The OECD Producer Support Estimate ABARE Outlook 2010, Canberra March 2-3 Hsin Huang Trade and...

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The OECD Producer Support EstimateThe OECD Producer Support Estimate

ABARE Outlook 2010, Canberra March 2-3

Hsin HuangTrade and Agriculture Directorate

OECD Trade & Agriculture Directorate 2

Background

How did OECD get involved?How did OECD get involved?

•Crisis in international agricultural trade in late 1970s and early 1980s...

•…although beggar my neighbour policies were costly there was no incentive for unilateral action…

•…yet no agreed way to measure, compare and evaluate the trade effects of support

What was OECD asked to do?What was OECD asked to do?

•In 1982 OECD was given a mandate by OECD meeting of Finance and Trade ministers…

•“…to analyse the approaches and methods for a balanced and gradual reduction of protection for agriculture and the fuller integration of agriculture within the open multilateral trading system”

How did the OECD respond?How did the OECD respond?

•Adopted the Producer Subsidy Equivalent (PSE), which became the Producer Support Estimate in 1998

•Results in 1987 led to the OECD Ministerial principles for agricultural policy reform

•Key principle was to allow market signals to influence the orientation of production, by way of a reduction in agricultural support

What is the PSE?

What is the PSE?What is the PSE?

•The Producer Support Estimate is an indicator of the annual monetary value of gross transfers to FARMERS

•Measured at the farm gate

• Irrespective of objective or impact on farm production or income or the environment

•Mix of economics + bean-counting

What is the PSE?What is the PSE?

ECONOMIC MEASURE OF TRANSFER

•Market Price Support: policies maintain domestic market prices for farm goods above those at the border (e.g. tariffs, quota)

PAYMENTS TO FARMERS

•Budget Transfers: program payments AND budget revenue foregone (e.g. fuel tax credits)

Market Price Support DominatesMarket Price Support Dominates

Market Price Support still importantMarket Price Support still important

What % farm revenue is gov’t support?What % farm revenue is gov’t support?

100Receipts Farm Gross

What % farm revenue is gov’t support?What % farm revenue is gov’t support?

100Pmts Prod Value

Evolution of OECD PSE 1986-2008Evolution of OECD PSE 1986-2008

•Policies for which support calculations are made:

– those that generate transfers to producers from consumers or taxpayers – opportunity cost

– general economy-wide policies not considered, even if they generate transfers to producers

– calculations based on how policies are implemented, not policy objectives or impacts

– assumption of competitive markets

Which policies are considered?Which policies are considered?

Where does the information come from?Where does the information come from?

•National governments

– Annual questionnaire to OECD members (and some non-members)

– Through delegations

– Public/published sources

•OECD Secretariat works in cooperation with respective countries to classify the information and produce the calculations

More than just bean-counting

PSE: classification of policiesPSE: classification of policies

•It is important for policy evaluation to know “how” support is provided

•Support delivered in different ways can have different effects on production, trade, farm income, environment…

•PSE classification distinguishes different ways to deliver support

– “decoupling of support” is a key consideration

– more attention now to “non-production” concerns

PSE classificationPSE classification

Production required Current A/An/R/I

Production required Non-current A/An/R/I

Production not required Non-current A/An/R/I

Output

Inputs

Factors and incomeArea (A)

Animals (An)Receipts (R)Income (I)

Non-commodity

criteria

A. Support based on commodity output

B. Payments based on input use

C. Payments based on A/An/R/I

D. Payments based on A/An/R/I

E. Payments based on A/An/R/I

F. Payments based on non-commodity criteria

G. Miscellaneous payments

Production required

Production not required

PSE classificationPSE classification

Production required Current A/An/R/I

Production required Non-current A/An/R/I

Production not required Non-current A/An/R/I

Output

Inputs

Factors and incomeArea (A)

Animals (An)Receipts (R)Income (I)

Non-commodity

criteria

A. Support based on commodity output

B. Payments based on input use

C. Payments based on A/An/R/I

D. Payments based on A/An/R/I

E. Payments based on A/An/R/I

F. Payments based on non-commodity criteria

G. Miscellaneous payments

Current parameters

Non-current parameters

PSE Classification: support indicatorsPSE Classification: support indicators

PSE classification also tells whether support:

•involves limits on production/payments or not

•is provided with variable/fixed payment rates

•imposes any kinds of input constraints or not

•is given to a single commodity only, group of commodities, or all commodities

•is for non-commodity production

What are the results?

Support indicators were developed to:

1. monitor and evaluate developments in agricultural policies

2. establish a common base for policy dialogue within and among countries

3. provide input into trade negotiations

4. provide data for analysis of policy impacts

Reminder: why develop support indicators?Reminder: why develop support indicators?

Why is this important for Australia?Why is this important for Australia?

Support differs widelySupport differs widely(Producer Support Estimates as a percent of gross farm receipts)

Australia

Evolution of policies reflected in PSE Evolution of policies reflected in PSE

•As share of market price support falls, payments become more important

•New forms of decoupled payments were introduced…

•…some of which did not easily fit into previous PSE categories

•…and more payment categories needed to accommodate these policies, leading to overhaul of PSE in 2007

Market Price Support and Budgetary TransfersMarket Price Support and Budgetary Transfers2004-06 average2004-06 average

OECD, PSE/CSE database

%PSE is in brackets

Composition of PSE: policy categoriesComposition of PSE: policy categories

OECD, PSE/CSE database

What do we use it for?

1. Monitoring and evaluation1. Monitoring and evaluation

•A unique source of reference

Monitoring and evaluation of agricultural policies in OECD countries, annually since 1988

Monitoring and evaluation of policies in non-OECD countries, bi-annually

Reviews of agricultural policies undertaken before they appear in the regular M+E reports

2. Policy dialogue2. Policy dialogue

•Evidence-based exchange of views

PSEs are calculated using a common methodology and set of practices

PSEs comprehensively measure support to farmers

PSEs enable OECD countries, farmer organisations, and NGOs to focus on the reasons for varied progress in reform and future policy directions

PSEs are the established international benchmark

3. Trade negotiations3. Trade negotiations

•Supporting the WTO multilateral negotiations

The OECD methodology developed in the early 1980s was the conceptual basis for the Aggregate Measure of Support in the GATT Uruguay Round

The PSE and AMS have different aims, but they are complementary

4. Analytical studies4. Analytical studies

•Rich database for modelling impacts of policies

PSEs are accounting tools – they do not as such measure impacts of policies

But PSE data can be used in models to assess impacts of policy change on incomes, production, trade (PEM, GTAP)

…as well as transfer efficiency of policies – the share of policy support that goes to farmers

PSE data base available to research community

Concluding remarksConcluding remarks

•PSE represents a comprehensive and unique account of policy transfers

•PSE does NOT measure policy impacts but are a key input into policy analysis

•PSE database is a rich source of transparent policy information, internationally comparable and updated

Thank YouThank You

Trade and Agriculture DirectorateTrade and Agriculture Directorate

www.oecd.org/agriculturewww.oecd.org/agricultureVisit our website:

Contact:hsin.huang@oecd.org

Support indicators (PSE/CSE) database:

www.oecd.org/tad/support/psecsewww.oecd.org/tad/support/psecse

The OECD Producer Support Estimate ABARE Outlook 2010, Canberra March 2-3 Hsin Huang Trade and...

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