Agricultural liberalization, income distribution and welfare

Abstract

Agriculture is currently being liberalized. In industrialized countries, it consists in reducing agricultural support, while in developing countries, agricultural taxation has to be reduced. Simultaneously, the farmer’s status has significantly changed over the last two decades, both in industrialized and developing countries, with more and more farmers also having off-farm occupations. This dissertation describes these changes, and provides a quantitative assessment o f the distributive effects of agricultural reforms. Indeed, these reforms lead to dramatic consequences in terms of welfare distribution, between farmers and non-farmers, and among fanners themselves. This analysis complements already existing studies by taking into account the changing definition of a farmer, leading to new results about the agricultural instruments most adapted to different economic, political and social objectives. The methodology used is a calibrated mono-country general equilibrium model, applied to the European Union and to a very poor representative developing country, where the share o f agriculture in the economy is very large. The main results show that, in both kinds of countries, agricultural liberalization improves the global welfare o f the society, although some groups suffer from it. Indeed, in the European Union, farmers' s welfare decreases dramatically when agricultural support measures are eliminated. Some compensation schemes should hence be implemented, and direct payments appear to be the best instrument to target specific farmers. In developing countries, agricultural liberalization is likely to hurt the most vulnerable part of the society, urban poor and rural small producers. In this context, the elimination of the production tax should be preferred to that of marketing boards.