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, Food, Agriculture
and Fisheries
California, 19-20 January 2003
Directorate for Food, Agriculture, and Fisheries
1
Agriculture Policies in Canada,
Japan, the EU and US
• instruments and impacts
• recent and on-going developments
• alternative policy approaches
Directorate for Food, Agriculture, and Fisheries
2
Producer Support Estimate (% PSE)
% PSE
70
60
Japan
50
40
EU
30
Canada
20
10
US
Directorate for Food, Agriculture, and Fisheries
20
02
19
96
19
91
19
86
-8
8
0
3
Canada: Composition of PSE
100%
80%
60%
40%
20%
0%
1986-88
2002
Payments based on input constraints, overall farm income, etc.
Payments based on historical entitlements
Payments based on area planted/animal numbers
Market Price Support and payments based on output and input use
Directorate for Food, Agriculture, and Fisheries
4
Japan: Composition of PSE
100%
80%
60%
40%
20%
0%
1986-88
2002
Payments based on input constraints, overall farm income, etc.
Payments based on historical entitlements
Payments based on area planted/animal numbers
Market Price Support and payments based on output and input use
Directorate for Food, Agriculture, and Fisheries
5
EU: Composition of PSE
*(simulated CAP Reform)
100%
80%
60%
40%
20%
0%
1986-88
* 2002
Payments based on input constraints, overall farm income, etc.
Payments based on historical entitlements
Payments based on area planted/animal numbers
Market Price Support and payments based on output and input use
Directorate for Food, Agriculture, and Fisheries
6
US: Composition of PSE
100%
80%
60%
40%
20%
0%
1986-88
2002
Payments based on input constraints, overall farm income, etc.
Payments based on historical entitlements
Counter cyclical payments
Payments based on area planted/animal numbers
Market Price Support and payments based on output and input use
Directorate for Food, Agriculture, and Fisheries
7
Composition of PSE
100%
80%
60%
40%
20%
0%
Canada
Japan
EU
US
Payments based on input constraints, overall farm income, etc.
Payments based on historical entitlements
Counter cyclical payments
Payments based on area planted/animal numbers
Market Price Support and payments based on output and input use
Directorate for Food, Agriculture, and Fisheries
8
Production linked support is…
• inefficient: 25% goes to farm income
• ineffective: capitalisation increases costs and
reduces profitability; can harm the
environment
• inequitable: wealthiest farms receive most
support
• trade distorting: relies on import protection
and/or export subsidy, imposing a burden on
other countries
Directorate for Food, Agriculture, and Fisheries
9
Evolution of PSE Support *
%
100
95
90
85
Japan
80
75
70
65
60
55
%PSE 0
EU
US
1986-88
Canada
10
Directorate for Food, Agriculture, and Fisheries
20
30
2002
40
50
60
70
80
10
Alternative Policy Approaches
Food and Agriculture Policy
• reduce border protection
• eliminate export subsidies, and
• pursue domestic objectives with
– decoupled support
– targeted measures
– tailored support
Non-Sectoral Policies
• economic, social, environmental
Directorate for Food, Agriculture, and Fisheries
11
Farm Household Income:
Which Policies?
• avoid broad, output-based measures
• target uncontrollable income risks
(commodity markets, income insurance)
• target on-farm performance (skills,
technologies) and/or diversify income
sources (rural development )
• target systemic low incomes (social
safety nets)
Directorate for Food, Agriculture, and Fisheries
12
Rural Communities Which Policies?
• agriculture policy is not rural policy
• target the 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
13
Environmental Sustainability Which Policies?
• avoid production-linked incentives
• target the source of negative impacts of
farm production (“polluter-pays” taxes,
regulations)
• target the provision of desired, positive
impacts of farm production (direct
payments)
• integrate policy approaches (link to
broader environmental policy)
Directorate for Food, Agriculture, and Fisheries
14
How Important is Capitalisation?
• much of existing support has been
capitalised into asset values (perhaps
15-20% of land values, production quotas)
• the short-term economic adjustment is
considerable
• the long-term offers benefits, but the
“transition period” must be managed
Directorate for Food, Agriculture, and Fisheries
15
Conclusion
• international and domestic benefits of reform
are generally accepted (?)
• the overall approach is widely understood (?)
– decouple support from farm production
– target clear objectives and beneficiaries
– reduce amount and scope of support
– limit duration of intervention
– avoid unintended impacts (review and
revise policies)
Directorate for Food, Agriculture, and Fisheries
16
Conclusion (cont.)
• sustainable reform requires a viable adjustment
and compensation strategy (?)
– adjustment within the sector (competitive
suppliers, diversified income sources)
– transition out of the sector (into more viable
employment opportunities)
– compensation for policy change and any
associated “losses” (limited duration)
• what else is required?
Directorate for Food, Agriculture, and Fisheries
17