, butter, and non-fat dry milk), 
MPS was ended in the 2014 Farm Bill. Dairy will now only be supported through a margin 
protection program, which makes direct payments to producers when production margins fall 
below US$4/cwt. As with other direct payment programs that replaced historical MPS schemes going back to before the Uruguay Round, payments under this program are partially decoupled: they apply when prices fall but are based on histor ical, not current, individual production decisions. 
Export subsidies had been available for dairy, but rarely used in recent years. Export subsidy 
authority for dairy was terminated with the reforms in the 2014 Farm Bill. U.S. dairy tariffs range from 5% to 140%. 
                                               
7 Ad valorem  equivalents of the tariff equivalents establ ished for these products cover the following 
ranges (calculations based on AVE exercise in Doha): Beef (0201 and 0202): 77% - 146%; Sheep 
meat (0204): 27% - 104%; Butter (0405): 69% - 1 35%; Skimmed milk powder (0402): 19% - 183%; 
Barley (1003): 70%; Wheat (1001): 59% - 82%; Ma ize (1005): 73%; Rice (1006): 7% - 94%; Rye 
(1002): 64%; Sorghum (1007): 87%; Sugar (1701): 80% - 132%. 
8 The European Union established export subsidy base s for wheat, coarse grai ns, rice, rapeseed, olive 
oil, sugar, butter, skim milk powder, cheese, other mi lk products, beef, pork, poultry, eggs, wine, fruit and 
vegetables (fresh and processed), toba cco, alcohol and processed products. 
9 European Commission Agriculture and Rural Deve lopment, "The CAP in pe rspective: from market 
intervention to policy innovation," Brief No. 1 rev. January 2011. http://ec.europa.eu/agriculture/policy-
perspectives/policy-briefs/01_en.pdf  
10 G/AG/N/EU/17 Suppo rting Table DS 5 
11 G/AG/N/EU/18 G/AG/W/131 
 
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  4.7.  The U.S. sugar program is largely unc hanged since the Uruguay Round. Sugar has a 
relatively high tariff (140% - 186% on an ad valorem equivalent basis) which limits imports outside of significant WTO tariff-rate quotas and commitments under free trade agreements. In the most recent U.S. notification, the notified AMS for sugar was US$1.4 billion.
12 Domestic 
production is limited by a system of marketing allotments, and the government stands by as a 
buyer of last resort if prices fall below administered price levels. The United States of America does not export sugar. 
4.3  Japan 
4.8.  In the AGST, Japan reported MPS for beef, po rk, milk, barley, rice, wheat, starch, sugar, and 
silk worm cocoons. Each of these sectors had high tariffs, and in the case of rice a complete import ban, prior to the Uruguay Round. Due to Japan's import needs, complex regimes were established 
for each product (including tariff-rate quotas, gate price systems, and use of state trading 
enterprises) that allowed imports but protected high domestic prices. Japan's domestic supply and demand situation also dictated that all production was destined for internal use, with limited 
exports and no use of export subsidies. 
4.9.  Currently Japan only reports MPS for beef and pork. The total amount of MPS is substantially 
below Uruguay Round base period levels: around 10% according to Japan's 2012 notification.
13 A 
significant change was the transition of rice fr om MPS to a system of exempt direct payments 
under production-limiting programs and various decoupled support systems.14 As a result of this 
transition, MPS of 2.9 trillion yen from the 1986-1988 base period has been replaced by a little over 300 billion yen in direct payments. Japan continues to maintain high tariffs for rice, in excess 
of 700%, limiting imports and protecting domestic prices. 
4.4  Canada 4.10.  In the AGST, Canada reported MPS for wheat and milk. Wheat is no longer receiving MPS 
and instead benefits from the suite of insuranc e and income protection programs provided in 
Canada. However, dairy continues to be a highly protected sector where high domestic prices are enforced through production quotas, high tariffs (many over 300%) and other market access 
barriers, and export subsidies. 
4.5  China 4.11.  China's AGST covers the 1996 – 1998 period and includes MPS for wheat, rice, corn and 
cotton. For all of these commodities, except for corn, the MPS is negative, reflecting administered 
prices below world reference prices for that period. Market prices are protected against imports by 
high tariffs for these commodities: 65% for the grains and 40% for cotton. Complex tariff-rate quota administration schemes and application of sanitary and phytosanitary measures also reduce 
price pressure from trade. 
4.12.  In its latest notification (2008), China reported MPS only for wheat and rice, and reported 
support continued to be negative.
15 MPS has been supplemented with other programs, in particular 
seed and transportation subsidies and, for cotto n, the cost of maintaining large and growing 
government held stocks. 
4.6  India 4.13.  India's AGST records MPS for a large number of commodities, almost all negative because 
administered prices were below external reference prices.
16 In India's latest notification (2003), it 
reports MPS for rice, wheat, pulses, cotton and jute.17 These are all reported as negative levels, 
with applied administered prices below the fixed external reference price, even with the conversion 
                                               
