AGRICULTURAL POLICIES
IN OECD COUNTRIES
Václav Vojtĕch
Department of Economic and Social Policies
Prague University of Economics
7 October 2013
Outline
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Introduction
Analysis of agricultural policies by the OECD Secretariat
Measurement of support to agriculture
Main characteristics of agricultural policies and related
support in OECD countries
Focus on EU Common agricultural policy (CAP)
Work on emerging economies
Is there a difference between agricultural policies in
OECD countries and emerging economies?
Concluding remarks – where to go?
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1. Introduction
• What we mean by agricultural policies
• What are their objectives
• The contextual framework
– Agriculture in the economy
– Agriculture and environment
• The policy framework
– Internal issues (food security, social issues, rural development,
environment)
– International issues (trade conflicts, WTO, URAA)
• Importance of the international policy debate on
agricultural policies – countries with comparative
advantage vs. countries with comparative disadvantage
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2. Agricultural policies in OECD
• WHY the OECD secretariat monitors and
evaluates agricultural policies?
• HOW is the OECD secretariat doing this?
– Agricultural policy developments
– Measurement of support to agriculture
– Publishing annual reports
– Which are basis for discussion among OECD
countries (pear reviewing, pear pressure)
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History and country coverage
• Started in the mid 1980s with an OECD mandate to monitor
agricultural policies and measure support to agriculture on
annual basis
• Focused on OECD countries;
• EU covered in the report as a single entity (but detailed
information on member countries)
• 1990s focus extended to countries from Central and Eastern
Europe (most of these countries became at a later stage OECD or EU
members)
• 2000s – Going global (Brazil, India, China, South Africa)
• 2010s – More global players added (Indonesia, Kazakhstan)
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Estimation of Support to Agriculture
• A method developed by the OECD secretariat and
approved by member countries – Producer Support
Estimate (PSE)
• The secretariat guarantees the consistency of the
methodology as applied to countries
• Various nominal and relative indicators use in the
analysis of development of agricultural policies
• Relative indicators enable comparability across countries
and in time
• Detailed information on the results and the methodology
used to estimate support is available on the public
website www.oecd.org/agriculture/PSE
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3. How OECD measures support to
agriculture
What policies are considered in the calculations?
– Policies that generate transfers to agricultural
producers.
• Direct budgetary payments
• Market price support (opportunity cost to consumers)
Several conventions:
– only those policies that are specific to agriculture are
considered; general policies not considered;
– policy objectives are not considered;
– policy
implementation
criteria
determines
classification.
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Measuring support to agriculture: Building blocks
MPS: Market Price Support
BT: Budgetary Transfers
Taxpayers
BT
BT incl.
revenue
foregone
TSE
Agricultural
sector
MPS
MPS
Consumers
MPS
Agricultural
producers
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PSE
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Key support indicators
• Market Price Support (MPS): transfers from (primary)
consumers to producers: MPS = QP*(PP-BP)
• Producer Support Estimate (PSE): transfers from
consumers and taxpayers to producers:
PSE = MPS + B. payments + B. revenue foregone
• Consumer Support Estimate (CSE): transfers from (to)
consumers: CSE = QC*(PP-BP) + consumer subsidies;
• General Services Support Estimate (GSSE): budgetary
transfers to general services for the farming sector
• Total support Estimate (TSE): transfers to agriculture
TSE = PSE + GSSE + consumer subsidies
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Market Price Support – the concept
Exported commodity
From Consumers to Producers
From Taxpayers to Producers
PP
D
S
MPD
BP
D1
PP: producer price
S0
D0
S1
BP: Border price MPD: market price differential
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Relative indicators
Percentage PSE (%PSE): Nominal PSE as a share of gross farm
receipts.
Percentage CSE (%CSE): Nominal CSE as a share of consumption
expenditure.
Nominal Protection Coefficient (NPC): ratio between producer
price and border price.
Nominal Assistance Coefficient (NAC): ratio between gross farm
receipts incl. support and gross farm receipts valued at border prices
(without any support).
Share of most distorting support: support based on output and
variable input use without constraint as a share of PSE.
Percentage GSSE (%GSSE): Nominal GSSE as a share of Total
Support Estimate.
Percentage TSE (%TSE): Nominal TSE as a share of GDP.
