Agricultural Policy Monitoring and Evaluation 2018

Chapter 2. Overall trends in agricultural support

OECD Total

The total support to agriculture (TSE) provided in OECD countries represented USD 317 billion (EUR 285 billion) per year on average in 2015-17 of which 72%, or USD 227 billion (EUR 205 billion), was provided as support to farms (PSE). Support to farms represented 18% of gross farm receipts (%PSE) in 2015-17 across the OECD area, a decline from almost 30% in 1995-97 (Table 2.1).

Together with the level of support, the way support is delivered to farmers has also evolved. In particular, the development in support to agriculture in the OECD area is characterised by the long-term decline of support based on commodity output (including market price support and output payments). This form of support has been identified as having the strongest potential to distort agricultural production and trade, together with the payments based on the unconstrained use of variable inputs which also play a smaller role today across the OECD than twenty years ago.

At the other end of the spectrum in the PSE classification, less distorting forms of support are found, such as payments based on parameters that are not linked to current production or based on non-commodity criteria such as land set aside or payments for specific environmental or animal welfare outcomes. Most notably, payments based on historical entitlements (generally crop areas or livestock numbers of a given reference year in the past) have increased significantly in many OECD countries, representing 4% of gross farm receipts and more than a fifth of the PSE across OECD countries during 2015-17. Payments based on current crop areas and animal numbers were reduced slightly from 1995-97 and represent currently around 15% of total farm support (Table 2.1).

The expenditures financing general services to the sector (GSSE) declined slightly in the OECD area from USD 44 billion per year in 1995-97 to USD 40 billion in 2015-17. Most of these expenditures in 2015-17 go to the financing of infrastructures (USD 17.5 billion), despite a slight decline compared to 1995-97, while the expenditures to Agricultural knowledge an innovation (USD 13 billion) have increased by half since 1995-97. Expenditures for inspection and control services also increased while spending for marketing and promotion activities and on public stockholding declined in the same period, but all of these represented substantially smaller shares of the GSSE (Table 2.1).  

Figure 2.1. OECD: Development of support to agriculture

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). http://dx.doi.org/10.1787/agr-pcse-data-en.

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Support to farmers in the OECD area as a share of gross farm receipts (%PSE) has declined gradually over the long term. In 2015-17, support has been around 18% of gross farm receipts. The share of potentially most distorting support has decreased over time mainly due to a reduction in market price support (MPS) (Figure 2.1). Effective prices received by farmers, on average, were 10% higher than world prices; large differences between commodities persist with domestic prices for rice being a double of the world price, prices for sugar 37%, sunflower 20% and milk and beef 15% above world prices. In 2017, the level of support has decreased due to both lower budgetary payments and lower MPS. The decrease in MPS results from a smaller price gap, as world prices on average increased more than domestic prices (Figure 2.2). Overall in the OECD area, Single Commodity Transfers (SCT) represented 54% of the total PSE during 2015-17. Rice, sugar, sunflower, milk, beef and veal had the highest share of SCT in commodity gross farm receipts, with MPS representing the main component of SCTs for most commodities (Figure 2.3). The relative expenditures for general services (GSSE), mainly on knowledge and infrastructure, have declined as agriculture value added has grown more rapidly. Total support to agriculture as a share of GDP has declined significantly over time. About 70% of the total support is provided to individual farmers (PSE).

Figure 2.2. OECD: Decomposition of change in PSE, 2016 to 2017

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Figure 2.3. OECD: Transfer to specific commodities (SCT), 2015-17

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Table 2.1. OECD: Estimates of support to agriculture (USD)

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Emerging Economies

The total support to agriculture (TSE) provided in the Emerging Economies1 represented USD 297 billion (EUR 266 billion) per year on average in 2015-17 of which 84% or USD 249 billion (EUR 223 billion) were provided as support to farms (PSE). Expressed as a share on gross farm receipts (%PSE), support to farms represented 13.5% in 2015-17 on average across the Emerging Economies, a substantial increase from 2.9% in 1995-97 (Table 2.2).

Together with the increase of support, the share of payments based on output (including the MPS) and input use in total support to farms has also increased. The payments based on output have been identified as having the strongest potential to distort agricultural production and trade, together with the payments based on the unconstrained use of variable inputs. The average share of these potentially most production and trade distorting payments has substantially increased in the Emerging Economies and at almost 80% stays well above the OECD average.

Among the remaining forms of support to farms, the most important are payments based on input use (mainly fixed capital formation) and payments to areas planted and animal numbers. Across the Emerging Economies, the payments based on areas and animal numbers were almost non-existent in 1995-97 but reached close to 10% of total support to farms in 2015-17. All other forms of support to farms remain marginal (Table 2.2).

The expenditures financing general services to the sector (GSSE) in the Emerging Economies reached an annual average of USD 46 billion (EUR 42 billion) in 2015-17. Most of these expenditures went to the financing of public stockholding (USD 19 billion), the remaining expenditures went to finance mainly infrastructure projects and agricultural knowledge an innovation (USD 12 billion each) (Table 2.2).

