Implications of a Production Entitlement Guarantee (PEG) Program for World Commodity Markets, 1992-2000

A Production Entitlement Guarantee (PEG) program would replace existing agricultural policies with a program that would allow governments to subsidize only a fixed proportion of each farmer's historical production. World supply and demand conditions would determine the price farmers receive for any production in excess of the guaranteed PEG quality because all import barriers and export subsidies would be eliminated. A dynamic multicountry, multicommodity model is used to evaluate the impact of replacing current agricultural policies in the United States, the European Community, Japan, and Canada with a PEG program. For all countries and commodities, the guaranteed PEG quantity is set equal to 80 percent of each farmer's average production between 1985 and 1989. Government payments are made to farmers on their PEG production as partial compensation for revenue losses. Except for programs with environmental aims, all other programs that subsidize or protect domestic agriculture would be eliminated.