Agricultural Policy Monitoring and Evaluation 2018

Please cite this publication as:
OECD (2018), Agricultural Policy Monitoring and Evaluation 2018, OECD Publishing, Paris.
https://doi.org/10.1787/agr_pol-2018-en

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ISBN: 978-92-64-30234-1 (print) - 978-92-64-30235-8 (pdf) - 978-92-64-30293-8 (HTML) - 978-92-64-30292-1 (epub)

DOI: https://doi.org/10.1787/agr_pol-2018-en

Annual: Agricultural Policy Monitoring and Evaluation

ISSN: 2221-7363 (print) - 2221-7371 (online)

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Foreword

This report Agricultural Policy Monitoring and Evaluation 2018 is the 31st in the series of OECD reports that monitor and evaluate agricultural policies across countries, and the sixth report to include both OECD countries and a set of Emerging Economies. The present report includes countries from all six continents, including the 35 OECD countries and the six non-OECD EU Member States, as well as ten Emerging Economies: Brazil, People’s Republic of China, Colombia, Costa Rica, Kazakhstan, the Philippines, Russian Federation, South Africa, Ukraine and Viet Nam.

The OECD uses a comprehensive system for measuring and classifying support to agriculture - the Producer and Consumer Support Estimates (PSEs and CSEs) and related indicators. They provide insight into the increasingly complex nature of agricultural policy and serve as a basis for OECD’s agricultural policy monitoring and evaluation.

The Executive Summary synthesises the key findings of the report. Chapter 1 provides an overview of developments in agricultural policies and analyses the development of the level and structure of support to agriculture across countries included in the report. The following part contains an overview of the developments of support in the OECD area and selected Emerging Economies overall, followed by chapters on agricultural policy developments and support to agriculture in each of the countries covered in this report. Each country chapter includes a brief summary of policy developments and support to agriculture and related assessments and recommendations; information on the context in which agricultural policies are implemented; and a description of the main policy developments in 2017-18. The Statistical Annex containing detailed background tables with indicators of agricultural support is available in electronic form on the OECD publication website (https://doi.org/10.1787/agr_pol-2018-en).

The Executive Summary and Chapter 1 are published under the responsibility of the OECD Committee for Agriculture. The remainder of the report is published under the responsibility of the Secretary-General of the OECD.

Acknowledgements

This report was prepared by the Trade and Agriculture Directorate of the OECD with the active participation of countries included in this report. The following people from the OECD Secretariat contributed to the preparation of this report: Martin von Lampe (project leader), Václav Vojtech (co-ordinator), Jesús Antón, Ken Ash, Morvarid Bagherzadeh, Florence Bossard, Carmel Cahill, Dalila Cervantes-Godoy, Dimitris Diakosavvas, Emily Gray, Jared Greenville, Guillaume Gruère, Santiago Guerrero, Ben Henderson, Kentaro Kawasaki, Joanna Ilicic-Komorowska, Shingo Kimura, Jussi Lankoski, Catherine Moreddu, Laura Munro, Véronique de Saint-Martin, Silvia Sorescu, Karine Souvanheuane, Noura Takrouri-Jolly, Clara Thompson-Lipponen and Frank van Tongeren. Statistical and technical assistance was provided by the Technical Team: Joanna Ilicic-Komorowska (co-ordinator), Florence Bossard, Frano Ilicic, Clarisse Legendre, Karine Souvanheuane, Noura Takrouri-Jolly and Urszula Ziebinska. Administrative and editing services were provided by Martina Abderrahmane.

The following experts from Emerging Economies also contributed to this report: China – Cheng Guoqiang (Distinguished Professor, School of Economics and Management, Tongji University), Zhu Mande (Guizhou University) and Yu Wen (Agricultural Information Institute, Chinese Academy of Agricultural Sciences); Kazakhstan – Ruslan Syzdykov (Analytical Centre for Economic Policy in the Agricultural Sector, ACEPAS); the Philippines – Tisha Pia E. Dela Rosa, Frances Kaye, Anne Adao and Katrin Mares (Department of Agriculture), Eduardo Sanguyo and Guadalupe Montes-Erfe (Philippine Statistical Authority); Russian Federation – Olga Melyukhina; South Africa – David Spies (North-West University, Potchefstroom); Ukraine – Vitaliy Zhygadlo; Viet Nam – Hieu Phan Sy (Center for Informatics and Statistics, Ministry of Agriculture and Rural Development, MARD), and Tran Dai Nghia, Vũ Huy Phúc and Tran Cong Thang (Institute of Policy and Strategy for Agriculture and Rural Development, MARD).

Reader’s guide Definition of OECD indicators of agricultural support

Nominal indicators used in this report

Producer Support Estimate (PSE): The annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, measured at the farm gate level, arising from policy measures that support agriculture, regardless of their nature, objectives or impacts on farm production or income. It includes market price support, budgetary payments and budget revenue foregone, i.e. gross transfers from consumers and taxpayers to agricultural producers arising from policy measures based on: current output, input use, area planted/animal numbers/receipts/incomes (current, non-current), and non-commodity criteria.

