OECD OCDEDirectorate for Food, Agriculture, and Fisheries

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ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES

OECD OCDE

Food and Agriculture Policy: A Positive Reform Agenda

Ken AshDeputy Director, Food, Agriculture

and Fisheries

California, 19-20 January 2003

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

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Agriculture Policies in Canada, Japan, the EU and US

• instruments and impacts

• recent and on-going developments

• alternative policy approaches

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

3

Producer Support Estimate (% PSE)

% PSE

0

10

20

30

40

50

60

70

US

Japan

Canada

EU

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

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0%

20%

40%

60%

80%

100%

1986-88 2002

Payments based on input constraints, overall farm income, etc.

Payments based on historical entitlements

Payments based on area planted/animal numbersMarket Price Support and payments based on output and input use

Canada: Composition of PSE

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

5

0%

20%

40%

60%

80%

100%

1986-88 2002

Payments based on input constraints, overall farm income, etc.

Payments based on historical entitlements

Payments based on area planted/animal numbersMarket Price Support and payments based on output and input use

Japan: Composition of PSE

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

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0%

20%

40%

60%

80%

100%

1986-88 * 2002

Payments based on input constraints, overall farm income, etc.

Payments based on historical entitlements

Payments based on area planted/animal numbersMarket Price Support and payments based on output and input use

EU: Composition of PSE*(simulated CAP Reform)

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

7

0%

20%

40%

60%

80%

100%

1986-88 2002

Payments based on input constraints, overall farm income, etc.Payments based on historical entitlementsCounter cyclical paymentsPayments based on area planted/animal numbersMarket Price Support and payments based on output and input use

US: Composition of PSE

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

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0%

20%

40%

60%

80%

100%

Canada Japan EU US

Payments based on input constraints, overall farm income, etc.Payments based on historical entitlementsCounter cyclical payments

Payments based on area planted/animal numbersMarket Price Support and payments based on output and input use

Composition of PSE

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

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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

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

10

55

60

65

70

75

80

85

90

95

100

0 10 20 30 40 50 60 70 80

55

60

65

70

75

80

85

90

95

100

0 10 20 30 40 50 60 70 80

Evolution of PSE Support *

55

60

65

70

75

80

85

90

95

100

0 10 20 30 40 50 60 70 80

US EU

Japan

%PSE

%

Canada2002

1986-88

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

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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

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

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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)

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

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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)

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

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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)

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

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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

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

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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)

OECD OCDEDirectorate for Food, Agriculture, and Fisheries

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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?