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Some of the more important assumptions follow. First, commodity aggregates (to be defined below) are assumed to be homogeneous. Although there are exceptions where quality adjustments are appropriate, it is assumed that agricultural commodities, such as wheat, coarse grains, butter or pork, are sufficiently similar across countries to be usefully represented as homogeneous. Second, markets are represented as perfectly competitive, with no agents possessing sufficient market power to sustain * OECD.

The total direct payments amounted to about ECU 20 billion in 1998-99, and the AMS for Europe was in excess of ECU 46 billion for 1998-99, the most recent notification to the WTO (WTO, various). EFTA countries subsidise and protect their agriculture even more than the EU-15 countries do. They rely on trade restrictions, domestic subsidies, and export subsidies to get rid of production surpluses (Norway). Their aggregate PSE was 63% for Iceland, 66% for Norway, and 71% for Switzerland in 2000. High Income Asia The High Income Asia aggregate is made of net-importing countries, which are characterised by restrictive trade policies, which are used to support domestic agriculture.

With the exception of dairy, producer prices for most commodities are slightly above the corresponding world prices. 41 Figure 1. Producer Support Estimates in Some OECD Countries The European Union As suggested in Figure 1, European agriculture is heavily subsidised using various combinations of import restrictions, price support, area payments, and export subsidies. The most protected industries are sugar, dairy, and beef. Sugar and dairy receive price supports constrained by production quotas, while import restrictions and export subsidies complement domestic support and facilitate exports of excess production.

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