The World Trade Organization (WTO) agriculture negotiations have been stalled for years. Members broadly agree on the need to discipline subsidies and other forms of domestic support to agriculture due to their trade-distorting effects. However, they remain divided on how to do so, who should adjust, and by how much.
Discussions have traditionally focused on aggregate numbers: how much support countries are allowed to provide under WTO rules, and how these amounts compare across members.
Yet focusing only on aggregate levels of domestic support misses a critical point. A key source of distortion in global agricultural markets is public support to agriculture that is concentrated in a few commodities such as sugar, maize, and rice, as governments tend to support a limited number of politically sensitive crops. In other words, the challenge is not only the total level of support countries provide, but also how that support is distributed across products.
How does concentrated support affect LDCs?
Developed and major developing countries often concentrate large volumes of support in a handful of products that are of interest to Least Developed Countries (LDCs), either because LDCs export them (e.g., rice or cotton) or because they produce them for their domestic markets (e.g., maize). When major producers and exporters concentrate support in these key commodities, it can lead to overproduction, depress world prices, and disadvantage unsubsidized producers, including farmers in LDCs.
At the same time, while high volumes of support can create competitive pressures for LDC farmers if excess production enters their local markets, reducing such support may also carry food security risks by raising the cost of staple cereals for poor urban consumers and reducing household budgets available for other, often more nutritious foods.
Support also drives agricultural production in unsustainable ways. When support is heavily skewed toward high-emission, calorie-dense commodities such as beef, milk, and rice, or toward unhealthy products like sugar, it reduces incentives for farmers to cultivate more environmentally sustainable and nutritious foods, including fruits and vegetables.
What do WTO rules say about domestic support for commodities?
While the Agreement on Agriculture limits the total amount of trade-distorting domestic support a member can provide, it does not effectively discipline how that support is distributed across commodities.
The Agreement includes a product-specific cap: the de minimis thresholds, which cap trade-distorting support at 5% of a commodity’s value of production for developed members and 10% for most developing members. In practice, however, these thresholds do not prevent large subsidizers from heavily supporting their agricultural sectors through a combination of product-specific support, non-product-specific support, and border measures like tariffs.
Non-product-specific support includes payments not tied to a single commodity, such as input subsidies or general support to the agricultural sector, while border measures include tariffs, quotas, or other trade restrictions that affect the import or export of commodities.
Take cotton, a product of particular interest to many LDCs. According to the International Cotton Advisory Committee (ICAC), India, China, and the United States provided the largest amounts of support to their cotton sectors in the 2023–24 season. In India, support was primarily provided through non-product-specific fertilizer subsidies, amounting to roughly USD 2 billion. In China, the government supported cotton farmers by controlling import volumes and values and applying border protection measures based on quotas and a sliding-scale duty, with an effective tariff of 40% on cotton imported without a quota.
Taken together, these measures conferred price support equivalent to roughly USD 1.5 billion. In the United States, support to cotton included marketing assistance loan programs and subsidized premiums protecting producers against crop yield and revenue losses, with total support amounting to roughly USD 1 billion. In contrast, public support to cotton in many LDCs is much smaller in scale. For instance, the combined support in Burkina Faso, Chad, and Mali did not even reach USD 100 million in the 2023–24 season, a tiny fraction of the scale of support in major producing countries.
Eliminating trade-distorting domestic support to cotton in developed and major developing countries would increase cotton output in sub-Saharan Africa and the Middle East and North Africa by 12.1%, boosting the value of their cotton exports by a net USD 622 million per year. Under this scenario, cotton farm incomes in these regions would rise by nearly 20%.
These findings underscore a recurring pattern: concentrated support for a small number of commodities can have outsized impacts on producers in countries least able to absorb market distortions.
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Why are stricter caps on product-specific support needed?
By limiting how much support can be channeled into a single commodity, stricter product-specific caps could help neutralize the competitive advantage enjoyed by heavily subsidized producers. In designing these caps, members could prioritize products of interest to LDCs, including cotton. Caps could also target commodities receiving the highest levels of support, such as maize and rice. Equally important, caps could be applied to high-emission and calorie-dense commodities, such as meats and sugar, reducing support that contributes to high emissions and unhealthy dietary patterns.
Unlike the current de minimis thresholds, which are often bypassed by both developed and major developing countries, stricter caps would set effective limits on how much trade-distorting domestic support can be concentrated on any given commodity.
To the extent these caps address products of interest to LDCs, they could help level the playing field in markets currently dominated by subsidized products that undermine LDCs’ interests. At the same time, however, stricter caps may increase the price of some staple crops that LDCs rely on for food security, such as rice. Policy-makers will therefore need to balance the objectives of reducing trade-distorting domestic support with potential short-term impacts on food prices.
To ensure these caps genuinely limit the concentration of public support, they would need to be accompanied by a careful review of measures that members currently notify as non-trade-distorting support (categorized in WTO terms as “Green Box” support). While intended to have minimal trade effects, several members have expressed concerns that certain programs may, in practice, affect agricultural production and trade patterns in ways similar to trade-distorting support. Without such a review, members could simply shift support to the Green Box, circumventing stricter caps on product-specific support.
Members may wish to preserve some flexibilities to provide product-specific support in exceptional circumstances, such as food crises or climate shocks. For example, members could explore the possibility of providing trade-distorting domestic support to specific commodities beyond existing limits in extraordinary situations, ensuring that stricter caps do not unduly constrain their ability to respond to urgent food security or climate-related challenges.
Finally, for product-specific caps to be meaningful, they must limit the actual support provided to producers. Achieving this may require rethinking how domestic support is measured at the WTO. In particular, members may need to update the reference periods used to calculate market price support for all commodities. Current WTO calculations rely on outdated fixed external reference prices from the 1980s, which misrepresent support levels in today’s markets.
Updating these reference prices would more accurately reflect current support levels and ensure that stricter caps limit actual market price support rather than outdated estimates. It may also require thinking about how to tackle the provision of non-budgetary support provided to specific products through border measures like tariffs, through negotiations at the WTO or other avenues.
Moving Beyond Aggregate Limits
Moving toward stricter caps on product-specific domestic support will require action on several fronts. WTO members will need to advance negotiations to strengthen existing disciplines, including by revisiting the methodology used to calculate market price support. At the same time, greater transparency and scrutiny of notified support will be essential to ensure the new limits constrain product-specific support.
If WTO members are serious about levelling the playing field for LDC farmers and supporting more sustainable food systems, they must move beyond aggregate limits of public support and confront the concentration of trade-distorting support head-on.
Progress in this area is critical for the development prospects of LDCs, where farmers are exposed to distorted global markets and are least able to compete with heavily supported producers. Stricter product-specific limits would not only help level the playing field but also support more sustainable production patterns.
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This article was originally published by the International Institute for Sustainable Development (IISD) and is republished here as part of an editorial collaboration with the IISD.
