Agricultural Support Mechanisms in the European Union: A Comparison with the United States

Publication Date: July 2002

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Agriculture, forestry and fishing

Type:

Abstract:

The European Union (EU), comprised of 15 member states (countries), is one of the United States' chief agricultural trading partners and also a major competitor in world markets. Both heavily support their agricultural sectors, with a large share of such support concentrated on wheat, feed grains, cotton, oilseeds, sugar, dairy, and tobacco. However, the EU provides more extensive support to a broader range of farm and food products.

The EU's Common Agricultural Policy (CAP) generally has focused on market intervention to support minimum prices for major commodities, often tied to production controls. In recent years, intervention prices have been reduced in favor of more direct payments, tied to historical production. Export subsidies (i.e., "restitution") are provided to traders to cover the difference between internal EU and world market prices for commodities and/or processed foods. Tariff-rate quotas and out-of-quota tariffs keep agricultural imports at prices as high as EU internal prices.

In the United States, those with a history of planting land to grains, cotton, and oilseeds (including peanuts) generally are eligible for both fixed decoupled payments and for "counter-cyclical assistance" payments (tied to per-bushel or per-pound target prices); the total producer subsidy is based on past production. They and producers of several other commodities also are eligible for crop loans and loan-related subsidies that provide further support. Dairy, sugar, and tobacco are supported through various minimum pricing systems, and some of these commodities are subject to tariff rate quotas to limit imports.

According to the Organization for Economic Cooperation and Development (OECD), the EU and United States in 2001 together accounted for nearly two-thirds of all government support to agriculture among the major developed economies. However, EU agricultural spending generally is much higher than in the United States. The EU spends much more on both domestic support and on direct agricultural export subsidies. While the EU has argued that U.S. food aid and loan deficiency payments are in effect export subsidies and should be counted as such, the United States disagrees.

Information comparing how the U.S. and EU governments support their producers is expected to be of interest to policymakers while negotiations are underway among world trading partners to further reform agricultural trade.