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LATEST NEWS UPDATES | OECD: Rich Countries Raised Farm Subsidies in 2009

OECD: Rich Countries Raised Farm Subsidies in 2009

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published Published on Jul 15, 2010   modified Modified on Jul 15, 2010

The world’s rich countries boosted government support for agriculture in 2009, according to a report that the Organisation for Economic Co-operation and Development (OECD) released last week. The report, “Agricultural Policies in OECD Countries: At a Glance 2010,” is part of the OECD’s annual effort to quantify and assess the support that its 31 developed country members provide to their agricultural producers.

The OECD found that the Producer Support Estimate (PSE) rose to US$252 billion dollars in 2009, which was the equivalent of 22 percent of total farm receipts in that year. In 2008, the share of farm receipts attributable to agricultural support was 21 percent.

The Producer Support Estimate measures the annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, relative to a situation without those policy measures in place. It is one of the many indicators designed and used by the OECD for monitoring and evaluating the composition of government support for agriculture.

The support increase among OECD countries was primarily due to dips in agricultural commodity prices, which had been exceptionally high during the previous two years. Many of these subsidies are tied to prices, and tend to increase when prices drop. The global economic crisis also played a role in the up-tick in state support, as governments sought to shield their producers from the drop in global demand, especially for “higher value-added products,” such as meat and dairy.

While rich countries enacted only a few new policy measures in 2009, much of the registered increase in support came under policies that were already in place, especially those policies that most distort agricultural trade and production, which are still prevalent in OECD countries. Such support mechanisms, combined with the dampened world commodity prices, caused the amount of agricultural support to go up relative to total farm receipts — even though many OECD countries have begun to transition away from using the most distorting subsidies.

Despite sharing most of these overall trends, the OECD countries individually adopted a wide range of policy approaches, which differed according to their respective objectives.

For instance, the EU’s policies are subject to the concerns of its 27 members, and therefore incorporate agricultural support mechanisms to serve a range of objectives, while the United States also uses various means of support - in its case, to help protect producers from market shocks. Meanwhile, Australian and New Zealand producers largely shy away from support mechanisms - agricultural support makes up less than one and three percent of producer revenue, respectively. Instead, both countries allow the world market to indicate what to produce and where.

Market-distorting mechanisms still in place; OECD urges greater policy shift

Many of the most trade-distorting farm subsidies aim to keep domestic prices fixed despite fluctuations in world prices. Market price support makes up the majority of commodity-linked support, which in turn is the largest component of the PSE. In 2009, for instance, market price support was estimated at US$116 billion - or 46 percent of the PSE.

The OECD has traditionally taken a stance against these types of subsidies, given their potentially adverse impacts on economic efficiency, the environment, and growth in developing countries, along with their distortionary effects on trade and production.

Member countries have been urged to separate their support mechanisms from commodity production, a process referred to as “decoupling.” The report noted that support not linked to production is often more effective at improving farm income, without having the above-mentioned spillover effects.

The organisation also lauded policies that are based on non-commodity criteria, such as environmental performance, while recognising that these policies are slightly less feasible due to their associated transactions costs and demands on budget.

Many of the OECD member countries have begun moving in this direction, according to the report. Decoupled support has increased from 1 percent of the PSE in 1986-1988 to 23 percent in 2007-2009.

Recommendations to members

As a result of these findings, the OECD made a series of recommendations for its member governments.

OECD Director of Trade and Agriculture Ken Ash noted that members should focus more on “improving risk management.” He also recommended that the transparency and overall function of global markets should be improved for the sake of “reducing price volatility.”

In keeping with the OECD’s goal of incorporating climate change objectives into agricultural policy recommendations, the organisation also asked states to implement policies that will help producers respond to climate change and give them new opportunities for focusing on natural resource and biodiversity conservation.

The OECD urged countries to try improving on a more general level the environmental performance of the agricultural sector. One suggested option was for member states to develop new approaches that might give farmers incentive to provide ecosystem services that the market itself would not reward.

On a broad level, the report stressed the importance of directing agricultural support towards economic, environmental, and social objectives.


Additional information

The highlights of the report are available in PDF form here:

http://www.oecd.org/document/27/0,3343,en_2649_33773_45538
523_1_1_1_37401,00.html.


ICTSD, Bridges Weekly Trade News Digest, Volume 14, Number 26, 14 July, 2010, http://ictsd.org/i/news/bridgesweekly/80643/

Tagged with: Agriculture



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