Chapter 2. Country snapshots

This chapter contains a snapshot view of agricultural policy developments in the countries covered in this report. A more comprehensive discussion is provided in the country chapters published online (http://dx.doi.org/10.1787/agr_pol-2016-en).

  

2.1. Australia

Support to agriculture

Support to producers in Australia has continuously been reduced from already relatively low levels in 1986-88 and at 1.3% its Producer Support (PSE) is the second lowest in the OECD (Figure 2.1). Total support to agriculture (TSE) amounted to around 0.1% of GDP in recent years. General services support (GSSE) makes up the largest share of total support, with the main elements funding for the Agricultural Knowledge and Innovation System and the development of infrastructure, which respectively account for 58% and 31% of GSSE expenditure. Payments based on input use and on income are the most important elements of the low Producer Support Estimate.

Reforms have led to domestic prices that are at parity with world prices, and Market Price Support (MPS) is zero. The share of potentially most distorting support has been reduced from 86% of PSE in 1986-88 to 7% in 2013-15. At the same time, agricultural support in Australia has shifted towards more targeted direct payments and the share of general services in total support has increased from 6% to 58%.

Figure 2.1. Australia: Level, structure and evolution of agricultural support
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Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374410

Main policy changes

In July 2015, the Australian Government released the Agricultural Competitiveness “White Paper”, which sets the broad parameters to guide the development of future Australian agricultural policy. The White Paper seeks to identify approaches for growing farm profitability and boosting agriculture’s contribution to economic growth, trade, innovation and productivity. The government also released a white paper to unlock the potential of Northern Australia.

The Government continued to implement drought assistance measures such as specific support payment for farmers experiencing financial hardship, a tax-advantaged savings scheme, and drought concessional loans programmes (loans at below market interest rates). Also, in late 2015 the Queensland parliament passed a new act to regulate the ownership of refined sugar in the Sugar Industry, in response to concerns from cane growers over competition issues. The major event in trade polices was the signing of the Trans-Pacific Partnership (TPP) agreement between Australia and 11 other members in February 2016.

Assessment and recommendations

  • There has been continuous and significant progress on policy reform since 1986-88, reducing the level of support to agriculture as measured by the %PSE to close to 2%. Australia also removed the potentially most distorting forms of support in the early 2000s. The remaining support programmes are targeted to risk management, environmental conservation and provision of general services.

  • Since the end of the Exceptional Circumstances programmes in 2013, Australia has continued to reform its drought policies. An Intergovernmental Agreement is now in place that aims to focus drought support measures on encouraging drought preparedness and resilience. Most policy measures have moved in this direction, however, new drought assistance measures implemented in 2014 have reintroduced concessional loans (loans at below market interest rates). These measures, as well as the new Act passed in 2015 in the Sugar industry, should be reviewed.

  • The overall challenge for the future is to improve the economic viability of farms while ensuring a sustainable use of scarce resources, in particular, water. In this light, water market reforms and basin management should continue to be a policy priority.

  • Australia should continue using its industry partnership arrangement through rural research and development corporations (RDCs) to foster innovation and the adoption of new technologies and practices, in order to improve productivity growth.

Table 2.1. Australia: Estimates of support to agriculture
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Note: 1986-88, 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Australia are: wheat, barley, oats, sorghum, rice, soybean, rapeseed, sunflower, sugar, cotton, milk, beef and veal, sheep meat, wool, pig meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375801

2.2. Brazil

Support to agriculture

Brazil provides a relatively low aggregate level of support and protection to agriculture, reflecting its position as a competitive exporter. The level of producer support (PSE) was 3.1% of gross farm receipts in 2013-15, compared to an OECD average of 17.6% (Figure 2.2). The total support estimate to agriculture (TSE) was around 0.3% of GDP in 2013-15. The direct support to farms (PSE) is the dominant part of the TSE (about 80%). Payments based on output and input use are the most important element of the support. As for the General Services Support Estimate (GSSE) the main element are payments on land restructuring for small family farms.

An important part of support to producers is provided through measures that distort farm prices and current costs although on aggregate the level of that type of support is moderate and there is a great deal of variation across commodities. While domestic prices were below world prices in the mid-1990s, generating negative market price support (MPS), prices are now almost aligned. Other important component of support to producers is support based on variable input, mainly through concessional credit and crop insurance subsidies. Credit is also available for farm investment. The role of direct payments is minor. Access to most farm support programmes is conditional on environmental criteria.

Figure 2.2. Brazil: Level, structure and evolution of agricultural support
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Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374424

Main policy changes

In the continuation of previous policies the agricultural plan for 2015/16 continued to provide high levels of funding for credit subsidies. The agricultural plan for 2016/17 foresees a significant development of crop insurance, using funds previously dedicated to price guarantees. Efforts to restore domestic and international confidence in the safety of food (in particular animal) products include improvements in the inspection system.

Assessment and recommendations

  • Despite the variety of regional price support programmes, prices received by agricultural producers in Brazil are more or less aligned with international levels. In 2015, minimum guaranteed prices increased at a slower pace than inflation, and the depreciation of the BRL relative to USD further lowered price support. However, differences in support level by commodity create distortions within the sector, which should be removed.

  • A number of initiatives, such as the development of better information and tools to analyse risk, and model contracts, were launched to improve the effectiveness of the crop insurance programme. This is expected to facilitate wider adoption, as foreseen in the agricultural plan for 2016/17, which allocates more funds for crop insurance subsidies to the detriment of funding for price support. It is essential to continue strengthening the information base to develop insurance products while using public funds efficiently, and monitor the effectiveness and efficiency of insurance subsidies, and ensure they are not crowding out market solutions.

  • Agricultural credit at preferential interest rates has been growing consistently, in particular in recent years. Whereas the credit system is intended to address failures in financial markets, it also creates risks (default) for government and producers, particularly since the macroeconomic situation has deteriorated. The higher availability of funds for loans is partly explained by the obligation for banks to reserve a certain portion of their deposits for agricultural credit, thus potentially creating excess supply. Furthermore, most of this credit is concentrated on subsidising short-term borrowing such as working capital and commercialisation loans that further distort markets. A reform of the concessional credit system could consider a gradual downsizing of concessional loans for working capital to commercial producers, by gradually limiting the scope of eligible commercial producers and their supported activities. At the same time, access to credit by rural borrowers could be facilitated through simpler regulations and procedures. Agricultural credit support could then be re-focused to support on-farm investments that explicitly incorporate technological innovations and advanced farm management and environmental practices.

  • Several programmes have been introduced recently to encourage environmental improvements and infrastructure development. For instance, insurance and credit support is conditioned by environmental criteria, and credit is available to modernise production systems and preserve natural resources, among others. Plans to extend irrigated areas foresee technical improvements in water use efficiency, but should ensure water abstraction remains sustainable.

  • Access to export markets is crucial for Brazilian agriculture. The restructuring of the sanitary and phytosanitary inspection system with a view to improve its efficiency and reliability is an important contribution to gain or re-gain foreign markets, complemented by bilateral and multilateral trade discussions.

  • Support to family farms aims to improve farmer incomes. However, existing mechanisms for social protection could protect farmer income more effectively and direct investment in infrastructure and public investments could trigger agricultural growth, for both commercial farms and smallholders, more efficiently.

  • While weak infrastructure is still a significant bottleneck for agricultural development, financing of general services to agriculture constituted less than 20% of total support to the agricultural sector in 2013-15 and over time this share tended to decline. The main part of the Brazilian GSSE is represented by agrarian reform spending, which includes government purchase of lands for resettlement and investment in infrastructure and basic communal services for those settled areas.

Table 2.2. Brazil: Estimates of support to agriculture
picture

.. Not available

1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Brazil are: wheat, maize, rice, soybean, sugar, milk, beef and veal, pig meat, poultry, cotton, coffee.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375818

2.3. Canada

Support to agriculture

Canada has reduced agricultural support significantly since the late 1980s. Producer support as a share of receipts fell sharply between 1986-88 and 1995-97, in large part because market price support (MPS) to the grains industry was discontinued in 1995. The decline in the level of support since then has been more gradual because there have not been any significant policy changes to MPS for dairy, poultry, and eggs. MPS for these sectors accounts for around 64% of the producer support estimate (PSE) in 2013-15. Lower levels of disaster payments in recent years and a shift of budgetary expenditures towards generic, not farm-specific, support to the sector since the mid-1990s have resulted in lower farm income support overall.

Canada’s PSE declined from 36% in 1986-88 to 10% in 2013-15, and has been consistently below the OECD average. However, the share of potentially most distorting support (based on output and variable input use – without input constraints) was 70% in 2013-15, above the OECD average and at a similar level to 1986-88. MPS for milk accounts for the largest share of potentially most distorting support. On average, prices received by farmers were 7% higher in 2013-15 than those observed in world markets. Since 1995, this has largely resulted from MPS for milk, poultry and eggs, as producer prices of other commodities are mostly aligned with border prices. As producer support has declined, the share of the General Services Support Estimate (GSSE) has increased in the Total Support Estimate to agriculture (TSE). The share of GSSE in TSE has almost doubled since 1986-88 to around 29%, as a greater proportion of budgetary transfers was shifted to indirect support, including Agricultural Knowledge and Innovation Systems and Inspection and Control.

Figure 2.3. Canada: Level, structure and evolution of agricultural support
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Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374436

Main policy changes

The current agricultural policy framework in Canada, Growing Forward 2 (GF2), expires in 2018. There were several new initiatives under GF2 programmes in 2015-16. These include two new AgriRisk Initiatives, which aim to develop new risk management tools for wheat and hog producers. Producers also received CAD 10.17 million (USD 7.95 million) in disaster relief payments under three AgriRecovery Initiatives.