Market Price Support (MPS): The annual monetary value of gross transfers from consumers and taxpayers to agricultural producers arising from policy measures that create a gap between domestic market prices and border prices of a specific agricultural commodity, measured at the farm gate level. MPS is also available by commodity.

Producer Single Commodity Transfers (producer SCT): The annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, measured at the farm gate level, arising from policies linked to the production of a single commodity such that the producer must produce the designated commodity in order to receive the payment. This includes broader policies where transfers are specified on a per-commodity basis. Producer SCT is also available by commodity.

Group Commodity Transfers (GCT): The annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, measured at the farm gate level, arising from policies whose payments are made on the basis that one or more of a designated list of commodities is produced, i.e. a producer may produce from a set of allowable commodities and receive a transfer that does not vary with respect to this decision.

All Commodity Transfers (ACT): The annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, measured at the farm gate level, arising from policies that place no restrictions on the commodity produced but require the recipient to produce some commodity of their choice.

Other Transfers to Producers (OTP): The annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, measured at the farm gate level, arising from policies that do not require any commodity production at all.

Consumer Single Commodity Transfers (consumer SCT): The annual monetary value of gross transfers from (to) consumers of agricultural commodities, measured at the farm gate level, arising from policies linked to the production of a single commodity. Consumer SCT is also available by commodity.

Consumer Support Estimate (CSE): The annual monetary value of gross transfers from (to) consumers of agricultural commodities, measured at the farm gate level, arising from policy measures that support agriculture, regardless of their nature, objectives or impacts on consumption of farm products. If negative, the CSE measures the burden (implicit tax) on consumers through market price support (higher prices), that more than offsets consumer subsidies that lower prices to consumers.

General Services Support Estimate (GSSE): The annual monetary value of gross transfers arising from policy measures that create enabling conditions for the primary agricultural sector through development of private or public services, institutions and infrastructure, regardless of their objectives and impacts on farm production and income, or consumption of farm products. The GSSE includes policies where primary agriculture is the main beneficiary, but does not include any payments to individual producers. GSSE transfers do not directly alter producer receipts or costs or consumption expenditures. GSSE categories are defined in Box 2.

Total Support Estimate (TSE): The annual monetary value of all gross transfers from taxpayers and consumers arising from policy measures that support agriculture, net of the associated budgetary receipts, regardless of their objectives and impacts on farm production and income, or consumption of farm products.

Ratio indicators and percentage indicators

Percentage PSE (%PSE): PSE transfers as a share of gross farm receipts (including support in the denominator).

Percentage SCT (%SCT): Is the commodity SCT expressed as a share of gross farm receipts for the specific commodity (including support in the denominator).

Share of SCT in total PSE (%): Share of Single Commodity Transfers in the total PSE. This indicator is also calculated by commodity.

Producer Nominal Protection Coefficient (producer NPC): The ratio between the average price received by producers (at farm gate), including payments per tonne of current output, and the border price (measured at farm gate). The Producer NPC is also available by commodity.

Producer Nominal Assistance Coefficient (producer NAC): The ratio between the value of gross farm receipts including support and gross farm receipts (at farm gate) valued at border prices (measured at farm gate).

Percentage CSE (%CSE): CSE transfers as a share of consumption expenditure on agricultural commodities (at farm gate prices), net of taxpayer transfers to consumers. The %CSE measures the implicit tax (or subsidy, if CSE is positive) placed on consumers by agricultural price policies.

Consumer Nominal Protection Coefficient (consumer NPC): The ratio between the average price paid by consumers (at farm gate) and the border price (measured at farm gate). The Consumer NPC is also available by commodity.

Consumer Nominal Assistance Coefficient (consumer NAC): The ratio between the value of consumption expenditure on agricultural commodities (at farm gate) and that valued at border prices.

Percentage TSE (%TSE): TSE transfers as a percentage of GDP.

Percentage GSSE (%GSSE): Share of expenditures on general services in the Total Support Estimate (TSE).

Box 1. Definitions of categories in the PSE classification

Definitions of categories

Category A1, Market price support (MPS): Transfers from consumers and taxpayers to agricultural producers from policy measures that create a gap between domestic market prices and border prices of a specific agricultural commodity, measured at the farm gate level.

Category A2, Payments based on output: Transfers from taxpayers to agricultural producers from policy measures based on current output of a specific agricultural commodity.

Category B, Payments based on input use: Transfers from taxpayers to agricultural producers arising from policy measures based on on-farm use of inputs:

Variable input use that reduces the on-farm cost of a specific variable input or a mix of variable inputs.

Fixed capital formation that reduces the on-farm investment cost of farm buildings, equipment, plantations, irrigation, drainage, and soil improvements.

