Agricultural Policy Monitoring and Evaluation 2018

The 31st OECD report on agricultural policies covers 51 countries, among them also a set of emerging economies. Recommendations regarding agricultural subsidies address only some of the aspects that have come under criticism.

Agriculture world-wide is facing major challenges. Productivity usually falls short of possible potentials, and many farms are in a fragile state owing to climate change. In a number of countries, however, agricultural policies are not sufficiently addressing these issues. Two thirds of the agricultural subsidies continue to distort the market, as the Organisation for Economic Co-operation and Development (OECD) states in its latest Agricultural Policy Monitoring and Evaluation report.

What is market-distorting?

According to OECD criteria, price supports and output-oriented payments are market-distorting measures. This also includes unlimited financing for inputs, which however has been reduced world-wide over the last 20 years. Payments not tied to certain types of production are significantly less market-distorting. These include money for land set-asides or animal welfare. What all countries find difficult to abandon are historic payment entitlements for certain crop cultures or premiums for livestock. These coupled payments account for four per cent of farmers’ income and constitute a 15 per cent share of direct payments.

Some global trends

Numerous countries are reformulating their agricultural policies. For example, Canada above all seeks farm-level risk provisions. South Korea is focusing on young farmers and the introduction of digital technology for the new 2018 to 2022 financing period. Chile is also helping young farmers aged between 18 and 35 years and is supporting them in procuring operational inputs, training and the development of networks. Colombia is assisting paddy farmers in establishing storage capacities and helping them with debt restructuring. Russia has already announced intervention options for milk powder and butter. Costa Rica has adopted regulations on the use and control of pesticides.

European Union and US developments

Since the mid-1990s, the EU has strongly cut back support for the agricultural sector. Around half of the money provided by the EU is tied to national commitments. A further eight per cent goes to voluntary environmental programmes. Since 2010, financial support earmarked for the agricultural sector has accounted for a stable 20 per cent of farmers’ average income. The OECD regards the end of the sugar quota in 2017 as a further important step away from distorting subsidies. In contrast, the public distribution of milk in school programmes and intervention options for milk powder and butter continue to represent a market distortion.

In the USA, the degree of agricultural subsidies lies below the OECD country average. Direct payments have risen over the period under review, while price supports have significantly decreased. Over the last 20 years, the subsidy share of income has dropped from twelve to ten per cent.

Recommendations

The first step towards fair agricultural subsidies is to reduce price-supported and producer-oriented payments. Money ought to be invested in services to the public that benefit farmers, consumers and society alike. The OECD regards more research funding as the right way to achieve optimum productivity in healthier crop rotation systems, and with better animal welfare. Digitisation can also help optimise the use of inputs.

In order to achieve environmental and climate goals, countries ought to make use of economic instruments such as information, education, regulation, payments and taxes. This requires an appropriate data base. In the field of risk management, governments should distinguish between normal business risks and risks necessitating market support. In addition to crisis management in times of aridity, this also includes clearly defined regulations on interventions. Farmers have to be made aware that they first of all need to address their risks at farm level, the OECD argues.

Roland Krieg, journalist, Berlin/Germany

More information:

OECD (2018), Agricultural Policy Monitoring and Evaluation 2018, OECD Publishing, Paris.