Canada also made changes to the Advance Payments Program (APP), the federal loan guarantee programme that gives producers easier access to credit through cash advances. These changes broadened programme eligibility and increased programme flexibility around repayment methods and options.

The Canadian Food Inspection Agency has embarked on a change agenda designed to strengthen how it administers and enforces regulations within its jurisdiction that relate to food, animals and plants. Policy developments include changes to modernise regulations and the development of a policy on private certification schemes used by industry.

In 2015, Canada concluded negotiations towards the Trans-Pacific Partnership Agreement, creating a regional trading bloc with 11 other countries, a free trade agreement (FTA) with the Ukraine, and the modernisation of existing FTAs with Israel and Chile.

Assessment and recommendations

Canada’s domestic markets for most agricultural commodities are competitive. However, the dairy, poultry and egg sectors are protected from international competition and continue to receive high market price support. This distorts production and trade and acts as a barrier to entry into those supply-managed sectors, because high rents are capitalised in the value of quotas required to produce under the supply-management system. Over time, there has been an increasing emphasis on generic support to the sectors relative to farm income support through new programmes that target industry-led research and development, adoption of innovation in food and agriculture, and marketing initiatives.

There are a number of reforms that could contribute to Canada’s long-term objective of improving the profitability, competitiveness and sustainability of the food and agriculture sector.

  • As a step towards phasing out supply management, the amount of quota available should be increased and price support for the dairy, poultry and egg sectors should be reduced. This would encourage greater market responsiveness, stimulate innovation (to increase efficiency and diversify towards higher value products), and reduce quota rents, which currently act as a barrier to entry into supply-managed sectors.

  • Stricter protocols and disciplines should be in place for ad hoc programmes. This would reduce potential pressure for additional support in situations where existing programmes suffice, and encourage farmers to find better ways to manage risk.

  • The policy focus should continue to shift towards facilitating the adoption of innovation by targeting industry-led research and development, adoption of innovation in food and agriculture, and marketing initiatives. This would contribute to the long-term objectives of improving the competitiveness and sustainability of the sector.

Table 2.3. Canada: Estimates of support to agriculture
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Note: 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Canada are: wheat, maize, barley, oats, soybean, rapeseed, flax, potatoes, lentils, dry beans, dry peas, milk, beef and veal, pig meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375829

2.4. Chile

Support to agriculture

Chilean agricultural policy does not create significant distortions on agricultural markets. Domestic prices are aligned with international prices, resulting in a Nominal Protection Coefficient (NPC) of unity in the years 2013-15. Producer Support Estimate (PSE) accounted for an average of 3% of gross farm receipts in 2013-15. Measures at the farm level (i.e. input payments) are directed mainly to smallholders (more than 75% of total spending) through payments that improve farm capital (e.g. on-farm infrastructure, irrigation, soil quality) and on-farm services (e.g. farm training). Around 50% of government spending on agriculture is provided through general services to develop agriculture as a whole (e.g. hydrological infrastructure, sanitary and phytosanitary services and agricultural knowledge and innovation system). Market Price Support (MPS) is relatively small, accounting for only 3% of the PSE.

Figure 2.4. Chile: Level, structure and evolution of agricultural support
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Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374447

Main policy changes

The fundamental orientation of agricultural policy remained unchanged; the policy objectives continue to emphasise agricultural competitiveness, with investments targeted to a number of areas, notably irrigation, and in maintaining Chile’s strong sanitary and phyto-sanitary conditions, strengthening policy instruments that promote family farming and the development of rural economy. This is done through emphasising technological innovation, access to credit for smallholders, irrigation, and improving market information. Due to new challenges created by natural disasters, which have become more frequent over the past few years, some initiatives were taken in 2015 to better deal with risk and better manage water resources. Efforts were made through public-private partnerships to create more value added along the food value chains, and to improve the functioning of markets. Training and skills for agricultural workers and farmers were also strengthened.

Assessment and recommendations

  • Chilean agricultural policy creates few market distortions and its PSE averages 3% of gross farm receipts in 2013-15. Total support to agriculture imposes a smaller burden on the economy than in most OECD countries, accounting for only 0.3% of GDP in 2015. General services account for 50% of total support to this sector, mainly directed at infrastructure, R&D and inspection services.

  • NPC equals unity meaning that domestic prices are perfectly aligned with international prices. Chile has ensured that its agricultural policies remain well targeted to its principal objectives of facilitating smallholder development, i.e. 75% of direct payments go to smallholders to aim improving productivity and competiveness.

  • Total budgetary allocations to the agricultural sector (i.e. payments to farmers and spending on general services) remained more or less constant between 2014 and 2015. Support payments comprise mostly support for farm inputs, rural and territorial development, the recovery of degraded soils, and on-farm irrigation. Most of the allocations on general services consist of spending on infrastructure (irrigation), inspection services, R&D, knowledge transfer and improving market information.

  • While gradually increasing payments to farmers are targeted towards small-scale agriculture and indigenous farmers, careful attention should be paid to assessing their effectiveness. Impact assessments should be carried out systematically.

  • As more projects and programmes to develop agriculture are being created across different ministries, there is a greater need for co-ordination.

Table 2.4. Chile: Estimates of support to agriculture
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Note: 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Chile are: wheat, maize, apples, grapes, sugar, tomatoes, milk, beef and veal, pig meat and poultry.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375831

2.5. China

Support to agriculture

In the People’s Republic of China (hereafter “China”) support to agricultural producers continues to grow and at 20% of gross farm receipts in 2013-15 exceeded the OECD average. In 2015, the government kept minimum prices for rice and wheat at the 2014 level and expanded a range of commodities covered by reforms replacing government purchases at intervention prices by a system that compensates the difference between target prices and actual market prices. However, a continued fall of international prices drove market price support (MPS) to a new record high. The total support estimate (TSE) was 3.1% of GDP in recent years. While payments based on area planted tend to increase, the MPS remain the dominant part of the total support. Within the General Services Support Estimate (GSSE), three categories attract the largest financial support: development and maintenance of infrastructure, public stockholding and agricultural knowledge and innovation system.

The level of price distortions is high with domestic prices on average 23% above world prices. With the exception of eggs and poultry, producers are benefiting from high transfers accounting in most cases for between 20% and 40% of receipts. Following the discontinuation of intervention prices for cotton, in 2015 domestic cotton prices fell almost to the world levels and the fall has been covered by compensatory payments accounting for a growing share of cotton producers’ receipts.

Figure 2.5. China: Level, structure and evolution of agricultural support
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Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374450

Main policy changes

In 2015, China undertook a number of policy measures to keep a growing positive gap between domestic and international prices under control. These measures included: keeping minimum prices for wheat and rice at the 2014 levels; a 10% reduction of the floor price for maize; continued application of target prices for cotton and soybeans combined with compensatory payments; discontinuation of floor prices for rapeseeds; and lowering of the floor price for sugar cane. China also started the process of combining three area payments (direct payments for grain producers, comprehensive subsidy on agricultural inputs and seed variety subsidy) into a single payment called “agricultural support and protection subsidy”. Most of the funds for this new payment will go to traditional small-scale farmers who are expected to use the funds for land fertility improvements; a small proportion of the funds will be used to support larger-scale “new-style” farmers.

Assessment and recommendations

  • Recent reforms to replace intervention prices by target prices combined with compensatory payments based partly on area planted could be extended to include maize, rice and wheat. In the future, the link between compensatory payments and production decisions should be further removed by providing them on a historical production area for example, and “greened” by making them conditional on environmentally friendly cultivation practices.

  • As land and water are very scarce in China and environmental pollution caused by farming has become an alarming issue, any further increase in agricultural production should only be achieved through sustainable improvement of productivity. In this respect, existing agricultural policy instruments should be reviewed to improve their coherence with agro-environmental policy objectives. In particular, water price reform could be accelerated to cover water provision costs, in order to enhance more efficient water use.

  • To address the issue of rural poverty, access of the rural poor to education, healthcare and physical infrastructure should be further improved. For the elderly, the government should – as envisaged – quickly take full responsibility for rural pensions and also gradually increase their level.

  • To reduce potential volatility of food supplies on domestic markets, China should further diversify sources of food through stronger integration of domestic and international agro-food markets.

  • To ease the re-allocation of land to more efficient farmers, recent land market reforms strengthening rural land-use rights should be further reinforced. This can be achieved by: providing all rural households with certificates detailing their land rights; establishing transparent exchange platforms for the transfer of rights for rural farmland and construction land; increasing the duration of the right to rural farmland, with contracts automatically renewable upon expiration; and universally introducing resident permits for migrant workers that provide access to public services, while protecting their land entitlements.

Table 2.5. China: Estimates of support to agriculture
picture

Note: 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for China are: wheat, maize, rice, rapeseed, soybean, sugar, milk, beef and veal, sheep meat, pig meat, poultry, eggs, cotton, apples and peanuts.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375843

2.6. Colombia

Support to agriculture

Colombia’s level of support to producers (%PSE) averaged 17% of gross farm receipts over the period 2013-15, approximately at the same level as the OECD average. Market price support (MPS) is the main component of the PSE – accounting for around two-thirds of the total support provided over the period 2013-15. MPS is mostly determined by the use of border measures for several agricultural products like maize, rice, poultry, milk, sugar, and pig meat. Budgetary transfers accounted for 22% of the PSE during 2013-15 and have been dominated by payments based on variable input use. Budgetary payments to general services to support the sector as a whole, or GSSE have been relatively small, accounting on average for only 16% of the total support estimate (TSE). Expenditures on these items include: agricultural research and transfer, infrastructure particularly in irrigation and farm restructuring.

