Evolution of the policy landscape

While the situation on international markets has changed noticeably in the recent past, agricultural policies have also evolved, partly in response to the changes in market conditions, but also reflecting changes in policy pursuits. This evolution of the policy landscape is best illustrated by changes in estimated producer support. Additional specific insights can be derived from the development of policy settings in domestic support, import measures and instruments affecting exports.

Producer support

In its annual Agricultural Policy Monitoring and Evaluation (M&E), the OECD now provides estimates of producer support for a total of 47 countries. Included are the 34 members of the OECD, 6 non-OECD member countries of the European Union and 7 emerging economies.⁶ On aggregate, these 47 countries cover almost 80% of value added in world agriculture (OECD, 2014: 24) and thus provide a good impression of the global picture. It should, therefore, be useful to review developments in these countries during the DDA negotiations, comparing the most recent M&E data (2012) with the average of the six-year period 2002-07, the period before the 2008 draft modalities were tabled. Over that time, the Producer Support Estimate (PSE) for the aggregate of these 47 countries grew by nearly 60%, from USD 308 billion in 2002-07 to USD 486 billion in 2012.⁷ During the same period, gross farm receipts (inclusive of support) for these 47 countries grew even more rapidly, by nearly 90%. Thus the average of the share of producer support (%PSE) in gross farm receipts of the 47 countries declined from 20.3% in 2002-07 to 16.7% in 2012. The decline began in 2007 and continued in 2008, after which the support rate increased again somewhat, suggesting that much of the decline was a result of the rise of international market prices in 2007-08 (Figure 2.3).

Within this aggregate, the evolution in producer support in different country groups have diverged notably. In the OECD area,⁸ the %PSE has declined significantly since the beginning of the century, while the %PSE for the aggregate of the seven emerging economies has increased equally significantly. In both these groups, the change in %PSE was about 15 percentage points since around the year 2000 (Figure 2.3). As a result, the shares of these country groups in aggregate producer support for the 47 countries covered in the M&E have shifted fundamentally. While the group of seven emerging economies made up for no more than 17% of the total in the period 2002-07, its share had grown to 45% by 2012 (Figure 2.4).

Behind these averages for country groups there is a large variation across individual countries. While the %PSE declined by 9 percentage points from 2002-07 to 2012 in the OECD area overall, it decreased by 17 percentage points in Iceland and went up by 2 percentage points in Japan (Figure 2.5). Among the emerging economies, changes in %PSE during that period range from - 4 percentage points in South Africa to 10 percentage points in Indonesia. Given these large differences in the evolution of countries’ producer support despite facing similar developments in international market prices, it is clear that changing market conditions can explain only partially the changes in producer support in several countries. Exchange rate movements and changes in policy settings must account for the remainder.

Figure 2.3. Producer Support Estimate as a share of gross farm revenue, 1995-2023

Source: Author's calculations based on PSE database of OECD.

Figure 2.4. Shares of country groups in aggregate producer support of all 47 countries covered in the OECD’s M&E

Source: Author's calculations based on PSE database of OECD.

The same conclusion can be drawn from the wide variation in changes to the producer Nominal Protection Coefficient (NPC) during the same period (Figure 2.5). In most countries where the %PSE has declined, the producer NPC has also been reduced and vice versa, indicating that a reduction in support based on commodity output has contributed to the decline in overall producer support.⁹ In the OECD area overall, the NPC declined by 0.13, from 1.23 in 2002-07 to 1.10 in 2012. This means that the gap between domestic producer prices (inclusive of payments per unit of output) and international market prices was reduced by 13 percentage points. In the seven emerging countries, the (unweighted) average of NPCs increased from 1.07 to 1.08 during this period.

The change in NPCs is one indication of the evolving composition of producer support. Another indicator, often used by OECD in presenting M&E results, is the share of potentially most distorting support in the PSE, consisting of support based on commodity output and payments based on variable input use without input constraints. This indicator varies across OECD member countries, both in terms of its level and in its change over the period considered here (Figure 2.6). The composition of support has become less distortive in nearly all OECD countries, with the exception of Israel and Canada.¹⁰ For the OECD area overall, the share of most distorting support in overall producer support has declined from 63% in 2002-07 to 52% in 2012. In the emerging countries covered, the (weighted average) share of the most distorting policies in all producer support is not only higher than in the OECD area, it also increased during the same period, from 68% in 2002-07 to 75% in 2012.

The overall picture then is that since the beginning of the Doha Round negotiations, the evolution of producer support has diverged notably between the OECD area and the emerging economies covered in the OECD’s M&E. In the OECD area, producer support as a share of gross revenue declined, while it increased for the aggregate of the emerging economies. The result was that the emerging economies’ share of producer support in the aggregate of all countries covered has grown significantly. Also, while the composition of support has changed in the direction of less distorting measures in the OECD area, the opposite was true in the emerging economies.

Figure 2.5. Change of %PSE and Producer NPC from 2002-07 to 2012

Percentage points for %PSE, absolute for NPC

Source: Author's calculations based on PSE database of OECD.

Figure 2.6. Share of potentially most distorting support in all producer support, 2002-07 and 2012

Notes: Potentially most distorting support is defined as support based on commodity output and payments based on variable input use without input constraints.

The Ukraine is not included in this figure as its share of most distorting support in the PSE was negative due to negative support based on commodity output.

Source: Author's calculations based on PSE database of OECD.