Date of this Version
Journal of Agricultural and Resource Economics 34(1):130-153
This survey paper explores the literature on decoupling of farm programs that has emerged in the last 10 years. The paper identifies and assesses the various channels of potential coupling of decoupled farm payments and provides a taxonomy of coupling mechanisms found in theoretical and empirical papers. Coupling of decoupled payments is pervasive but effects when measurable are small, with the exception of the impact on land values. The paper points to unresolved issues on potential coupling mechanisms for further research.
Domestic subsidies to agriculture were brought under the discipline of global trade rules for the first time in the Uruguay Round Agreement on Agriculture (URAA) of the World Trade Organization (WTO) in 1994. Member countries of the WTO decided to reduce the distortions that were caused by current levels of domestic farm subsidies. Under the URAA, domestic support is classified into three categories or "boxes" according to their impact on international trade. The amber box contains the most distorting subsidies, which are therefore required to be limited in use. The blue-box payments also cause some distortion but are required to be production limiting. The green box contains subsidies that cause no or minimal distortion. The subsidies in the blue and green boxes are excluded from all WTO disciplines. To reduce trade distortions caused by these farm subsidies, members were required to shift toward decoupled income support while reducing coupled support. Decoupled support policies are categorized as green-box payments. They are defined as payments that are fmanced by taxpayers and are not related to current production, factor use, or prices, and for which eligibility criteria are defined by a fixed, historical base period. Since they are exempt from WTO disciplines, decoupled payments have become an important part of income support provided to agriculture, especially in industrialized countries.