Figure 2.6. Colombia: Level, structure and evolution of agricultural support
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Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374465

Main policy changes

A new policy framework, Colombia Siembra, was created in 2015 and aims to raise agricultural production through an increase in the planted area and yields of several crops. It plans to create a zooning programme, a risk management programme and a range of financial instruments for producers, as well as to improve extension and technical assistance services. Several institutional reforms took place in 2015. For instance, the INCODER, the institution in charge of rural development and land issues, was dismantled and its functions will be implemented by several newly created agencies as of end 2016. Three main agencies were created in its place: the National Land Agency (Agencia Nacional de Tierras, ANT); the Rural Development Agency (Agencia de Desar rollo Rural, ADR); and the Renovation of Territory Agency (Agencia de Renovación de Territorio, ART). A new important programme was created in 2015 to deliver budgetary support to agriculture: 75% of the programme is delivering general services such as irrigation, marketing and promotion and extension services. The remainder of transfers is given through a range of different input subsidies to farmers. In 2015, the Colombian government implemented a series of trade policy measures. All tariffs for fertilisers and pesticides imports were dismantled. Tariffs for beans, lentils, and garlic were set to 0% (until June 2016) as well as for palm oil (until August 2016). Tariffs for sugar were set to a maximum of 70% from a 117% in previous years.

Assessment and recommendations

  • The agricultural sector in Colombia faces a wide series of structural and institutional challenges that hinder competitiveness. Underinvestment in public goods and services, poor land management, unsuccessful land tenure reforms (more than 40% of land ownership continues to be informal) and the long-running internal conflict, have deeply affected the performance of the Colombian agricultural sector.

  • The sector is mostly supported through measures that distort markets, while general services have been neglected. Market price support (MPS) is the dominant form of support to producers and is provided through border protection through high import tariffs, tariff rate quotas and in particular the Andean Price Band System (SAFP). Colombia also implements a range of policies aimed at price stabilisation (Price Stabilisation Funds, FEP) which contribute to the high levels of price support. An assessment of the effectiveness of the Price Stabilisation Funds used in several agricultural products could be carried out.

  • Critical areas such as infrastructure, agricultural research and development (R&D) and agricultural knowledge transfer and farm restructuring continue to receive limited support. Short term responses to the problems faced by agricultural producers have diverted scarce economic resources from the need to develop the enabling environment for more inclusive and sustainable agricultural growth. Input subsidies are an important feature of the policy landscape, and dominate the budgetary transfers to producers. Specific programmes are also in place related to land rights.

  • Programmes should be more targeted to specific objectives and overlap between measures should be reduced. The majority of programmes cover very broad and different areas and are implemented through a bundle of policy instruments with unclear impact.

  • A thorough review and impact assessment of the wide array of policy instruments and programmes to support agriculture, including those implemented by private producer associations with government support would allow the redefinition and reorganisation of policy instruments based on evidence of costs and benefits. Institutional co-ordination should be improved and information better disseminated to farmers.

  • Colombia faces the twin challenges of high concentration of land ownership and the under-exploitation of arable land. Improved land rights should contribute to long-term growth in the agriculture sector and promote rural development.

Table 2.6. Colombia: Estimates of support to agriculture
picture

Note: 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Colombia are: maize, rice, sugar, milk, beef and veal, pig meat, poultry, eggs, bananas, plantains, coffee, palm oil and flowers.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375850

2.7. European Union

Support to agriculture

The European Union has gradually reduced its support to agriculture since the mid-1990s. New instruments, in particular payments that do not require production have gained weight. However production-linked support rose in 2015 as prices increased on average at the EU level in a context of lower world prices. An overwhelming share of support to the sector, as measured by the TSE, goes to producers (more than 85%). Investments in knowledge and infrastructures are the main components of general services to the sector at large, as measured by the GSSE.

Figure 2.7. European Union: Level, structure and evolution of agricultural support
picture

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374473

Main policy changes

The main policy developments are linked to the phasing out of the CAP 2007-13 and the progressive implementation of the CAP 2014-20. Also of importance were the end of the milk production quota in April 2015 and the introduction of a number of emergency measures aiming to offset the market and income effects of a ban imposed since 7 August 2014 by the Russian Federation on imports of selected agricultural products from the European Union.

Assessment and recommendations

  • Policy reforms since 1986-88 have considerably reduced the level and improved the composition of support. Payments that do not require production have gained weight. They offer producers the flexibility to respond to market signals and to make their production choices independently from government intervention. The end of the milk production quota in 2015 and the sugar quota in 2017 are important further steps away from production and trade distorting measures. However policy instruments remain in some sectors that disconnect prices paid to producers from world market prices. In 2015, they accounted for 32% of support to producers as measured by the PSE.

  • The share of payments requiring production has increased. Payments that encourage specific commodity production are not evenly used across member states; they influence production choices at the farm level and may distort competition. The CAP 2014-20’s small farmers scheme and the flexibility to introduce higher payment rates for the first hectares have redistributive effects, they may slow structural adjustment. Thirty per cent of direct payments are conditional to farming practices targeted to the environment; while exceptions to cross-compliance and “greening” requirements are permitted. The efficiency of greening measures should be assessed against the ambition to enhance the enforcement of environmental stewardship.

  • Market access for agricultural products has improved through bilateral agreements and the reduction of applied tariffs. However, import and export licensing, Tariff Rate Quotas (TRQs) and special safeguards continue to apply to a number of products.

  • Substantial progress has been made in reducing the level of support and the share of production and trade distorting support. However the CAP 2014-20 partly reverses this trend. Commodity-specific payments have increased as EU member states have used greater flexibility to implement coupled payments. Amendments to the CAP should focus on offering European farmers a levelled playing field, deepening market orientation and better targeting support to improve the long-term productivity, sustainability and efficiency of the sector. The allocation of a greater share of the budget to research and innovation programmes under the Horizon 2020 is a move in the right direction.

Table 2.7. European Union: Estimates of support to agriculture
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Note: 1986-88, 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

EU12 for 1986-88; EU15 for 1995-97; EU27 for 2012-13; and EU28 from 2014 when available.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for the European Union are: wheat, maize, barley, oats, rice, rapeseed, sunflower, soybean, sugar, milk, beef and veal, sheep meat, pig meat, poultry, eggs, potatoes, tomatoes, plants and flowers, and wine.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375865

2.8. Iceland

Support to agriculture

Iceland’s level of support remains among the highest within the OECD, although it has fallen significantly notably during the second half of the last decade due to higher world market prices and a strong devaluation of the Icelandic Króna. Reforms of the agricultural policies in Iceland have been limited, with a shift towards more decoupled payments in the sheep meat sector in the mid-1990s and the establishment of a market for dairy quotas. Nonetheless, due to falling international reference prices for dairy products, and to a lesser extent pig meat, support levels have picked up again in 2014 and 2015 to reach their highest level in almost ten years. The direct support to farmers (PSE) is the dominant part of the total support to agriculture. The Total Support Estimate has averaged -1.1% of the country’s GDP in recent years. In contrast, support to general services corresponded to just over 4% of the total support, with much of it related to expenditures for inspection and control systems through the Agricultural Authority of Iceland.

Iceland continues to provide agricultural support through significant market price support (MPS), maintained by border measures, and through direct payments based on payment entitlements which are directly or indirectly coupled with production factors. Although it has fallen by about half over the period analysed in this report, the share of MPS in the total support to farmers continues to represent around 40% and has increased to 55% in 2015. Output payments for milk producers and the more decoupled payments to sheep meat producers represent most of the remaining PSE. As a consequence, three-quarters of farm support is provided through some of the most distorting forms, largely preventing farmers from receiving market signals and responding to them.

Figure 2.8. Iceland: Level, structure and evolution of agricultural support
picture

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374485

Main policy changes

Within the continued application of the current multi-year agreements between the Government of Iceland and the Farmer’s Association, changes to the agricultural policy are limited. Responding to increasing domestic demand, the milk production quota was increased by some 20% between 2013 and 2015. During that period, a number of production levies for producers of milk, sheep meat and horse meat were abolished. Finally, new regulations on the welfare of livestock aim to ensure the appropriate holding, care and medical treatment of livestock animals.

Assessment and recommendations

  • Iceland continues to provide high levels of agricultural support in forms known to distort agricultural production and trade and to prevent farmers from receiving market signals and responding to them. To reduce the level of support and its distortive effects in a sustainable manner, policies need to be changed away from border protection and in favour of measures less linked to production. The payments to sheep producers introduced in the mid-1990s are a step in this direction, even though some sheep holding needs to be maintained to remain eligible.

  • Reforms need to efficiently target explicit policy objectives, including the protection of the environment and the conservation of natural resources, while reducing market distortions. The new animal welfare regulations are a good example, but an increasing share of support to farmers should be directly linked to the avoidance of negative externalities and the provision of public goods.

  • More emphasis should also be given to a well-functioning agricultural knowledge and information system, for which public expenditures have been declining over the past decade.

Table 2.8. Iceland: Estimates of support to agriculture
picture

Note: 1986-88, 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Iceland are: milk, beef and veal, sheep meat, wool, pig meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375878

2.9. Indonesia

Support to agriculture

Indonesia’s current agricultural policy settings were put in place in 2012 with the implementation of a series of reforms accompanying the new Food Law. These reforms saw a rise in the importance of food sovereignty and food self-reliance as the guiding principles underpinning agricultural policy. In practical terms, this has led to the implementation of policies and programmes to achieve self-sufficiency (a long-standing policy) in a number of products – those of rice, maize, soybeans, sugar and beef.

Producer support to agriculture in Indonesia has increased significantly in recent years. The pressures to increase self-sufficiency through market interventions have seen significant gaps appear between domestic and world market prices – these gaps have been compounded by the recent moderating of world market prices. With the vast majority of support provided in the form of market price support, Indonesia’s percentage PSE rose from 20% of gross farm receipts in 2013 to 29% in 2015. Due to agriculture’s large share in the domestic economy, total support to agriculture (%TSE) is also large at 4% – the highest of all countries examined. In contrast, support provided in the form of payments to general services to agriculture (GSSE) is relative low, and between 2013-15 average 5.2% of TSE.