12 G/AG/N/USA/93 Suppo rting Table DS 5 
13 G/AG/N/JPN/191 Suppo rting Table DS 5 
14 G/AG/N/JPN/192 
15 G/AG/N/CHN/21 Supporting Table DS 5 
16 Gram, Moong, Tur, Urad, Bajra, Barley, Jawar, Ma ize, Rice, Wheat, Groundnut, Rapeseed, Soyabean, 
Sugar cane, Tobacco, Cotton, and Tea. 
17 G/AG/N/IND/7 Suppo rting Table DS 5 G/AG/W/131 
 
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  of the reference price from rupee to dollars. Mark et prices are protected against imports by high 
tariffs: India's bound tariffs for pulses, wheat and cotton are 100%, 70 - 80% for rice, and 40% for jute. At times, applied rates are lower. 
4.7  Relative Support Levels 
4.14.  The relative administered prices/price support levels are summarized in the table below. 
Administered prices vary considerably across co untries. The United States of America marketing 
loan rate, which is a fully coupled output payment and most analogous to MPS policies in other 
countries, is provided for comparison purposes only. Importantly, however, the loan rate does not 
have the broader economic distortions associated with administered prices. Compared to the Fixed 
External Reference Price (FERP) established in Members' AGST documents, administered prices have increased substantially. G/AG/W/131 
 
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  MPS: Administered and Fixed External Reference Prices 
  2013 Administered Price FERP 
Rice    
 India US$335/MT US$262.51/MT 
 China US$426/MT US$320.58/MT 
 Thailand US$468/MT Not Notified 
 Brazil US$159-183/MT US$174.13/MT 
 U.S.A.** US$143.30/MT Not Notified 
Wheat    
 India US$238/MT US$264.00/MT 
 China US$361/MT US$204.72/MT 
 Brazil US$246/MT US$130.93/MT 
 U.S.A.** US$108/MT Not Notified 
Sugar    
 India US$35.84/MT US$11.64/MT 
 Thailand US$618.37/MT Not Notified 
 U.S.A.** US$413.36/MT US$230.824/MT 
Cotton    
 India US$631.42/MT US$1,292.64/MT 
 China US$3,290/MT US$1,758/MT 
 Brazil US$1,379/MT US$1,255/MT 
 U.S.A.** US$1,146/MT Not Notified 
Corn    
 India US$223.56/MT US$238.57/MT 
 China US$358-365/MT US$144.53/MT 
 Brazil US$135-160/MT US$131.35/MT 
 U.S.A.** US$76.77/MT Not Notified 
 
** U.S.A. price is the loan rate for the marketing assistance loan program, which is not a price support 
program, but rather a coupled output program with fixed reference prices. It is included here for 
comparison purposes only. 
 
Sources: India: Ministry of Agriculture. 
China: China National Develo pment and Reform  Commission. 
Thailand: Ministry of Commerce. Brazil: Ministry of Agricult ure, Livestock, and Supply 
WTO Notifications. 
Calculations by USDA. 
 
 
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