4 The OECD’s PSE can be compared with the extent of the distortions inserted into global economic models used to calculate the economic welfare and other consequences of these (and non-agricultural) trade-distorting measures. For more than a decade now the Global Trade Analysis Project (GTAP) at Purdue University has coordinated the compilation of a global database of trade and agricultural subsidy interventions by governments. This GTAP database has become the standard and is used in dozens of different models by hundreds of modelers throughout the world. The most recent and by far the most comprehensive release, which relates to 2001 policies, is Version 6 (Dimaranan and McDougall 2005). It incorporates all three components of support for agricultural production -- producer subsidies, import tariffs and export subsidies – and thereby also the effect of the latter two on raising food consumer prices.

How do the OECD’s PSE numbers compare with those in the most recent version of the GTAP database (that is, for 2001)?<sup>3</sup> To allow easy comparison, we present them in Table 1 on the same subsidy-equivalent basis as the OECD numbers. To do this, we estimate the domestic subsidy amounts in the GTAP database by adding the subsidies paid to output, inputs, land and capital. We compare this with the subsidy equivalents of border measures, which are calculated by multiplying the rate of assistance assumed in the GTAP database by the value of agricultural output.<sup>4</sup> For domestic support in OECD countries we find that the OECD and the GTAP numbers are within 1 percent of each other (a total of $89 billion reported by the OECD compared with $90 billion in the GTAP database). This is not surprising because the OECD estimates are the source for that part of the GTAP protection database. To that 3 A side issue is how the OECD’s PSE compares with the Aggregate Measure of Support (AMS) that members notify to the WTO as part of their commitments under the Uruguay Round Agreement on Agriculture. The AMS refers only to the domestic support pillar, and it excludes measures that are not subject to reduction commitments (so-called blue box and green box measures). For a comparison of the PSE and AMS methodologies, see Diakosavvas (2002). In 1999 (the most recent year for which there has been full notification to the WTO) the AMS was $88 billion for high-income countries and $2 billion for developing countries. The $88 billion comprises $52 billion from market price support and $36 billion from direct domestic subsidies. By contrast, the PSE for just OECD countries was $273 billion in that year. Of that latter amount, $182 billion was from market price support measures and only the residual ($91 billion) was direct domestic subsidies. That residual is further reduced, to $43 billion, when measures that are somewhat decoupled from production are excluded. Since those decoupled measures are not counted as part of the AMS, that $43 billion is comparable with the $36 billion notified to the WTO as that component of the AMS.

4 For the purpose of this calculation, we assume in this section that domestic and imported farm products are homogeneous, so that a tariff equal to 20 percent of the value of imports will raise the price of domestic production by 20 percent.