Figure 2.9. Indonesia: Level, structure and evolution of agricultural support
picture

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374491

Main policy changes

During 2015-16, Indonesia has maintained the main features of its agricultural policy settings that were adopted in 2012. Market price support delivered through domestic and trade policy settings, along with budgetary transfers for variable inputs (mainly in the form of subsidies to fertiliser, seeds and credit) have been the main form of support provided to producers. The Government maintains minimum purchase prices for sugar, soybeans and paddy rice. Similarly, Indonesia has maintained its export tax arrangements related to palm oil and cocoa, but in 2015, announced plans to increase the biofuels mandate to blend 20% palm biodiesel, up from 15%.

Fertiliser subsidies remain the most significant component of budgetary outlays provided to the sector. Funding for these has increased, with some of the savings generated by reforms to the country’s fuel subsidy arrangements being channelled into this policy area. Government investment in irrigation infrastructure also continued to grow in 2015 as the Government of Indonesia has continued its push to improve the country’s irrigation infrastructure. Much of this is targeted towards rice production.

For rice, BULOG maintains its market operations and purchasing functions. However, the effects of trade barriers associated with Indonesia’s self-sufficiency policies have maintained domestic rice prices consistently above international prices. The market price support schemes for rice remain the most important contributor to the longer run significant increases in the level of support in Indonesia, as measured by PSEs, explaining close to 40% of the total PSE in this country in 2015. To counter some of these price effects, BULOG has continued to distribute rice within the RASKIN system. In 2015, this entailed large budgetary transfers to support the system of close to IDR 21 trillion (USD 1.7 billion), up from close to IDR 19 trillion spent in 2014 (USD 1.4 billion).

Assessment and recommendations

The current direction of Indonesian agricultural policy has seen significant price gaps appear between domestic and international markets. The policy focus has been on self-sufficiency as a tool to achieve food security and food accessibility. However, the observed price effects are likely to be working against some of the main objectives that underpin the Food Law of 2012. And while the RASKIN programme has been put in place to improve food accessibility for poor households, recent OECD analysis has brought into question the effectiveness of this programme in improving food security as measured by rates of undernourishment (OECD, 2015).

A number of reforms to the current policy setting would, if implemented, better situate Indonesian agriculture to contribute to improvements in food security, improve its productivity performance and to increase the accessibility of food to citizens.

  • To ease dependence on rice supplies, and deliver greater improvements in food security, Indonesia might consider reforming the RASKIN system through replacing the in-kind rice distribution with conditional cash transfers.

  • Fertilizer subsidies have been found to be costly and the extent to which benefits accrue to farmers has been questioned. A more efficient scheme would be to convert these subsidies to decoupled payments per unit of land as has been progressively implemented in China.

  • A greater focus should be placed on policies that combat poverty and stimulate domestic productivity through investments in infrastructure, the innovation system and through easing constraints on private investment in agriculture. Budgetary savings from reduced input subsidises could be re-allocated to reinforce Indonesia’s Agricultural Innovation System and to improve long-term agricultural productivity.

  • Indonesia applies a growing number of administrative requirements on agro-food imports related to food safety, quarantine, product standards and labelling. The combination of these requirements, uneven enforcement and poor transparency over changing rules is adding to trade costs. Ensuring that requirements are set on a scientific basis and improving transparency and consistency in application should help ease these growing costs.

Table 2.9. Indonesia: Estimates of support to agriculture
picture

.. Not available.

1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Indonesia are: palm oil, cocoa beans, cassava, bananas, rubber, coffee, maize, rice, soybean, sugar, milk, beef and veal, pig meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375885

2.10. Israel

Support to agriculture

In less than 20 years, producer support in Israel has been halved, and is currently seven percentage points below the OECD average (Figure 2.10). Potentially most distorting support still dominates and represents 86% of support provided to producers. Some commodities continue to be subject to price controls. As domestic prices have not come down to the same degree as international prices in recent years the price gap with international markets widened and producer support rose. Total support to agriculture (TSE) was 0.3% of GDP in 2013-15. Direct support to producers (PSE) accounts for 9.7% of the TSE and this support is composed predominantly of payments based on output (including MPS) and input use. The share of the General Services Support Estimate (GSSE) in total support has declined but payments financing the Agricultural Knowledge and Innovation System have increased over time and now represent more than half of GSSE expenditure in recent years.

Figure 2.10. Israel: Level, structure and evolution of agricultural support
picture

Note: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374509

While the level of price distortion for all products has fallen over the long term (as measured by the NPC), prices of selected products continue to be regulated by the government and trade barriers applied at the border remain high. During the last two decades, the share of MPS in total support has increased from 56% to 60%. However, the increase in MPS was offset by a reduction in payments based on input, keeping the share of potentially most distorting support unchanged over the period.

Main policy changes

Due to the dissolution of the Israeli Parliament in December 2014, the state budget was not approved until the 4th quarter of 2015 and most reforms announced in the previous fiscal year were kept on hold for the major part of this year. Despite this, there were some changes over the period. In early 2015, two laws that are expected to increase competition among both wholesalers and retailers came in force. The Israeli government also continued its efforts to reduce support to agriculture by increasing the target price of water for agricultural use and by reducing guaranteed prices for a number of commodities. However, for some products guaranteed prices were reduced by less than the fall in international prices over the same period. Thus, the positive price differential for these products increased considerably. This is the dominant factor behind the overall rise in support for Israeli agriculture in 2015. In addition, there was an increase in subsidies for insurance schemes for farmers following the decision to extend the eligibility criteria for these programs. In 2014, the Israeli government announced its commitment to gradually increase duty-free quotas on a range of dairy products. In anticipation of the decision to increase import quotas, compensatory measures for producers were proposed in June 2015.

Assessment and recommendations

  • Since 1995, Israel has reduced support to agriculture as a result of domestic policy reforms and lower border protection resulting from bilateral trade liberalisation agreements. Recent world price declines have led to an increase in support in 2015.

  • While the level of support to agriculture has fallen over the long term, its composition remains trade- and production distorting. This mostly reflects the continued high share of support to farm inputs and high border protection for agricultural commodities, which pushes domestic prices above international levels.

  • Transfers to farmers from consumers through market price support policies, sustained by a complex system of border protection measures should further be reduced.

  • There is a wide range of policy reforms that could be undertaken to improve the efficiency of the Israeli agricultural sector and its international competitiveness while reducing the cost to taxpayers and consumers. In addition to structural reforms, such as diminishing administrative burdens on agricultural land market transactions, Israel could implement and extend the reforms announced in 2012 aimed at reducing and simplifying customs duties.

  • The environmental performance of agriculture has been mixed and can be further improved, in particular with regard to water management. The recent implementation of a multiyear water quota for the farming sector combined with the increase in fees for fresh water should contribute to improving water use efficiency. However, the level of water price support remained high in 2015 and the reforms may prove to be insufficient to achieve the objectives agreed between the government and producers to fully recover average water supply costs.

Table 2.10. Israel: Estimates of support to agriculture
picture

Note: 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Israel are: wheat, cotton, peanuts, tomatoes, peppers, potatoes, avocados, bananas, oranges, grapefruit, grapes, apples, milk, beef and veal, sheep meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375892

2.11. Japan

Support to agriculture

Japan has gradually reduced its support to agriculture but the change is relatively moderate. Support remains high and averaged 48% of gross farm receipts in 2013-15 – almost three times the OECD average. Market price support (MPS) remains the main element of producer support and is sustained by trade barriers, in particular for rice. The total support estimate to agriculture (TSE) was around 1% of GDP in the most recent years, mostly composed of support to farmers (PSE). Less than one-sixth of total support is devoted to expenditures on General Services Support (GSSE) for the sector as a whole. Around 80% of the GSSE are payments for the development and maintenance of infrastructure.

Figure 2.11. Japan: Level, structure and evolution of agricultural support
picture

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374511

Main policy changes

Japan adopted a new Basic Plan on Food Agriculture and Rural Areas in 2015, which lays out the strategic policy goals and plans for the next 10 years. The plan sets food self-sufficiency targets for the year 2025 on a calorie supply basis (45%) and on a production value basis (73%). Those lie above current ratios of 39% and 64% respectively. Developing the economic potential of agriculture and food processing is a main orientation of the plan and it stresses encouraging exports, innovation, and farmland protection. It also aims at instituting a voluntary scheme where farmers and the government would work jointly towards better balancing of demand and supply of rice and which would replace the current rice supply management system.

The area-based income support payment for upland crops, which was introduced in 2007, was recoupled with current area in 2015, while it was based on past area before 2014.

Japan and 11 other Pacific Rim nations concluded the Trans-Pacific Partnership (TPP) negotiations in late 2015. Under the agreement, market access of agricultural products, including for rice, pork, dairy, beef, wheat, and sugar, will be improved.

Assessment and recommendations

  • Japan began implementing policy reforms based on the agricultural reform plan announced in 2013. These reforms present a mixed picture. While phasing out of the administrative allocation of rice production by the 2018 crop year is an important step to give farmers more freedom to respond to market signals, the remaining incentives to produce diversion crops, such as rice for feed and manufacturing, through commodity specific payments, will keep the price of rice high. Further efforts are needed to gradually reduce those measures and narrow the gap between domestic and international prices of rice, and to reduce production cost by facilitating farm size growth.