Figure 2.4. Emerging Economies: Development of support to agriculture

Source: OECD (2018), "Producer and Consumer Support Estimates", OECD Agriculture statistics (database). http://dx.doi.org/10.1787/agr-pcse-data-en.

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In contrast to the OECD area the Support to farmers in Emerging Economies has increased substantially over the long term. In 2015-17, support has been around 14% of gross farm receipts, still bellow but getting closer to the OECD average. The share of potentially most distorting support has increased over time due to a rise of market price support (MPS) and is the dominant part of the support (Figure 2.4). Effective prices received by farmers, on average, were 12% higher than world prices; large differences between commodities persist with domestic prices for rapeseed, rice, wheat, sugar and milk being highly supported while other commodities, notably barley, oats, and sunflower were taxed as domestic prices stand below world market levels. In 2017, the level of support has decreased mainly due to lower MPS as budgetary payments were almost unchanged. The decrease in MPS results from a smaller price gap as world prices increased while domestic prices declined slightly (Figure 2.5). Overall, Single Commodity Transfers (SCT) represented three-quarters of the total PSE during 2015-17. Rapeseed, rice, wheat, sugar and milk had the highest share of SCT in commodity gross farm receipts, while SCTs were negative for barley, oats, and sunflower. MPS is the main component of the SCTs in most cases (Figure 2.6). On average, the expenditures for general services (GSSE), mainly on public stockholding, knowledge and infrastructure, relative to agriculture value added were below the OECD average. Total support to agriculture as a share of GDP has increased over time, mainly driven by the increase of support to farms, which was about 84% of the total support.

Figure 2.5. Emerging Economies: Decomposition of change in PSE, 2016 to 2017

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Figure 2.6. Emerging Economies: Transfer to specific commodities (SCT), 2015-17

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en

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Table 2.2. Emerging Economies: Estimates of support to agriculture (USD)

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All countries

The total support to agriculture (TSE) provided in all countries covered in this report represented USD 620 billion (EUR 556 billion) per year on average in 2015-17 of which 78% or USD 484 billion (EUR 434 billion) were provided as support to farms (PSE). Expressed as a share on gross farm receipts (%PSE), support to farms represented 15.5% in 2015-17 on average for all countries covered, a reduction from 21.4% in 1995-97 (Table 2.3).

The changes of the structure of support related to all countries in the report in the period from 1995-97 to 2015-17, were relatively moderate. The share of the potentially most distorting forms of support (based on output or based on unconstrained use of variable inputs) has declined slightly, but these policies continue to represent almost two-thirds of the PSE across all countries. Most importantly, the share of Market Price Support (MPS) in the PSE has barely changed, transferring more than 9% of gross receipts to farmers in the countries covered. Payments based on output or based on unconstrained input use play a shrinking role overall but continue to contribute to this group of support.

Among the remaining forms of support to farms, the most important are payments based on areas planted and animal numbers and payments based on historical parameters not requiring production. The importance of these latter payments, which are decoupled from current production and hence much less production and trade distorting, has increased significantly and today represents almost 12% of all farm support (Table 2.3).

Across all countries covered in this report, the expenditures financing general services to the sector (GSSE) reached an annual average of USD 86 billion (EUR 76 billion) in 2015-17. Most of these expenditures went to the financing of infrastructure projects (USD 30 billion), agricultural knowledge an innovation (USD 24 billion) and public stockholding (USD 19 billion) (Table 2.3).

Figure 2.7. All countries: Development of support to agriculture

Source: OECD (2018), "Producer and Consumer Support Estimates", OECD Agriculture statistics (database). http://dx.doi.org/10.1787/agr-pcse-data-en.

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Support to farmers (%PSE), when measured for all countries in the report, has declined gradually over the long term. In 2015-17, support has been at 15.5% of gross farm receipts. The share of potentially most distorting support has decreased slightly over time due to the increase of the less distorting parts of support (Figure 2.7). Effective prices received by farmers, on average, were 11% higher than world prices; larger price gaps are recorded for rice, sugar, wheat and milk. In 2017, the level of support has decreased mainly due to lower MPS as total budgetary payments were almost unchanged. The decrease in MPS results from a reduced price gap as world prices increased while domestic prices declined slightly (Figure 2.8). Overall, Single Commodity Transfers (SCT) represented two-thirds of the total PSE during 2015-17. Rice, sugar, wheat, and milk had the highest share of SCT in commodity gross farm receipts (Figure 2.9). MPS is the main component of the SCTs in most cases. On average, the relative expenditures for general services (GSSE), mainly on infrastructure, knowledge and public stockholding, have declined as agriculture value added has grown more rapidly. Total support to agriculture as a share of GDP has declined slightly over time, mainly driven by the smaller relative size of the sector within the overall economies.

Figure 2.8. All countries: Decomposition of change in PSE, 2016 to 2017

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Figure 2.9. All countries: Transfer to specific commodities (SCT), 2015-17

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Table 2.3. All countries: Estimates of support to agriculture (USD)

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Note

← 1.  The Emerging Economies included in this report are: Brazil, China, Colombia, Costa Rica, Kazakhstan, Philippines, Russian Federation, South Africa, Ukraine and Viet Nam.