Directorate for Food, Agriculture, and Fisheries 1 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES OECDOCDE Food and Agriculture Policy: A Positive Reform Agenda Ken Ash Deputy Director, Food, Agriculture and Fisheries California, January 2003

Directorate for Food, Agriculture, and Fisheries 2 Agriculture Policies in Canada, Japan, the EU and US instruments and impacts recent and on-going developments alternative policy approaches

Directorate for Food, Agriculture, and Fisheries 3 Producer Support Estimate (% PSE) % PSE US Japan Canada EU

Directorate for Food, Agriculture, and Fisheries 4 Canada: Composition of PSE

Directorate for Food, Agriculture, and Fisheries 5 Japan: Composition of PSE

Directorate for Food, Agriculture, and Fisheries 6 EU: Composition of PSE *(simulated CAP Reform)

Directorate for Food, Agriculture, and Fisheries 7 US: Composition of PSE

Directorate for Food, Agriculture, and Fisheries 8 Composition of PSE

Directorate for Food, Agriculture, and Fisheries 9 Production linked support is… inefficient: 25% goes to farm income ineffective: capitalisation increases costs and reduces profitability; can harm the environment inequitable: wealthiest farms receive most support trade distorting: relies on import protection and/or export subsidy, imposing a burden on other countries

Directorate for Food, Agriculture, and Fisheries 10 Evolution of PSE Support * US EU Japan %PSE % Canada

Directorate for Food, Agriculture, and Fisheries 11 Alternative Policy Approaches Food and Agriculture Policy reduce border protection eliminate export subsidies, and pursue domestic objectives with – decoupled support – targeted measures – tailored support Non-Sectoral Policies economic, social, environmental

Directorate for Food, Agriculture, and Fisheries 12 Farm Household Income: Which Policies? avoid broad, output-based measures target uncontrollable income risks (commodity markets, income insurance) target on-farm performance (skills, technologies) and/or diversify income sources (rural development ) target systemic low incomes (social safety nets)

Directorate for Food, Agriculture, and Fisheries 13 Rural Communities - Which Policies? agriculture policy is not rural policy target the root causes of economic disadvantages (local, multi-sectoral initiatives) target systemic policy bias against rural and remote areas (infrastructure, public services)

Directorate for Food, Agriculture, and Fisheries 14 Environmental Sustainability - Which Policies? avoid production-linked incentives target the source of negative impacts of farm production (“polluter-pays” taxes, regulations) target the provision of desired, positive impacts of farm production (direct payments) integrate policy approaches (link to broader environmental policy)

Directorate for Food, Agriculture, and Fisheries 15 How Important is Capitalisation? much of existing support has been capitalised into asset values (perhaps 15-20% of land values, production quotas) the short-term economic adjustment is considerable the long-term offers benefits, but the “transition period” must be managed

Directorate for Food, Agriculture, and Fisheries 16 Conclusion international and domestic benefits of reform are generally accepted (?) the overall approach is widely understood (?) – decouple support from farm production – target clear objectives and beneficiaries – reduce amount and scope of support – limit duration of intervention – avoid unintended impacts (review and revise policies)

Directorate for Food, Agriculture, and Fisheries 17 Conclusion (cont.) sustainable reform requires a viable adjustment and compensation strategy (?) – adjustment within the sector (competitive suppliers, diversified income sources) – transition out of the sector (into more viable employment opportunities) – compensation for policy change and any associated “losses” (limited duration) what else is required?