  • Japan has made commitments to reduce border measures of some commodities under the TPP framework. Once implemented, this will be a move towards more market-orientation and has a potential to strengthen the competitiveness of the sector. However, Japan proposed various domestic measures to cushion the adverse effects of TPP on domestic producers such as revision of the income stabilisation programme for livestock producers and the purchase of rice for stock. These measures should be transitory and should be operated to further promote structural change and productivity growth of the sector.

  • Japan has made significant efforts to promote land consolidation to “business farmers” certified by authorities. The establishment of the farmland bank, various types of supports for which only business farms are eligible, and the payment for young farmers could contribute structural change and productivity growth, but other factors that hamper the growth of efficient farms still remain in place. Land-use regulation should be made more transparent, with a more predictable framework for conversion from farmland to non-farmland use. Tax concessions on idled land should be reduced, so as to encourage its productive use.

  • Japan’s current agricultural innovation system is characterised by a traditional top-down approach, where scientists in the public sector develop new technologies that are disseminated by extension officers to farmers. The agricultural innovation system should evolve to meet the needs of business farmers in a more inclusive, interactive and participatory approach, including reforms to public R&D funding, extension services and agricultural education.

Table 2.11. Japan: Estimates of support to agriculture
picture

Note: 1986-88, 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Japan are: wheat, barley, soybean, rice, sugar, milk, beef and veal, pig meat, poultry, eggs, apples, chinese cabbage, cucumbers, grapes, mandarins, pears, spinach, strawberries and Welsh onions.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375900

2.12. Kazakhstan

Support to agriculture

The level of producer support fluctuated substantially prior to 2009 and has stabilised at around 12% in more recent years. In 2015, it rose to 15% from 10% in 2014. This strong increase was mainly related to substantially higher market price support (MPS), which accounted for around 40% of producer support. Budgetary transfers to producers are mainly in the form of subsidies to farm investments. Almost three-quarters of total support to agriculture (TSE) is provided to producers individually, the rest is directed to general services and supports food processors.

Figure 2.12. Kazakhstan: Level, structure and evolution of agricultural support
picture

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374523

Main policy changes

A number of policy changes were implemented and approved during 2015 and early 2016. One decision was to abolish state purchases of grain as from January 2016. It was also decided to eliminate per hectare payments for priority crops, as well as a subsidy for cotton quality expertise and a seed subsidy. Changes to the land legislation allowing private ownership of agricultural land will take effect on 1 July 2016. Amendments to the Tax Law were approved to implement a five-fold increase in the land tax rate for agricultural enterprises as a measure to reduce non-cultivated agricultural land areas. A Law on Agricultural Co-operation that came into effect on 1 January 2016 facilitates the creation and operation of producer cooperatives and makes them eligible for a range of support measures. Kazakhstan’s WTO accession is the major development in the trade area. The 19-year accession negotiations were closed on 22 June 2015 and the country became a WTO member on 30 November 2015.

Assessment and recommendations

  • Several reforms were introduced to limit production and trade distorting support, most of them to be implemented in 2016.

  • A broad agricultural debt restructuring has been implemented since 2013. This policy requires prudence in granting new concessions and monitoring compliance with new terms to avoid the creation of soft budget constraints which enable chronic loss-makers to continue operations.

  • More transparent and competitive procedures to grant public support should be established to increase the effectiveness of the government support. The intended electronic system of subsidy payments would be a step in the right direction.

  • The introduction of private ownership on agricultural land is an important step for developing a viable land market in the country, attracting long-term investment to the sector and improving land productivity.

  • The elimination of per hectare payments for priority crops is welcome. However, making support payments and access to concessional credit conditional on compliance with regional specialisation schemes may erode the positive effect from this reform. It also may limit production diversification and therefore farm risk management capacities.

  • A greater focus needs to be placed on enabling producers to better manage market and climate-related risks and on generating incentives for the sustainable use of natural resources. Developing a national system of extension services and improving attractiveness of rural areas to young professionals can present more effective policies for improving farm decision-making and performance than granting support conditioned on compliance with administratively specified requirements.

  • A number of infrastructure projects launched recently have the potential to reduce weaknesses in the transport infrastructure and improve water and land management. Investments in these areas are essential to attain the stated agricultural development goals and will need to be pursued.

Table 2.12. Kazakhstan: Estimates of support to agriculture
picture

Note: 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Kazakhstan are: wheat, rice, maize, barley, sunflower, potatoes, cotton, milk, beef and veal, pig meat, sheep meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375919

2.13. Korea

Support to agriculture

Korea has gradually reduced its support to agriculture especially in the last decade and very modest progress has been made towards more market oriented policies; however, producer support, as percentage of gross farm receipts (%PSE), is still almost three times higher than the OECD average. Korea has the fourth highest percentage PSE, following Switzerland, Norway and Iceland. The Total Support Estimate to agriculture (TSE) as percentage of GDP has significantly been reduced from 8.8% in 1986-88 to 1.8% in 2013-15. The transfer to individual farmers represents 86.1% of the TSE, while the General Services Support Estimate (GSSE) takes up 13.7% of the TSE. The expenditure on development and maintenance of infrastructure accounts for 46.5% of the GSSE, followed by Agricultural knowledge and innovation system.

The Market Price Support (MPS) is the dominant factor in the PSE for Korea, although the ratio of producer price to border price has been reduced from 3.35 in 1986-88 to 1.87 in 2015. As the government purchase programme for rice, in which the government paid a higher price than the market price, was abolished in 2005, Korea adopted a public stockholding scheme for rice, which is a purchase and release mechanism based on the current market price, supplemented with a rice income compensation scheme. This policy change increased direct payments to farmers.

Figure 2.13. Korea: Level, structure and evolution of agricultural support
picture

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374537

Main policy changes

As of 1 January 2015, the tariffication of rice went into effect, replacing the previous non-tariff measures. The tariff rate on rice imports is applied at 513%, but a minimum market access (MMA) volume of 408 700 tonnes is maintained at a 5% tariff rate. On the other hand, the government announced the mid-term plan to balance the supply and demand of rice by 2018 through a gradual reduction of production area, encouraging crop diversification and expanding consumption. To enhance innovation Korea announced the plan to expand the “Smart Farm” concept: greenhouses and cattle sheds that can be remotely controlled using smart phones and PCs, and is starting to develop an improved farm production management models based on big data analysis.

Assessment and recommendations

  • Although the share of support through budgetary payment schemes has gradually increased in most recent years through introducing new payment schemes and increasing the rate of payments, market price support still dominates. More than 90% of producer support is commodity specific, and concentrates on a limited number of products.

  • Reforms of the rice production system should be a policy priority, and the plan to balance the supply and demand of rice is a first step in that direction.

  • To improve market functioning and reduce distortive effects, direct payment schemes need to move away from production and price support toward measures to target explicit policy objectives which match the objectives of society, including the provision of the environmental services such as water management, flood buffering and biodiversity.

  • Public investment for general services, especially the agricultural knowledge and innovation system, is relatively low compared to the OECD average. Further efforts are needed to expand budget expenditure towards longer term growth and competitiveness in the sector.

Table 2.13. Korea: Estimates of support to agriculture
picture

Note: 1986-88, 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Korea are: barley, garlic, red pepper, chinese cabbage, rice, soybean, milk, beef and veal, pig meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375923

2.14. Mexico

Support to agriculture

Mexico has undertaken significant agricultural policy reform since the early 1990s and considerably reduced price distortions and the share of support in farm gross receipts. The shift away from less distorting support, however, has been partly reversed since 2000. Support linked to variable costs increased, in particular the subsidies for electricity and for price hedging contracts. The programme Productive PROAGRO introduced in 2014 to succeed PROCAMPO, re-coupled area payments to production. In 2013-15, transfers to producers (the PSE) constituted 80% of the total support to the agricultural sector, with the remaining 12% directed to general services and 8% to provide direct budgetary subsidies to consumers. Market price support, payments linked to output and variable and capital inputs used dominate support to producers, altogether accounting for 77% of its total. General services are focussed on infrastructure and agricultural knowledge systems, which absorbed 87% of total allocations for general services in 2013-15.

Figure 2.14. Mexico: Level, structure and evolution of agricultural support
picture

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374549

Main policy changes

Mexico’s Agricultural Development Plan for 2013-18 seeks to boost agricultural production, achieve greater self-sufficiency in principal grains and oilseeds, and eliminate the negative balance in agro-food trade. The implementation of the main programmes under this Plan continued in 2015 with no major changes, however, additional support was provided to crop growers whose incomes were affected by a fall in international prices during the 2014 spring-summer crop cycle. A streamlining of rural development and small farmer support programmes was undertaken to improve the efficiency and transparency of budgetary spending and reduce the administration costs of these programmes. The issue of antidumping and countervailing duties on sugar imports from Mexico into the United States was resolved by an agreement to establish a quota on Mexican sugar deliveries to the United States. The WTO dispute since 2008 with the United States on the US mandatory country of origin labelling (COOL) provisions in application to imported Mexican cattle has been also resolved.

Assessment and recommendations

  • A greater policy focus should be placed on strategic investments in the long-term productivity, sustainability and profitability of the agricultural sector. This implies a shift away from input and output-linked subsidies towards supporting the adoption of new technologies, knowledge transfer, in particular extension services, development of food safety system, and infrastructure.

  • The Productive-PROAGRO – re-coupling support to production and the use of inputs – requires an evaluation in terms of its environmental impacts and the extent to which it is effective in raising incomes of small farmers, which has been a rationale for these area payments.

  • Phasing-out subsidies to electricity for pumping water would help a more optimal use of water – an issue of important policy concern. Direct support could be considered to help farmers adopt the practices for more efficient and sustainable use of water.

  • Commercial farmers need to be equipped with a range of tools to manage normal business risks. High subsidies for one specific risk management instrument, such as price hedging, should be avoided. Government support for catastrophic events beyond the capacity of individual farmers to manage their consequences needs to be available and be based on a well-defined set of rules.

