Farm subsidies among OECD nations continue to fall

By Daniel Enoch

© Copyright Agri-Pulse Communications, Inc.



WASHINGTON, Sept. 5, 2014 -- Government support for agriculture in the 34 member nations of the Organization for Economic Co-operation and Development continued to trend downward in 2013, but much of the support remained in a form that distorts markets, an OECD report shows.

Support to producers accounted for 18 percent of gross farm receipts last year, down slightly from 2012 but much less than the 30 percent figure of two decades ago, according to the report, OECD Agricultural Policy Monitoring and Evaluation 2014.

< Lets Talk Fooddiv>Still about half of the $258 billion total in 2013 was in instruments that distort production and trade, OECD said.
The report calls on governments to do more to break links between farm support and production and ensure the focus is on improving agricultural productivity and sustainability.

 

“High prices and high incomes in the farm sector have created the right conditions for deeper reform of agricultural policies, and much more needs to be done beyond fine-tuning,” OECD Secretary-General Angel Gurría said in a release accompanying the report. “This means that production and trade-distorting support could inch back up in some countries if agricultural prices were to fall.”

In the U.S., support for farmers accounted for about 8 percent of total agricultural revenues in the 2011-2013 period, the fourth-lowest among OECD members and less than half of the OECD average, according to the report. In 2013, the support figure came to just over $31 billion, versus total value of agricultural production of $389.9 billion.


The report pointed out that the level of support has fallen sharply from 22 percent in the 1986-88 period. However, it notes that the decline since 2002 has been mostly due to higher world commodity prices, as several U.S. support policies are linked to changes in prices.


The OECD also cautioned that while the 2014 Farm Bill eliminated direct payments to certain producers, “the ultimate impacts” of the new programs in the legislation “will depend on price and revenue developments.” And it called for a “rigorous evaluation of the cost-effectiveness of crop insurance measures in reducing risks,” in light of the increasing emphasis on crop insurance as a risk-management tool.


The report also highlights the big differences among OECD countries in the level and composition of farm support and finds unequal progress in reform. Despite an overall trend of lower support and a shift to de-linking it from production, some countries still rely heavily on market interventions that can affect prices, the OECD said.


Chart from OECD.org

 

Australia, Chile and New Zealand limit themselves to safety net measures, disaster relief and research and development, transferring less than 3 percent worth of gross farm receipts in support. Iceland, Japan, Korea, Norway and Switzerland all have Producer Support Estimates above 40 percent of gross receipts, it said.

The report makes the following recommendations:

-More market intervention mechanisms should be dismantled in favor of support that is less connected to production and more targeted to specific needs, in line with stated policy priorities of increasing productivity and sustainability.

-Governments should make their farm policies more coherent with macroeconomic, trade, structural, social and environmental policies. They should reduce impediments to structural adjustments to attract financial and human resources to the sector.

-Countries should consolidate past farm support reforms and avoid any recoupling of support with production, which can lead to higher costs and market disruption. Future reforms could usefully include relaxing or ending production quotas.

-Funds freed up by more efficient farm support practices should be invested in education, infrastructure and research in the sector. Governments should be bolder about prioritizing the environment and the sustainable use of natural resources.

-Payments to mitigate income risks should not crowd out market-based risk management tools and farmers' own management of normal business risks.

Founded in 1961, OECD includes most of the world's developed country, including the nations of Europe and North America as well as Japan, South Korea, Australia, New Zealand, Israel and Chile. It traces its origins to the Organization for European Economic Cooperation which was established in 1948 to run the U.S.-financed Marshall Plan for the reconstruction of Europe after World War II.

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