ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES
OECD
OCDE
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
FOOD AND AGRICULTURE POLICY:
A POSITIVE REFORM AGENDA
Ken Ash
Deputy Director for Food, Agriculture and Fisheries
RIETI Policy Symposium
Tokyo, 28 July 2004
Directorate for Food, Agriculture and Fisheries
OECD Work on Food and Agriculture
Providing economic and policy information and
advice that supports government efforts to
improve the domestic and international
performance of their policies
http://www.oecd.org/agr/
Directorate for Food, Agriculture and Fisheries
OECD
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Key Messages
• There are more effective and less trade
distorting alternatives to many current farm
policies.
• Priorities for policy reform include:
– Reduce border protection (and related price
supports and export subsidies);
– Adopt more decoupled and targeted measures
(including temporary adjustment assistance).
• The benefits of reform are substantial,
widespread, and within reach.
Directorate for Food, Agriculture and Fisheries
OECD
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OECD Agricultural Policies, 2004
• Overall level of support remains high
• Production and trade distorting policy
measures are predominant …
• ... but some improvements are being made
• Large variations in support across countries
and commodities
Directorate for Food, Agriculture and Fisheries
OECD
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OECD Producer Support Estimate
US $ 238 bn (2001-03)
80%
60%
40%
20%
Support
1986-88
2001-03
0%
Variation
across
commodities
Directorate for Food, Agriculture and Fisheries
Most trade
distorting support
OECD
5
OCDE
Japan Producer Support Estimate
US $ 44 bn (2001-03)
80%
Support
60%
40%
20%
1986-88
2001-03
0%
Variation
across
commodities
Directorate for Food, Agriculture and Fisheries
Most trade
distorting support
OECD
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Producer Support Estimate,
OECD and Japan (2001-03)
80%
Support
60%
40%
Japan
20%
0%
Variation
across
commodities
Directorate for Food, Agriculture and Fisheries
OECD
Most trade
distorting support
OECD
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OCDE
Price and Output Measures Dominate
OECD Farm Support, 2001-03
100
Other
payments
Percent of PSE
80
Payments on
historical
entitlements
60
Area/livestock
payments,
CCP
40
Output & Input
Payments
20
MPS
0
OECD
Directorate for Food, Agriculture and Fisheries
USA
EU
Japan
OECD
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Price and output based support is…
• Inefficient: only 25% goes to farm household
income.
• Ineffective: capitalization increases costs and
reduces profitability … can harm the
environment.
• Inequitable: largest (often wealthiest) farms
receive most support.
• Highly production and trade distorting.
Directorate for Food, Agriculture and Fisheries
OECD
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OCDE
Share of 25% largest farms in …
100
Percent
80
Gross
receipts
60
40
Total
Support
20
Directorate for Food, Agriculture and Fisheries
U
S
EU
Ja
pa
n
C
an
ad
a
K
or
ea
Sw
itz
er
la
nd
0
OECD
10
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Price support requires
border protection…..
• Aim is to benefit domestic producers, through
higher prices.
• Also leads to higher production….
• … and often to export subsidies.
• Isolates domestic producers, forces others to
adjust, and can restrict development
opportunities.
Directorate for Food, Agriculture and Fisheries
OECD
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Composition of Payments
in OECD Countries (*)
100%
Based on input
constraints,
income, etc.
80%
Based on
historical
entitlements
60%
Based on
area/animals
40%
Based on input
use
20%
Based on
output
0%
1986 1988 1990 1992 1994 1996 1998 2000 2002
Directorate for Food, Agriculture and Fisheries
OECD
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Composition of Payments
in OECD Countries (*)
100%
Based on input
constraints,
income, etc.
80%
Based on
historical
entitlements
60%
Based on
area/animals
40%
Based on input
use
20%
Based on
output
0%
1986 1988 1990 1992 1994 1996 1998 2000 2002
Directorate for Food, Agriculture and Fisheries
OECD
* 13
OCDE
Reform Progress
1986-88
Share of price + output
support in gross farm receipts
80%
1995-97
2001-03
70%
JAPAN
60%
50%
40%
OECD
30%
20%
EU
USA
10%
% PSE
0%
0%
Directorate for Food, Agriculture and Fisheries
20%
40%
60%
80%
OECD
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Alternative policy approaches…
• “Decoupled” policies do not require border
protection nor export subsidies.
• Policies targeted to specific goals and
intended beneficiaries can cost less and be
more effective.
Directorate for Food, Agriculture and Fisheries
OECD
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Farm Household Income:
Which Policies?
• avoid broad, output based measures
• target severe income risks
(commodity markets, income insurance)
• target on-farm performance (skills, technology)
• target systemic low incomes
(social safety nets, adjustment assistance)
• diversify income sources (rural development)
Directorate for Food, Agriculture and Fisheries
OECD
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Rural Communities:
Which Policies?
• agriculture policy is not rural policy
• target root causes of economic disadvantages
(local, multi-sectoral initiatives)
• target systemic policy bias against rural and
remote areas
(infrastructure, public services)
Directorate for Food, Agriculture and Fisheries
OECD
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Environmental Sustainability:
Which Policies?
• avoid production-linked measures
• target source of negative impacts of farm
production
(“polluter-pays” taxes, regulations)
• target provision of environmental benefits
(targeted direct payments, market creation)
• integrate policy approaches
(sector and broader environmental policies)
Directorate for Food, Agriculture and Fisheries
OECD
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Decoupled and targeted
policy design….
• Clear goals and beneficiaries.
• Support tailored to the objective, in scope,
amount and duration.
• Any adjustment assistance to facilitate change –
not prevent it.
• Any compensatory payments fully and
permanently delinked from production, limited
duration.
Directorate for Food, Agriculture and Fisheries
OECD
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Introducing more decoupled and
targeted policies…
• from consumer support to taxpayer financing
• from decoupled payments to targeted policies
• from permanent support to temporary
assistance
• protection –> compensation -> adjustment
Directorate for Food, Agriculture and Fisheries
OECD
20
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Decoupled and targeted policy
effects…
• Any payment contingent on being a farmer has
some effect.
• But there are big differences across policies –
the choice of policy instrument is key.
Directorate for Food, Agriculture and Fisheries
OECD
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POLICY EVALUATION MODEL
Payments on Historical Entitlements
Payments on Area Planted/Animals
Output Payments
Input Payments
Market Price Support
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Trade effect of additional transfer, M PS=1
Directorate for Food, Agriculture and Fisheries
OECD
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Benefits of reform….
• Most countries gain – a lot – from unilateral as
well as multilateral reform.
• Not all countries gain, immediately, nor do all
suppliers within countries.
• For many developing countries, OECD policy
reform is essential – but insufficient.
Directorate for Food, Agriculture and Fisheries
OECD
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The situation in developing
countries…
• Export subsidies undermine markets.
• Market access is a necessary beginning.
• Developing country policies may need reform and
capacity building may be required.
• Adjustment assistance should be considered (e.g.
when preferences are lost).
• S&DT should be considered.
Directorate for Food, Agriculture and Fisheries
OECD
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Conclusion
• Good domestic policy is good trade policy.
• Decoupling and targeting are key to
–
–
–
–
Improve market access,
Remove export subsidies,
Lower the cost of support,
Achieve societal goals.
• Significant gains result, but not everyone gains
equally, nor immediately.
• Adjustment assistance, capacity building and
S&DT should not be overlooked.
• The case for comprehensive reform is strong.
Directorate for Food, Agriculture and Fisheries
OECD
25
OCDE