  • Policy approaches should be differentiated to respond to the needs of commercial farms and small farmers producing largely for own consumption. As the overall economy develops, poverty reduction should be pursued through place-based development policies and targeted social assistance, rather than through production-linked subsidies.

Table 2.14. Mexico: Estimates of support to agriculture
picture

.. Not available.

1991-93, 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Mexico are: wheat, maize, barley, sorghum, coffee, beans, tomatoes, rice, soybean, sugar, milk, beef and veal, pig meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375931

2.15. New Zealand

Support to agriculture

Since its reforms of agricultural policies in the mid-1980s, production and trade distorting policies supporting the sector in New Zealand have virtually disappeared. For more than 25 years, the level of support to farmers has been the lowest among OECD countries. Support is provided mainly in the context of animal disease control, relief in the event of natural disasters, and the agricultural knowledge and information system. In recent years, more than three-quarters of all support was through these and other general services.

Almost all prices are aligned with world market prices due to open trade. Exceptions are due to New Zealand’s Import Health Standards which effectively prevent fresh poultry, eggs and some bee products from being imported under current economic conditions, thus generating some market price support for these sectors.

Figure 2.15. New Zealand: Level, structure and evolution of agricultural support
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Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374551

Main policy changes

New Zealand’s recent policy changes focus on specific individual problems and thus comprise a set of detailed developments related to damage prevention, reparation and compensation, animal welfare, innovation for sustainable growth, biosecurity risks, and the facilitation of Maori agribusiness. Responses to the significant drought and unusually severe storms and flooding faced by parts of the country in 2015 included additional funds for reparation of infrastructure, for limiting soil erosion and for assisting affected farm households. Investments into research focused on nutrient management, GHG emissions and forage quality. Research is also looking at ways to improve the productivity of Māori-owned land.

The major event in trade polices was the signing of the Trans-Pacific Partnership (TPP) agreement between New Zealand and 11 other members in February 2016.

Assessment and recommendations

  • New Zealand policies strongly focus on limiting biosecurity risks, enhancing productivity and encouraging reduced GHG emissions and other environmental externalities from agricultural production by way of specific and targeted measures.

  • New Zealand’s Import Health Standards effectively prevent fresh poultry, eggs and some bee products from being imported under current economic conditions; New Zealand should investigate alternatives to the current system for achieving its sanitary objectives.

  • Kiwifruit exports to markets other than Australia continue to be regulated by requiring authorisation by Kiwifruit New Zealand for third-country exports by groups other than Zespri.

Table 2.15. New Zealand: Estimates of support to agriculture
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Note: 1986-88, 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for New Zealand are: wheat, maize, oats, barley, milk, beef and veal, sheep meat, wool, pig meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375941

2.16. Norway

Support to agriculture

Progress in reducing the level of support has been modest and it is amongst the countries with the highest levels of support to the farming sector. The Total Support Estimate to agriculture (TSE) was slightly less than 1% of GDP in recent years. Support to farmers (PSE) accounts for 60% of gross farm receipts. Market price support (MPS), mainly due to border protection, still remains the main component of support to farmers, and has only slightly been reduced from 48% of the PSE in 1986-88 to 43% in 2013-15.

While the share of potentially most production and trade distorting support has declined, it still represented most of the support in recent years. Support that is based on individual commodities (mainly market price support) represents 60% of support to farmers and is relatively evenly distributed over commodities. Prices received by producers are on average 80% above world market prices. Expenditures on general services for the sector as a whole (General Service Support Estimate – GSSE) are relatively small and mostly finance the agricultural knowledge and innovation system.

Figure 2.16. Norway: Level, structure and evolution of agricultural support
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Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374568

Main policy changes

The strategic objectives of agricultural and food policies, as set out in the White Paper No. 9 (2011-12) are: food security; agriculture throughout the country; creating more added-value; and sustainable agriculture. The agricultural policy aims at safeguarding agricultural resources, developing know-how and contributing to the creation of employment and value added in farming and farm-based products throughout the country. Agricultural support policy is a substantial component of Norway’s regional and rural policies.

In past decades, farm support has been reduced only modestly and remains three times higher than the OECD average. Notwithstanding some reforms, mainly in the area of introducing more flexibility in the dairy quota system, farm support remains substantial and market distorting and there remains considerable scope for accelerating the pace of reforms. Reform of agricultural policies is on the government’s agenda and several commissions and white-paper processes have been launched.

Assessment and recommendations

  • Agricultural support remains overly concentrated on maintaining the status quo and progress towards reform has been very modest. Despite lower price distortions, Norway’s agricultural sector remains among the most highly protected in the OECD area. The cost-efficiency and tenability of the policy mechanisms are questionable. Attention should be focused on balancing the costs and distortions of support against its claimed benefits (generally in the form of public goods such as food security and sustaining rural economies).

  • Border protection should be reduced, by lowering import tariffs, preferably through a legislated multi-year programme of reductions in order to signal policy commitment and provide a planning horizon for producers. Plans to phase out export subsidies for agricultural products would reduce the distortions associated with these measures and enhance the exposure of producers to market signals.

  • Payments for output and inputs should be reduced, in order to improve producers’ awareness of market signals, and measures that hinder structural shifts towards a more viable agricultural sector should be removed. The proposal of the Government to lighten the legislation on land use and land transfer is a step towards facilitating structural adjustment of the sector.

  • Greater efforts can be made to further strengthen the links between stated policy-objectives and payments for cultural and environmental support mechanisms.

  • An assessment of whether the current format of annual negotiation between government and farmer representatives is well-suited to promoting reform would also be beneficial.

Table 2.16. Norway: Estimates of support to agriculture
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Note: 1986-88, 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Norway are: wheat, barley, oats, milk, beef and veal, sheep meat, wool, pig meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375951

2.17. Russian Federation

Support to agriculture

Support to agricultural producers fluctuated over the long-term, but has remained at approximately the same level between 2012 and 2014.1 Nearly 85% of total support to agriculture (TSE) in 2012-14 was provided to producers individually (PSE), with the rest directed to general services for agriculture (12%) and to food wholesalers and processors (3%). Producer support overwhelmingly (95%) derives from market price support and output and input subsidies. The aggregate market price support, however, disguises strong variations in support across commodities: it represents a mix between the border protection for imported livestock products and sugar and taxation of exported grains and oilseeds. Livestock producers also benefit from domestic grain prices being below the world levels. Support to general services is relatively evenly distributed among the principal areas, however, the largest amount of resources is directed to the agricultural knowledge system.

Figure 2.17. Russian Federation: Level, structure and evolution of agricultural support
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Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374575

Main policy changes

The on-going State Programme for Development of Agriculture for 2013-20 entered its fourth year of implementation in 2016. The deteriorated macroeconomic situation led to several revisions of the Programme’s initial financing targets. The allocations were increased for some of the sub-programmes, but reduced for others, investment grants were introduced as a new assistance, while the previous decision to cease certain investment credit subsidies was suspended. The sectors defined for priority support with the view to import substitution include milk and meat, greenhouse and early vegetables, seed potatoes, fruits and berries. The ban on agro-food imports from a number of countries imposed previously in the context of the Ukrainian crisis was extended. A Treaty on the Eurasian Economic Union (EAEU) came into effect with the Russian Federation as one of the parties. EAEU’s activity in the agro-food area in 2015-16 was focussed on the harmonising of the sanitary and phytosanitary and food safety regulation of its member countries.

Assessment and recommendations

  • Agricultural policy formulated at the inception of the State Programme for Development of Agriculture for 2013-20 aimed at boosting the agricultural production and agro-food import substitution. The political context of the recent years has intensified country’s import substitution orientation into a long-lasting self-sufficiency policy in agro-food area.

  • Non-tariff border protection based on sanitary and phytosanitary and technical regulation grounds remains an active policy, in certain cases raising concerns among trading partners about application by the Russian Federation of undue trade restrictions.

  • The government continued to focus on the cushioning of the effects of the current economic recession on the agro-food sector. Domestic policy has concentrated on increasing the flows of financial resources into agriculture, in particular to support investments in import competing sectors.

  • A new emphasis has been put on the development of domestic seed production and pedigree livestock breeding to reduce dependence on imports of these agricultural inputs, as well as on the improvements in agro-marketing and food distribution infrastructure. A surge in food prices has activated the plans to establish an infrastructure for domestic food aid.

  • Overall, distorting subsidy and import protection continue to prevail as policy instruments to achieve the stated goals. Substantial and sustained improvements in the competitiveness of agriculture are more likely to be achieved through prioritising investments in the sector’s long-term productivity, such as R&D, knowledge transfer, infrastructure, plant and livestock health systems, and also through improving the living conditions in rural areas.

Table 2.17. Russian Federation: Estimates of support to agriculture
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Note: 2015 data not available. 1995-97 and 2012-14: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Russia are: wheat, maize, rye, barley, oats, sunflower, sugar, potatoes, milk, beef and veal, pig meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375962

2.18. South Africa

Support to agriculture

South Africa reduced its support to agriculture during the 1990s and support to farms has remained below 5% of gross farm receipts since 2010 (Figure 2.18). Total support estimate to agriculture (TSE) was around 0.3% of GDP in 2013-15 Direct support to farms (PSE) is the largest part of the TSE. Support based on output (including MPS) and input use is the most important element. As for the General Services Support Estimate (GSSE), the main elements are payments financing the Agricultural knowledge and innovation system and expenditure on infrastructure.

Figure 2.18. South Africa: Level, structure and evolution of agricultural support
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Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374581

The level of price distortions is low and domestic prices are almost aligned with world price levels, except for sugar and in recent years, milk and wheat. Most of the budgetary payments are related to the implementation of the land reforms and assistance to emerging farmers, and to general services for the whole sector.

