Domestic support and international agricultural markets Jared Greenville Trade and Agriculture Directorate Today’s talk: What is trade distorting support? And how has its use changed over time What impacts does it have on markets Domestic and international Policies to encourage growth, trade and development Modern Approaches to Agricultural Trade Policy Reform and Domestic Support 29 June 2017, Geneva

Trade distorting domestic support: What is it? Governments provide various types of support to farmers and the agricultural sector Non-distorting support is that targeted at ‘market failures’ Public good provision Overcoming missing or incomplete markets Environmental goods/externalities Distorting support changes producer actions via interventions unrelated to market failures or poorly targeted at them Market price support Output subsidies Input subsidies (particularly without limits)

Structure of support across countries 2013-15 Not including non-OECD EU Member States Source: OECD (2017), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en

Support to farms as percentage of gross farm receipts Trends in overall support: broad groupings Support to farms as percentage of gross farm receipts Source: OECD (2017), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en

Trends in overall support: country differences To demonstrate, we can see that for both agriculture and food there has been strong growth in intermediates trade over time – stronger than that of final goods This can be thought of exports going into ongoing GVCs. But final goods trade is often the result of GVCs also… Source: OECD (2017), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en 1. For Viet Nam and the Philippines, 1995-97 is replaced by 2000-02. 2. EU15 for 1995-97 and EU28 from 2014. For Indonesia, 2014-16 is replaced by 2013-15. The OECD total does not include the non-OECD EU Member States. The Czech Republic, Estonia, Hungary, Poland, the Slovak Republic and Slovenia are included in the OECD total for both periods and in the EU for 2014-16. Latvia is included in the OECD and in the EU only for 2014-16.

Which commodities are most supported? Source: OECD (2017), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en

Market impacts of trade distorting support

Some domestic impacts of trade distorting support Aside from international markets, domestic impacts are created For the agriculture sector Costs to non-supported sectors Environmental and sustainability pressures Food prices & food security Increases domestic production risk Also for other sectors & taxpayers Support has to be funded either directly of indirectly The ‘tax’ exists even if not on-budget

Impacts on global trade Important because we see where the gains from trade are likely to go – we have seen a shift to supplies to developing countries with trade liberalisation (spoken about this before here), and this is job creating in agriculture itself Source: Greenville (2017) Domestic support to agriculture and trade: implications for multilateral reform. (http://www.ictsd.org/sites/default/files/research/domestic_support_to_agriculture_and_trade_ictsd_issue_paper_0.pdf)

… and welfare globally Important because we see where the gains from trade are likely to go – we have seen a shift to supplies to developing countries with trade liberalisation (spoken about this before here), and this is job creating in agriculture itself Source: Greenville (2017) Domestic support to agriculture and trade: implications for multilateral reform. (http://www.ictsd.org/sites/default/files/research/domestic_support_to_agriculture_and_trade_ictsd_issue_paper_0.pdf)

Impacts on value creation in agro-food exports Proportion of total country-sectors Shows the distribution of shares in agro-food export value of domestic value added created by specific sectors Negative value added in ag and food = policy risk Contribution to value added in exports OECD Trade and Agriculture Directorate Share of export DVA Greenville, Kawasaki and Beaujeu (2017), How policies shape global food and agriculture value chains, (http://dx.doi.org/10.1787/aaf0763a-en).

How can non-trade distorting policies help?

Policies to promote productivity growth: general services to the sector Innovation systems along with the provision of public good and infrastructure have strong links to agricultural productivity growth Market conditions/regulations also very important Across OECD, only 13% of total support is directed towards these measures -> Despite the primacy in stated policy objectives Scope to realign support towards policy objectives Benefits then to trade, food security and development

Composition of support across countries Just to show you want this looks like 2013-15 EU (28) GDP for 2014-15 Not including non-OECD EU Member States Source: OECD (2017), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en

Policies to promote domestic value added creation from agro-food exports to GVCs Robust enabling environment also important Complex effects of NTMs Competitively priced imports important for export value creation Domestic value added represents the returns from participation…. The benefits to an economy from being involved in trade It represents the returns to labour and capital, along with taxes paid to governments (but less subsidies) It picks up the benefits to the entire economy from the activity Both within the sector and to all who contribute Directly links to jobs and growth Greenville, Kawasaki and Beaujeu (2017), How policies shape global food and agriculture value chains, (http://dx.doi.org/10.1787/aaf0763a-en).

Policies to promote GVC participation Trade facilitation important Policies to promote GVC participation Market size increases domestic sourcing and shift to final products So too are aspects of the enabling environment Trade policies important Pointing to options to enhance GVC jobs and growth effects Greenville, Kawasaki and Beaujeu (2017), How policies shape global food and agriculture value chains, (http://dx.doi.org/10.1787/aaf0763a-en).

Open markets can help promote food security: case study ASEAN & changes in food insecurity Source: OECD(2017), Building Food Security and Managing Risk in Southeast Asia, http://dx.doi.org/10.1787/9789264272392-en.

Reform pathways taken Shift from producer support to general sector support Australia, Chile, New Zealand, South Africa and Viet Nam Decoupling of support from production Movement from payments based on outputs and inputs to direct transfers Most notable in the EU, but China taking this path also Commodities with changes on a global scale Decoupled and falling: Cotton, dairy, sugar (for some) Remaining high and distorted: rice, maize, animal products But within some movement -> China and EU

Pathways seen in the trade impact of various policy packages % point change in the trade impact of countries policy packages and in the Producer Support Estimate, 1995-97 to 2014-16 (as measured in percent of gross farm receipts) Many reforms have targeted trade distorting support over time Source: OECD (2017), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en

Key messages Trade distorting support remains prevalent And concentrated to a narrow set of commodities This support is adversely impacting world markets and welfare Removing and reforming trade distorting support has benefits Domestic -> jobs, productivity, food security International -> better functioning world markets Pathways taken have varied Directly to general support, or through a decoupling path

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