AGRICULTURAL POLICIES IN OECD COUNTRIES Václav Vojtĕch Department of Economic and Social Policies...

AGRICULTURAL POLICIES IN OECD COUNTRIES

Václav Vojtĕch

Department of Economic and Social PoliciesPrague University of Economics7 October 2013

OECD Trade and Agriculture Directorate 2

Outline

• 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?


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


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)

OECD Trade and Agriculture Directorate

• 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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History and country coverage


• 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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Estimation of Support to Agriculture

http://www.oecd.org/agriculture/PSE


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.

OECD Trade & Agriculture Directorate 8

Measuring support to agriculture: Building blocks

Agricultural sector

Agricultural producers

Consumers

Taxpayers

BT BT incl. revenue foregone

MPS

MPS: Market Price SupportBT: Budgetary Transfers

MPS

MPSTSE

PSE


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


Market Price Support – the concept

From Consumers to Producers

From Taxpayers to Producers

PP

BP

D S

S1S0D0D1

MPD

Exported commodity

PP: producer price BP: Border price MPD: market price differential


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.


Structure of support: decoupling from production

Output

Inputs

Factors and incomeArea (A)

Animals (An)Receipts (R)Income (I)

Non-commodity

criteria

Current A/An/R/I

A. Support based on commodity output

B. Payments based on input use

C. Payments based on A/An/R/I

Non-current A/An/R/I

Non-current A/An/R/I

D. Payments based on A/An/R/I

E. Payments based on A/An/R/I

F. Payments based on non-commodity criteria

G. Miscellaneous payments

Production:

required

required

not-required


4. Main characteristics of agricultural policies in OECD countries

• OECD area• North America (US, Canada, Mexico)

• Asia (Japan, Korea)

• Oceania (Australia, New Zealand)

• Europe (EU, Norway, Iceland, Switzerland)

• Also covered: Chile, Israel, Turkey


Support in OECD area – Downward trend of the level and change in the structure of support

OECD average hides large variations of support among countries

Producer support as % of farm receipts

-10

0

10

20

30

40

50

60

70

%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


Canada: Level and structure of support


United States: Level and structure of support


Mexico: Level and structure of support


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


Japan: Level and structure of support


Korea: Level and structure of support


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


Australia: Level and structure of support


New Zealand: Level and structure of support


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)


European Union: Level and structure of support


Norway: Level and structure of support


Switzerland: Level and structure of support


Iceland: Level and structure of support


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


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 (2014-2020) 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.


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)


Brazil: Level and structure of support


China: Level and structure of support


Indonesia: Level and structure of support


Kazakhstan: Level and structure of support


Russia: Level and structure of support


Ukraine: Level and structure of support


South Africa: Level and structure of support

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 counter-cyclical payments have low transfer-efficiency

• Improve policy coherence: agriculture, trade, (rural) development, macro-policies

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For more information

Visit our websites:

www.oecd.org/tad/agricultural-policies/www.oecd.org/agriculture/PSE

Contact us: [email protected]

Follow us on Twitter: @OECDagriculture

Trade and Agriculture Directorate

http://www.oecd.org/tad/agricultural-policies/

http://www.oecd.org/agriculture/PSE

AGRICULTURAL POLICIES IN OECD COUNTRIES Václav Vojtĕch Department of Economic and Social Policies...

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Transcript of AGRICULTURAL POLICIES IN OECD COUNTRIES Václav Vojtĕch Department of Economic and Social Policies...