Main policy changes

Most of the policy measures and direct payments continue to be targeted to the smallholder sub-sector. The Government provides post settlement assistance, including production loans to new and upcoming farmers (mostly operating on redistributed or resituated land). Changes were made to policies related to land redistribution. Under the amended regulation, all the newly acquired land has been registered as state owned on the Agricultural Land Holding Account and provided to selected beneficiaries under lease contracts. The beneficiaries may dispose of the land after an agreed lease period, provided the project is economically viable.

In response to the severe droughts in 2014 and 2015, the Government reprioritised ZAR 330 million from programmes supporting agriculture for FY 2015/16 to drought relief expenditure, and in February 2016, the National Treasury announced that an additional ZAR 1 billion (USD 86 million) will go towards assisting drought relief. The money will go mostly towards water provision, agriculture support, the provision of transport, and feed for livestock. In the most recent years South Africa has been increasing its border protection for some agricultural commodities (sugar, wheat, poultry, and potatoes). South Africa lifted its ban on meat imports from the US in order to retain preferential access for its farming goods to the US market granted under the African Growth and Opportunity Act (AGOA).

Assessment and recommendations

  • The current relatively low level of Market Price Support for South African agriculture is the result of sharp policy reforms implemented in the mid-1990s. Policy changes included deregulating the marketing of agricultural products, liberalising domestic markets, and reducing barriers to agricultural trade. These reforms reduced market price support and budgetary support to commercial farming resulting in a substantial reduction of total support to agriculture.

  • Increased budgetary spending went to financing the land reform process and supporting its beneficiaries (subsistence, smallholders and commercial farmers). The main agricultural policy developments and the main challenges in most recent years are related to the implementation of the land reform programme and creating an enabling environment for new farmers. During 2013-15, policies that aimed to ensure the viability of new entrants and to restore and recapitalise failed projects continued to be implemented with increased budgetary spending.

  • The main challenge into the future continues to be implementing and effectively targeting support programmes that are tailored to the needs of emerging farmers. Involving private stakeholders (experienced commercial farmers) in the support programmes in the form of private-public partnerships is an efficient way to engage the available resources and address the current weaknesses in supporting programmes and services from public authorities.

  • The pace of land reform should be closely linked to the development of the enabling environment for the beneficiaries of land reform; otherwise land redistribution by itself cannot deliver the expected outcomes, such as improving the welfare of the black rural population, increasing food security in rural areas and developing a viable commercial sector.

Table 2.18. South Africa: Estimates of support to agriculture
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Note: 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for South Africa are: wheat, maize, sunflower, sugar, milk, beef and veal, pig meat, sheep meat, poultry, eggs, peanuts, grapes, oranges and apples.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375976

2.19. Switzerland

Support to agriculture

Switzerland has progressively reduced its support to agriculture but the change is relatively moderate and support remains high in terms of its share on gross farm receipts, which is three times above the OECD average (Figure 2.19). Total support estimate to agriculture (TSE) was around 1% of GDP in the most recent years. The direct support to farms (PSE) is the dominant part of the TSE. Support based on output (including MPS) and input use is the most important element of the support. The main element of the General Services Support Estimate (GSSE) is payments financing the Agricultural knowledge and innovation system, which is almost a half of the GSSE expenditure.

Figure 2.19. Switzerland: Level, structure and evolution of agricultural support
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Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374595

One of the main components of support provided to Swiss farming is market price support (MPS) resulting from important trade barriers applied at the border. Over the analysed period the MPS has been reduced from 80% to around 50% of total support to farmers. Also the level of price distortions has been significantly reduced, although domestic prices were on average 60% above world prices in 2013-15. Switzerland also provides important direct payments to farms (all subject to environmental cross-compliance) in the form of payments per area to secure food supplies, payments to maintain farming in less favoured conditions and in the form payments to farmers who voluntarily apply stricter farming practices related to environmental and animal welfare objectives. The role of the direct payments has been increasing over time and while it represented around 20% of total support in the 1980s it has increased to around 50% in the current years.

Main policy changes

Switzerland adopted a new policy framework for the period 2014-17 (Politique Agricole 2014-17). The main change is the suppression of general area payments and reallocation of payments more closely related to specific objectives (agricultural practices) complemented by a system of transition payments to make the reform socially acceptable. Although the structure of the programmes providing direct payments is set for the whole period 2014-17 and the yearly budgeted amount is stable, there were important shifts within those payments in 2015 (second year of the implementation of AP 2017). Some payments, mainly to contribute to landscape quality and biodiversity have increased, while the transitional payments were reduced. On the other side, there were no further reforms to the border measures and the protection remains relatively high. The export subsidies for selected processed products were increased in 2015 from the budgeted CHF 70 million to CHF 95.6 million, to compensate for a sharp strengthening of the CHF related to the end of intervention of the Swiss Central Bank.

Assessment and recommendations

  • The removal of milk price controls, together with the elimination of export subsidies on primary agricultural products and the reduction of some tariff barriers have a potential to improve economic efficiency of the sector. Further reduction of import barriers and the elimination of the export subsidies to processed products should be considered to further reduce the burden to consumers and interference with markets.

  • Security of food supply should be sought through a more competitive agriculture rather than by direct payments. Much, but not all, of Swiss farming occurs in difficult natural conditions and support policies maintain production where it would not otherwise occur. A better distinction could be made, though, between policies that address market failures (the provision of positive externalities and public goods as well as the avoidance of negative externalities), and those that address income problems.

  • Post 2017, the focus should be on further developing a set of better targeted direct payments to meet the various societal concerns and to further reduce border protection in order to meet the declared (and sometimes conflicting) objectives at the lowest costs to consumers and taxpayers. This may result in a reduced amount of total direct payments to farms. Instead some of those payments may be redirected to general services type support (e.g. knowledge transfer) in order to strengthen the productivity of the sector.

  • Switzerland has made great progress in reducing environmental pressures from agriculture. For some objectives such as sustainable use of resources and animal welfare the existing regulations could be made more stringent, while animal welfare and environmental compensation payments can be reduced. In practical terms current cross compliance requirements can be incorporated into mandatory regulation, which then provides a new baseline for more stringent cross-compliance requirements linked to support payments.

Table 2.19. Switzerland: Estimates of support to agriculture
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Note: 1986-88, 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Switzerland are: wheat, maize, barley, rapeseed, sugar, milk, beef and veal, sheep meat, pig meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375988

2.20. Turkey

Support to agriculture

Despite a series of ambitious reforms since the late 1990s, the level of support made available varies from year to year and remains higher than the average for the OECD area. The most distorting forms of support prevail as Market Price Support accounts for three-fourths of the producer support (Figure 2.20). Total support estimate to agriculture (TSE) was around 2% of GDP in most recent years. Payments based on output and input use are the most important element of the support. As for the General Services Support Estimate (GSSE) the main element is financing the development and maintenance of infrastructure, which accounts for approximately 80% of the GSSE expenditure.

Figure 2.20. Turkey: Level, structure and evolution of agricultural support
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Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374607

The level of price distortions has been reduced only slightly: domestic prices remain on average 20% above world prices. Decoupled direct payments were abolished in 2009, while payments based on commodity output have increased since then. The main instrument of direct payments to farms in Turkey is deficiency payments (“premium payments”) provided for the products that are in short domestic supply.

Main policy changes

The strategic objectives of agricultural policies, as identified in the 10th Development Plan (2014-18) are to develop a globally competitive and environmentally-friendly agricultural sector, whose fundamental aim is to provide sufficient and balanced nutrition to population.

After the abolition of decoupled direct payments in 2009, commodity-specific deficiency payments and the payments based on current area or animal number became the main programme of producer support. Recently, Turkey introduced a reform to the deficiency payment to differentiate the crops that will be eligible for the payments to rationalize the production structure based on the most suitable ecological conditions.

Assessment and recommendations

  • Turkey has made remarkable progress in the last decade towards strengthening the agricultural sector’s legal and institutional framework.

  • Since 1986-88, policy efforts aimed at improving market orientation have been variable. There have been ad hoc changes to policy settings within a macro-economic context of high inflation and volatile exchange rates. The share of producer support in gross farm receipts (%PSE) in 2013-15 remained almost unchanged from 1986-88 levels, at around 20%, which is slightly higher than the OECD average.

  • Producer support largely derives from the most market distorting measures, hindering the sustained improvements in agricultural productivity. Further efforts are required to reduce the most distorting support.

  • Greater efforts need to be made to transform the state economic enterprises into economically viable entities operating under competitive market conditions.

  • More public investment is required into agriculture knowledge and innovation system which so far has received a very small share of total support.

Table 2.20. Turkey: Estimates of support to agriculture
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Note: 1986-88, 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Turkey are: wheat, maize, barley, sunflower, sugar, potatoes, tomatoes, grapes, apples, cotton, tobacco, milk, beef and veal, sheep meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933375991

2.21. Ukraine

Support to agriculture

Producer support has been negative in recent years. In 2015, it slightly increased compared to 2014, but remained negative at minus 7%. Policies continue to tax agricultural producers on aggregate, although this outcome results from a combination of taxation of export sectors and protection of import sectors. The level of general services support shrank further.

