The OECD Producer Support Estimate ABARE Outlook 2010, Canberra March 2-3 Hsin Huang Trade and Agriculture Directorate

OECD Trade & Agriculture Directorate 2 Background

OECD Trade & Agriculture Directorate 3 How did OECD get involved? Crisis in international agricultural trade in late 1970s and early 1980s... …although beggar my neighbour policies were costly there was no incentive for unilateral action… …yet no agreed way to measure, compare and evaluate the trade effects of support

OECD Trade & Agriculture Directorate 4 What was OECD asked to do? In 1982 OECD was given a mandate by OECD meeting of Finance and Trade ministers… “…to analyse the approaches and methods for a balanced and gradual reduction of protection for agriculture and the fuller integration of agriculture within the open multilateral trading system”

OECD Trade & Agriculture Directorate 5 How did the OECD respond? Adopted the Producer Subsidy Equivalent (PSE), which became the Producer Support Estimate in 1998 Results in 1987 led to the OECD Ministerial principles for agricultural policy reform Key principle was to allow market signals to influence the orientation of production, by way of a reduction in agricultural support

OECD Trade & Agriculture Directorate 6 What is the PSE?

OECD Trade & Agriculture Directorate 7 What is the PSE? The Producer Support Estimate is an indicator of the annual monetary value of gross transfers to FARMERS Measured at the farm gate Irrespective of objective or impact on farm production or income or the environment Mix of economics + bean-counting

OECD Trade & Agriculture Directorate 8 What is the PSE? ECONOMIC MEASURE OF TRANSFER Market Price Support: policies maintain domestic market prices for farm goods above those at the border (e.g. tariffs, quota) PAYMENTS TO FARMERS Budget Transfers: program payments AND budget revenue foregone (e.g. fuel tax credits)

OECD Trade & Agriculture Directorate 9 Market Price Support Dominates

OECD Trade & Agriculture Directorate 10 Market Price Support still important

OECD Trade & Agriculture Directorate 11 What % farm revenue is gov’t support?

OECD Trade & Agriculture Directorate 12 What % farm revenue is gov’t support?

OECD Trade & Agriculture Directorate 13 Evolution of OECD PSE

OECD Trade & Agriculture Directorate 14 Policies for which support calculations are made: –those that generate transfers to producers from consumers or taxpayers – opportunity cost –general economy-wide policies not considered, even if they generate transfers to producers –calculations based on how policies are implemented, not policy objectives or impacts –assumption of competitive markets Which policies are considered?

OECD Trade & Agriculture Directorate 15 Where does the information come from? National governments –Annual questionnaire to OECD members (and some non-members) –Through delegations –Public/published sources OECD Secretariat works in cooperation with respective countries to classify the information and produce the calculations

OECD Trade & Agriculture Directorate 16 More than just bean-counting

OECD Trade & Agriculture Directorate 17 PSE: classification of policies It is important for policy evaluation to know “how” support is provided Support delivered in different ways can have different effects on production, trade, farm income, environment… PSE classification distinguishes different ways to deliver support –“decoupling of support” is a key consideration –more attention now to “non-production” concerns

OECD Trade & Agriculture Directorate 18 PSE classification Production requiredCurrent A/An/R/I Production required Non-current A/An/R/I Production not requiredNon-current A/An/R/I Output Inputs Factors and income Area (A) Animals (An) Receipts (R) Income (I) Non- commodity criteria A. Support based on commodity output B. Payments based on input use C. Payments based on 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 Production not required

OECD Trade & Agriculture Directorate 19 PSE classification Production requiredCurrent A/An/R/I Production required Non-current A/An/R/I Production not requiredNon-current A/An/R/I Output Inputs Factors and income Area (A) Animals (An) Receipts (R) Income (I) Non- commodity criteria A. Support based on commodity output B. Payments based on input use C. Payments based on 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 Current parameters Non-current parameters

OECD Trade & Agriculture Directorate 20 PSE Classification: support indicators PSE classification also tells whether support: involves limits on production/payments or not is provided with variable/fixed payment rates imposes any kinds of input constraints or not is given to a single commodity only, group of commodities, or all commodities is for non-commodity production

OECD Trade & Agriculture Directorate 21 What are the results?

OECD Trade & Agriculture Directorate 22 Support indicators were developed to: 1.monitor and evaluate developments in agricultural policies 2.establish a common base for policy dialogue within and among countries 3.provide input into trade negotiations 4.provide data for analysis of policy impacts Reminder: why develop support indicators?

OECD Trade & Agriculture Directorate 23 Why is this important for Australia?

OECD Trade & Agriculture Directorate 24 Why is this important for Australia?

OECD Trade & Agriculture Directorate 25 Support differs widely (Producer Support Estimates as a percent of gross farm receipts) EU USA OECD Australia

OECD Trade & Agriculture Directorate 26 Evolution of policies reflected in PSE As share of market price support falls, payments become more important New forms of decoupled payments were introduced… …some of which did not easily fit into previous PSE categories …and more payment categories needed to accommodate these policies, leading to overhaul of PSE in 2007

OECD Trade & Agriculture Directorate 27 Market Price Support and Budgetary Transfers average OECD, PSE/CSE database %PSE is in brackets

OECD Trade & Agriculture Directorate 28 Composition of PSE: policy categories OECD, PSE/CSE database

OECD Trade & Agriculture Directorate 29 What do we use it for?

OECD Trade & Agriculture Directorate Monitoring and evaluation A unique source of reference  Monitoring and evaluation of agricultural policies in OECD countries, annually since 1988  Monitoring and evaluation of policies in non-OECD countries, bi-annually  Reviews of agricultural policies undertaken before they appear in the regular M+E reports

OECD Trade & Agriculture Directorate Policy dialogue Evidence-based exchange of views  PSEs are calculated using a common methodology and set of practices  PSEs comprehensively measure support to farmers  PSEs enable OECD countries, farmer organisations, and NGOs to focus on the reasons for varied progress in reform and future policy directions  PSEs are the established international benchmark

OECD Trade & Agriculture Directorate Trade negotiations Supporting the WTO multilateral negotiations  The OECD methodology developed in the early 1980s was the conceptual basis for the Aggregate Measure of Support in the GATT Uruguay Round  The PSE and AMS have different aims, but they are complementary

OECD Trade & Agriculture Directorate Analytical studies Rich database for modelling impacts of policies  PSEs are accounting tools – they do not as such measure impacts of policies  But PSE data can be used in models to assess impacts of policy change on incomes, production, trade (PEM, GTAP)  …as well as transfer efficiency of policies – the share of policy support that goes to farmers  PSE data base available to research community

OECD Trade & Agriculture Directorate 34 Concluding remarks PSE represents a comprehensive and unique account of policy transfers PSE does NOT measure policy impacts but are a key input into policy analysis PSE database is a rich source of transparent policy information, internationally comparable and updated

OECD Trade & Agriculture Directorate 35 Thank You Trade and Agriculture Directorate Visit our website: Contact: Support indicators (PSE/CSE) database: