1. Agricultural policies in OECD countries
Václav Vojtĕch
Department of Economic and Social Policies Prague University of Economics
7 October 2013

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?
OECD Trade and Agriculture Directorate

3. 1. Introduction The policy framework
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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4. 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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5. 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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6. 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
OECD Trade and Agriculture Directorate

7. 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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8. Measuring support to agriculture: Building blocks
Agricultural sector
Agricultural producers
Consumers
Taxpayers BT
BT incl. revenue foregone
MPS
MPS: Market Price Support
BT: Budgetary Transfers
TSE
PSE
Producer Support Estimate: transfers from consumers and taxpayers to producers: PSE = MPS + payments + revenue foregone
Market Price Support: MPS = QP*(PP-BP)
Consumer Support Estimate: all transfers from consumers and from taxpayers to consumers. In the situation of supported ag prices, these transfers enter into the CSE with negative sign, to indicate implicit taxation.
Consumers may be other agricultural producers (livestock producers paying mps to crop producers) CSE = QC*(PP-BP) + consumer subsidies
General Services Support Estimate: measures are grouped according to the nature of the service. Seven categories R&D, agricultural sholls, inspection services, infrastructure, marketing and promotion, public stockholding and miscellaneous. GSSE = budgetary transfers to general services
Total support Estimate: transfers to agriculture TSE = PSE + GSSE + consumer subsidies

9. 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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10. Market Price Support – the conceptBP D S S1 S0 D0 D1
MPD
Exported commodity
From Consumers to Producers
From Taxpayers to Producers
MPS arises from policy measures that create a gap between the domestic market price and the border price of a commodity (Market Price Differential). These include trade policies - both import (tariffs, tariff quotas and licencing requirements) and export measures (export subsidies, export credits and quantitative restrictions.) and domestic price support measures (production quotas, administered prices and intervention purchases)
The diagram illustrates a positive Market price differential in the case of an export commodity:
The introduction of a border measure raises the price from BP to PP, the demand shrinks while production respond positively to the price increase. The ‘value’ of what is consumed domestically is shown in blue, it represents the transfer to producers from consumers, while the pink box is the value of price support borne by taxpayers in the form of budgetary outlays on export subsidisation, food aid or public stockholding.
PP: producer price BP: Border price MPD: market price differential

11. 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.
OECD Trade and Agriculture Directorate

12. Structure of support: decoupling from production
A. Support based on commodity output
Output
Inputs
B. Payments based on input use
Production:
C. Payments based on A/An/R/I
required
Current A/An/R/I
Factors and income
Area (A)
Animals (An)
Receipts (R)
Income (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
The results of the Policy Evaluation Model on decoupling have shown that payments based on input use (category B) have the strongest influence on production incentives.
F. Payments based on non-commodity criteria
Non-commodity criteria
G. Miscellaneous payments

13. 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
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14. Support in OECD area – Downward trend of the level and change in the structure of support
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15. OECD average hides large variations of support among countries
Producer support as % of farm receipts

16. 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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17. Canada: Level and structure of support
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18. United States: Level and structure of support
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19. Mexico: Level and structure of support
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20. 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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21. Japan: Level and structure of support
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22. Korea: Level and structure of support
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23. 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
OECD Trade and Agriculture Directorate

24. Australia: Level and structure of support
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25. New Zealand: Level and structure of support
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26. 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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27. European Union: Level and structure of support
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28. Norway: Level and structure of support
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29. Switzerland: Level and structure of support
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30. Iceland: Level and structure of support
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31. 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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32. 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 ( ) 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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33. European Union: Level and structure of support
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34. 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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35. Brazil: Level and structure of support
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36. China: Level and structure of support
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37. Indonesia: Level and structure of support
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38. Kazakhstan: Level and structure of support
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39. Russia: Level and structure of support
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40. Ukraine: Level and structure of support
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41. South Africa: Level and structure of support
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42. Most distorting forms of support still important in some of the countries
Producer support estimate as % of farm receipts
Most distorting: price- and output linked support and payments based on variable input use without input constraints

43. 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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