Figure 2.21. Ukraine: Level, structure and evolution of agricultural support
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Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374614

Main policy changes

Ukraine ratified the Association Agreement with the European Union in September 2014 and has begun its implementation. The Ministry of Agrarian Policy and Food of Ukraine (MAPF) has prepared “The Strategy for Agriculture and Rural Development 2015-2020”, which was approved in late 2015. In the context of budget constraints, the government focused on deregulation and liberalisation of the sector. The Cabinet of Ministers of Ukraine revised and substantially reduced quantities of grain and sugar beet procurements and completely abolished wheat purchases for state grain reserves for the 2015-16 season. The number of agricultural programmes was reduced from 32 in 2014 to 19 in 2015, with many programmes having obtained either less or no funding in 2015. Despite the initial intentions to end support based on Value Added Tax (VAT) concessions, it continued to be an important policy. On 1 January 2016, the Deep and Comprehensive Free Trade Area between the European Union and Ukraine entered into force. Starting from 1 January 2016, the Russian Federation has suspended the free trade regime with Ukraine under the Agreement on Free Trade in the Commonwealth of Independent States (CIS) Area and extended to Ukraine its ban on imports of agro-food products from the European Union. Ukraine subsequently prohibited a broad range of agro-food imports from the Russian Federation.

Assessment and recommendations

  • On average, policies tax producers – this, however, results from taxation of export sectors and protection of import sectors. Most policies are implemented on an ad hoc basis and are missing a long-term strategic orientation.

  • Financial constraints led to the elimination of some important tax concessions to agriculture. The number of agricultural programmes was substantially reduced in 2015, with many programmes either less or not funded at all.

  • Export policies should be reformed. Export restrictions are trade distorting and have a dampening effect on domestic producer prices. By reducing the profitability of the country’s most competitive commodities, they impair the international competitiveness of the sector. VAT refunds on export sales are ineffective, create distrust and harm business environment.

  • General services support declined, mainly due to the cuts in the budget for inspection and control services. In deteriorating economic conditions, the government focused on deregulation and liberalisation of the sector. While the policy of deregulation deserves attention, maintaining an adequate level of basic general services to producers should remain a priority. Moreover, compliance with EU food safety, veterinary and phyto-sanitary requirements remains a major barrier for Ukraine’s access to the EU market.

  • The sector showed an impressive total factor productivity growth during 2003-12. This, however, occurred under conditions of a deteriorating capital stock and to sustain high productivity growth major investment will be required in the upcoming years. However, high economic and political uncertainties lead farms and external investors to delay investments. A return to macroeconomic and political stability remains a critical condition for maintaining a productive agricultural sector.

  • The high dependence of the country’s agricultural sector on weather requires elaboration of a system of measures allowing an effective management of weather-related risks and adaptation of agricultural production to climate change.

Table 2.21. Ukraine: Estimates of support to agriculture
picture

.. Not available.

1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Ukraine are: wheat, maize, rye, barley, oats, sunflower, sugar, potatoes, milk, beef and veal, pig meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933376003

2.22. United States

Support to agriculture

Total support to agriculture represents 0.5% of US GDP in 2013-15. Support for general services provided to agriculture (GSSE) represents 11% of total support (TSE) in 2013-15.2 Producer support as a percentage of gross farm receipts is at about half the level of the OECD average.

The share of payments based on commodity output and payments based on input use in the producer support estimate (PSE) remains high at 49% of the PSE (the OECD average is at 60%). However, 38% of the payments based on input use in the United States are also subject to voluntary environmental constraints. Payments requiring production (based on current A/An/R/I) represent 20% of the PSE. These payments are related primarily to farm insurance and are based on the difference between observed production, yield or revenue, and a pre-planting reference at individual farm or county level. Close to half of the Total Support Estimate is made up of support to consumers from taxpayers through the Supplemental Nutrition Assistance Program (SNAP).

Figure 2.22. United States: Level, structure and evolution of agricultural support
picture

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374622

Main policy changes

With implementation of the 2014 Farm Act underway there have been few domestic policy developments in the United States in calendar year 2015. There have been some developments related to the implementation of the Farm Act, particularly expansions of programmes accomplished in 2015. However, most implementation began in 2014 and has remained unchanged in 2015. Some important developments have occurred in the area of preferential and regional trade agreements. For example, the Trade Preferences Extension Act of 2015 (TPEA) provides preferential duty-free entry for a wide range of products imported from designated beneficiary countries and territories in Africa. The US completed negotiation of the Trans-Pacific Partnership (TPP) in October 2015 while continuing negotiations with the European Union on the Transatlantic Trade and Investment Partnership (TTIP). Other developments concern labelling and food safety. Finally, other initiatives encourage new farmers or target rural poverty.

Assessment and recommendations

  • Levels of producer support and border protection have decreased substantially since 1986-88. However, since 2002 the decline has been primarily due to higher world commodity prices, as several of the support policies in place are linked to changes in prices. Overall, the average support for 2013-15 represented 8.8% of gross farm receipts, with support in 2015 at 9.4%.

  • The increasing emphasis on insurance and risk management policy tools is, in principle, a good approach to providing support to farmers when they are in need. However, the policy tools within the 2014 Farm Act may transfer some part of normal risks from farmers to the public budget.

  • While established environmental programmes like the Environmental Quality Incentives Program (EQIP) and the programmes consolidated into the Agricultural Conservation Easement Program (ACEP) appear to be effective in addressing soil conservation and water pollution problems, careful assessments are needed to ensure that newer programmes like the Regional Conservation Partnership Program are well targeted to providing intended environmental benefits at a local level.

  • Overall, the long-term effects on sustainable improvements in agricultural productivity and efficiency brought about by the 2014 Farm Act require continued assessment.

Table 2.22. United States: Estimates of support to agriculture
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Note: 1986-88, 1995-97 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for the United States are: wheat, maize, barley, sorghum, alfalfa, cotton, rice, soybean, sugar, milk, beef and veal, sheep meat, wool, pig meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933376019

2.23. Viet Nam

Support to agriculture

The level of support to agriculture fluctuates, largely driven by changes in market price support (MPS). An average for 2013-15 was just 0.6%, but it hides varied results across commodities. While producers of import-competing commodities, such as sugar and beef, benefit from tariff protection, producers of several exported commodities are implicitly taxed. Rice producers benefit from a price support system based on target prices designed to provide farmers with a profit of 30% and from direct payments per hectare, tied to maintaining land in rice production. The Total Support Estimate (TSE) is low at 0.5% of GDP. Within the General Services Estimate, the development and maintenance of infrastructure, in particular irrigation, is by far the most important component.

Figure 2.23. Viet Nam: Level, structure and evolution of agricultural support
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Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933374630

Main policy changes

In 2015, basic domestic policy instruments remained unchanged, but Viet Nam continued to be active in pursuing trade liberalisation through regional and bilateral trade agreements. In particular, Viet Nam together with eleven other countries successfully concluded negotiations on a Free Trade Agreement (FTA) within the Trans-Pacific Partnership Agreement (TPP). Viet Nam also signed an FTA with the European Union. While both agreements still need to be ratified, when implemented, they will have wide-reaching implications for all sectors of the Vietnamese economy, including for agriculture. In addition, Viet Nam signed an FTA with the Euroasia Economic Union and the FTA with Korea came into force at the end of the year.

Assessment and recommendations

  • Over the next ten years, both domestic and international conditions will be more challenging for Viet Nam’s agricultural sector than they were over the previous two decades. Prices of many commodities exported by Viet Nam declined over recent years from the peaks seen in 2007-08 and are projected to fall further in real terms over the medium term. Most of the easy sources of lifting production, e.g. expanding land area, employing more cheap labour and using higher rates of fertilisers, have been fully exploited and negative environmental impacts are increasingly seen. These will become major challenges for Viet Nam, but will also open opportunities to adopt new technologies, to give incentives for larger farms and to focus attention on quality and higher value added products.

  • To improve the enabling environment for agriculture, the re-allocation of factors of production across sectors should be eased and constraints on investment alleviated. Likewise, agricultural institutions and governance systems should be improved by: strengthening of institutional co-ordination between the Ministry of Agriculture and Rural Development and other relevant ministries implementing programmes supporting agriculture; reinforcement of the transparency and accountability of publicly-funded programmes; founding policy decision on adequate and accurate information; and integrating monitoring and review mechanisms into the policy process.

  • To improve the allocation of scarce land resources, farm consolidation could be encouraged, including through various forms of co-operation between farmers, and restrictions on crop choice should be removed. Moreover, the scope of compulsory land conversions should be limited and compensations for such conversions should be based on open market land prices. To limit the scope of social conflicts and corruption in the land administration, participatory land use plans could be encouraged and direct transactions between land users without state involvement should be allowed.

  • While the waiver of irrigation service fees has increased farmer income, it has several negative side effects. It has reduced the incentive for farmers to save water; it has made the national budget fully responsible for financing operation and maintenance costs in addition to capital investment; and it diminished incentives for irrigation and drainage management companies to provide quality irrigation services. While the government could remain responsible for all capital investment in the irrigation systems, farmers should cover operation and maintenance costs. Re-establishing a water fee based on a per unit of water charge rather than a per hectare charge, as previously applied, would encourage greater water use efficiency.

Table 2.23. Viet Nam: Estimates of support to agriculture
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.. Not available.

2000-02 and 2013-15: unweighted averages. p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A/An/R/I: Area planted/Animal numbers/Receipts/Income.

1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Viet Nam are: rice, rubber, coffee, maize, cashew nuts, sugar, pepper, tea, beef and veal, pig meat, poultry and eggs.

Source: OECD (2016), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). DOI: dx.doi.org/10.1787/agr-pcse-data-en.

 http://dx.doi.org/10.1787/888933376023

Notes

← 1. Complete budgetary information for 2015 was not available within the timeline for the preparation of this Report – support estimates thus cover the period up to 2014.

← 2. With the introduction of the new calculation method for GSSE in 2015, the GSSE for the US does not include two major sources of previously reported expenditures: 1) the share of the US Supplemental Nutrition Assistance Program (SNAP) expenditures (USD 61 billion in 2015) attributable to the food supply chain beyond the farm; and 2) expenditures on international food assistance (USD 1.4 billion in 2013), both of which had been included under “Marketing and promotion” under the previous GSSE.