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Monday, April 4, 2011

U.S. and EU Agricultural Support: Overview and Comparison

Randy Schnepf
Specialist in Agricultural Policy

Charles E. Hanrahan
Senior Specialist in Agricultural Policy

The European Union (EU) is one of the United States’ chief agricultural trading partners but also a major competitor in world markets. Both the United States and the EU provide significant government support for their agricultural sectors. According to the Organization for Economic Cooperation and Development (OECD), in 2009 the EU and the United States together accounted for 60% of all government support to agriculture among the major developed economies.

In the United States, federal farm policy has traditionally focused on price and/or income support programs concentrated on row crops including grains, oilseeds, and cotton, as well as sugar and dairy. In contrast, the EU provides more extensive support to a broader range of farm and food products—in addition to traditional row crops, sugar, and dairy, EU support also is extended to fresh and processed fruits and vegetables, and livestock products.

The EU’s total agricultural support generally is much higher than in the United States, although actual support levels vary based on the definition of “agricultural support.” For example, when using a broad, inclusive definition of the agricultural sector (one that encompasses rural development and consumer nutrition assistance), then, based on World Trade Organization (WTO) notification data for the 2006-2007 period, the EU government support averaged $119.7 billion per year compared with $86.2 billion by the United States, for a ratio of 1.4 to 1. When the comparison is limited to the most market-distorting types of direct farm subsidies during the same period, then the levels are smaller but the difference is much greater ($36.9 billion in EU outlays versus $10.1 billion in U.S. outlays, for a ratio of 3.6 to 1). When the definition of support includes non-monetary forms of support such as trade barriers and border measures, then the difference in support levels is still greater. For example, the OECD estimates that in 2009 the EU accounted for nearly half (48% or $120.8 billion) of all government support for agriculture (both monetary and non-monetary) among the major developed economies, compared with a 12% share ($30.6 billion) for U.S. agricultural support outlays (for a ratio of nearly 4 to 1).

Direct spending comparisons of agricultural support levels between the U.S. and EU are further complicated by significant structural differences in their respective farm sectors. The United States has more than double the farmland base (over 1 billion acres versus about 457 million acres in the EU), while the EU has more than six times the number of farms (13.8 million versus 2.2 million) spread across its 27 member countries. As a result, EU outlays per acre appear much larger than in the United States, whereas U.S. outlays per farm appear much larger than in the EU.

Since the 1980s, several policy trends have emerged in both the EU and United States, including (1) a decline of agricultural support as a share of gross farm receipts, (2) a decrease of support for market-distorting commodity price and income support programs, both in absolute terms and as a share of agricultural support, and (3) a substantial increase in support for less distorting noncommodity- type programs—e.g., extension, research, conservation, rural development, nutrition, and decoupled payments—now accounting for a majority share of total farm support.

Because the United States and the EU figure so dominantly in the development and use of agricultural policy on the global level, comparisons of the EU and U.S. farm support programs will likely continue to be of interest to Congress as the United States prepares to begin another round of domestic farm bill negotiations and the WTO Doha negotiations move forward.

Date of Report: March 21, 2011
Number of Pages: 26
Order Number: R41713
Price: $29.95

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