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Structure of support: decoupling from production
Output
A. Support based on
commodity output
Inputs
B. Payments based on
input use
Factors and
income
C. Payments based on
A/An/R/I
Area (A)
Animals (An)
Receipts (R)
Income (I)
Noncommodity
criteria
Production:
required
Current A/An/R/I
D. Payments based on
A/An/R/I
required
Non-current A/An/R/I
E. Payments based on
A/An/R/I
not-required
Non-current A/An/R/I
F. Payments based on
non-commodity criteria
G. Miscellaneous
payments
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4. Main characteristics of agricultural
policies in OECD countries
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OECD area
North America (US, Canada, Mexico)
Asia (Japan, Korea)
Oceania (Australia, New Zealand)
Europe (EU, Norway, Iceland, Switzerland)
• Also covered: Chile, Israel, Turkey
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Support in OECD area – Downward trend of the
level and change in the structure of support
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OECD average hides large variations of
support among countries
Producer support as % of farm receipts
%
70
60
50
40
30
20
10
0
-10
2012
2011
North America (US, Canada, Mexico)
• Relatively low levels of support
• US, Canada large agro-food exporters
• Support to some commodities still distort the
markets and resource allocation and tax consumers
– Canada (Milk, Poultry)
– US (Sugar)
• US, Canada – programmes stabilising income in
agriculture (countercyclical payments)
• US – important agro-environmental programmes
• Mexico – less developed agriculture, still handling
issues of a developing country in agriculture
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Canada: Level and structure of support
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United States: Level and structure of support
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Mexico: Level and structure of support
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Asia: Japan, Korea
• Developed countries and net food importers
• High levels of support despite some reduction
• No important changes in the structure of
support
• Most of support is price support
• More transfers to farmers from consumers than
from taxpayers
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Japan: Level and structure of support
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Korea: Level and structure of support
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Oceania: Australia, New Zealand
Countries with comparative advantages
Large agro-food exporters (AUS 15%, NZL 56%)
Important policy reforms reducing support to farms
Lowest levels of support in OECD area
Little direct budgetary payments to farms
Most of the public expenditure goes to policies
providing general services to the sector (R&D,
Inspection & control)
• In Australia disaster payments were in some years
important element of transfers to farms
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Australia: Level and structure of support
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New Zealand: Level and structure of support
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Europe: EU (27), Norway, Switzerland, Iceland
• EU treated as a single entity in the OECD reporting due
to the single market and Common Agricultural policy
(CAP) – a more detailed discussion of CAP reforms in the next
part
EU level of support close to OECD average
Reduction and change of structure in the EU support
Level of support in NOR, SWI, ISL at much higher level
These countries are net food importers and have no
comparative advantages
• Trends in the reduction of support and change in the
structure (mainly in Switzerland)
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European Union: Level and structure of support
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Norway: Level and structure of support
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Switzerland: Level and structure of support
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Iceland: Level and structure of support
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5. EU Common Agricultural Policy (1)
• 1960s – creation of CAP, main objective stimulate
production – heavy intervention mechanisms
• 1980s – mounting surplus problems, export subsidies
resulting in trade disputes, introduction of quota systems
(milk, sugar)
• 1990s – agricultural policies and their interference with
world markets disciplined under the WTO (Uruguay
Round Agreement on Agriculture)
• Mid 1990 – CAP reform (Mc Sharry reform)
– Reduction of price support
– Compensated with product specific area and headage payments
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EU Common Agricultural Policy (2)
• 2000s – Another CAP reform (Fischler)
– Commodity specific payments replaced with flat area payments
(Single Area Payments)
– Introduction of Pillar 2 payments (agri-environment, rural
development)
• Current negotiations of the new CAP budget (20142020) is not a reform
– More complex and likely to deliver more distortive payments
– Unclear whether expected benefits will be achieved (greening of
the CAP)
– End of milk and subsequently sugar quota regimes are steps in
right direction
– The flexibility given to states to introduce product specific
payments are not.
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European Union: Level and structure of support
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6. OECD work on emerging economies
• OECD also monitors and evaluates agricultural policy
development in some emerging economies
• This year M&E report covered 47 countries that account
nearly for 80% of global value added in agriculture
• Emerging economies included in the report: Brazil, China,
Indonesia, Kazakhstan, Russia, South Africa and Ukraine.
• In general these countries have lower level of support than
OECD average, but the trend is different
– Some countries are increasing their support: China, Indonesia,
Kazakhstan;
– While other maintained low levels of support (Brazil, SA)
• In Ukraine and Russia, relatively low levels of support
are hiding an uneven distribution of support (taxation of
crop producers and subsidising of the livestock sector)
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Brazil: Level and structure of support
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China: Level and structure of support
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Indonesia: Level and structure of support
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Kazakhstan: Level and structure of support
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Russia: Level and structure of support
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Ukraine: Level and structure of support
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South Africa: Level and structure of support
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Conclusion: Main OECD policy messages
• Reduce price- and output-linked policies
• Remove border policies that contribute to
international price volatility, by trying to isolate
domestic markets
• Improve investments in public goods with long-term
benefits: innovation, sustainable use of ressources
• Develop risk management tools for farmers that do
not interfere with normal business risk and
marketable risk tools. Production linked countercyclical payments have low transfer-efficiency
• Improve policy coherence: agriculture, trade, (rural)
development, macro-policies
For more information
Visit our websites:
www.oecd.org/tad/agricultural-policies/
www.oecd.org/agriculture/PSE
Contact us: tad.contact@oecd.org
Follow us on Twitter: @OECDagriculture
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