A Market Analysis of a Set-aside Program by the Five Major Grain and Oilseed Exporting Countries

Nominal grain and oilseed prices have declined dramatically from the high levels observed in the mid-1990s. As a result, it has been suggested by some industry stakeholders that measures should be taken to limit world crop supplies to raise prices. One such measure is a set-aside program involving a number of participants that would significantly reduce the quantity of land in production over a certain period of time. In fact, the European Union and the United States currently have set-aside programs that, together, already have had a positive effect on crop prices. Set-aside programs could also become relevant if the use of the World Trade Organization blue box is extended to more countries after the next round of negotiations. This analysis focuses on the quantitative aspects of a substantial multi-country, multi-commodity, set-aside program and its impact on major agricultural commodity prices. Three main conclusions can be drawn from the analysis: · A permanent set-aside program would be necessary to keep prices from returning to relatively low levels · Even with a permanent set-aside program, the results show a declining effect over time mostly because of additional production by non-participating countries and because of crop substitution in favour of cereals and oilseeds and higher yield in participating countries. · For a set-aside program to have any significant impact on prices, the program must include many commodities in many countries. A program involving Canada alone is doomed to fail. And given that the United States and the European Union-two large producers-already have their respective set-aside programs, it might be difficult to convince them to participate in an international effort.