Distortions to Global Agricultural Markets: What Next?

A decline in governmental distortions to agricultural and other trade since the 1980s hascontributed to economic growth and poverty alleviation globally. But new modeling resultssuggest that has taken the world only three-fifths of the way towards freeing merchandisetrade, and that farm policies are responsible for 70 percent of the global welfare cost ofremaining distortions to goods markets as of 2004. Meanwhile, new drivers are affecting themean and variance of world prices of farm products, including biofuel mandates andsubsidies, climate change mitigation policies and adaptation, water institution and policydevelopments, difficulties in concluding a multilateral Doha Round agricultural agreement atthe WTO, and policies relating to transgenic foods. This paper reviews trends andfluctuations in past distortions to agricultural incentives, speculates on how they might evolvein coming decades alongside other market developments, and draws out implications forAustralia.