On-farm services that reduce the cost of technical, accounting, commercial, sanitary and phyto-sanitary assistance and training provided to individual farmers.

Category C, Payments based on current A/An/R/I, production required: Transfers from taxpayers to agricultural producers arising from policy measures based on current area, animal numbers, revenue, or income, and requiring production.

Category D, Payments based on non-current A/An/R/I, production required: Transfers from taxpayers to agricultural producers arising from policy measures based on non-current (i.e. historical or fixed) area, animal numbers, revenue, or income, with current production of any commodity required.

Category E, Payments based on non-current A/An/R/I, production not required: Transfers from taxpayers to agricultural producers arising from policy measures based on non-current (i.e. historical or fixed) area, animal numbers, revenue, or income, with current production of any commodity not required but optional.

Category F, Payments based on non-commodity criteria: Transfers from taxpayers to agricultural producers arising from policy measures based on:

Long-term resource retirement: Transfers for the long-term retirement of factors of production from commodity production. The payments in this subcategory are distinguished from those requiring short-term resource retirement, which are based on commodity production criteria.

A specific non-commodity output: Transfers for the use of farm resources to produce specific non-commodity outputs of goods and services, which are not required by regulations.

Other non-commodity criteria: Transfers provided equally to all farmers, such as a flat rate or lump sum payment.

Category G, Miscellaneous payments: Transfers from taxpayers to farmers for which there is a lack of information to allocate them among the appropriate categories.

Note: A (area), An (animal numbers), R (receipts) or I (income).

Definitions of labels

With or without current commodity production limits and/or limit to payments: Defines whether or not there is a specific limitation on current commodity production (output) associated with a policy providing transfers to agriculture and whether or not there are limits to payments in the form of limits to area or animal numbers eligible for those payments. Applied in categories A – F.

With variable or fixed payment rates: Any payments is defined as subject to a variable rate where the formula determining the level of payment is triggered by a change in price, yield, net revenue or income or a change in production cost. Applied in categories A – E.

With or without input constraints: defines whether or not there are specific requirements concerning farming practices related to the programme in terms of the reduction, replacement, or withdrawal in the use of inputs or a restriction of farming practices allowed. Applied in categories A – F. The payments with input constrains are further broken down to:

Payments conditional on compliance with basic requirements that are mandatory (with mandatory);

Payments requiring specific practices going beyond basic requirements and voluntary (with voluntary).

Specific practices related to environmental issues.

Specific practices related to animal welfare.

Other specific practices.

With or without commodity exceptions: defines whether or not there are prohibitions upon the production of certain commodities as a condition of eligibility for payments based on non-current A/An/R/I of commodity(ies). Applied in Category E.

Based on area, animal numbers, receipts or income: defines the specific attribute (i.e. area, animal numbers, receipts or income) on which the payment is based. Applied in categories C – E.

Based on a single commodity, a group of commodities or all commodities: defines whether the payment is granted for production of a single commodity, a group of commodities or all commodities. Applied in categories A – D.

Decomposition indicators

Decomposition of PSE

Per cent change in PSE: Per cent change in the nominal value of the PSE expressed in national currency. The per cent change is calculated using the two most recent years in the series.

Contribution of MPS to per cent change in PSE: Per cent change in nominal PSE if all variables other than MPS are held constant.

Contribution of price gap to per cent change in the PSE: Per cent change in nominal PSE if all variables other than gap between domestic market prices and border prices are held constant.

Contribution of quantity produced to per cent change in the PSE: Per cent change in nominal PSE if all variables other than quantity produced are held constant.

Contribution of budgetary payments (BP) to per cent change in PSE: Per cent change in nominal PSE if all variables other than BP are held constant.

Contribution of BP elements to per cent change in PSE: Per cent change in nominal PSE if all variables other than a given BP element are held constant. BP elements include Payments based on output, Payments based on input use, Payments based on current A/An/R/I, production required, Payments based on non-current A/An/R/I, production required, Payments based on non-current A/An/R/I, production not required, Payments based on non-commodity criteria and Miscellaneous payments.

Decomposition of price gap elements

Per cent change in Producer Price: Per cent change in Producer Price (at farm gate) expressed in national currency. The per cent change is calculated using the two most recent years in the series.

Per cent change in the Border Price: Per cent change in Border Price (at farm gate) expressed in national currency. The per cent change is calculated using the two most recent years in the series.

Contribution of Exchange Rate to per cent change in Border Price: Per cent change in the Border Price (at farm gate) expressed in national currency if all variables other than Exchange Rate between national currency and USD are held constant.

Contribution of Border Price expressed in USD to per cent change in Border Price: Per cent change in the Border Price (at farm gate) expressed in national currency if all variables other than Border Price (at farm gate) expressed in USD are held constant.

Definition of GSSE categories

The general GSSE definition is complemented in Annex 1.A1 by more specific implementation guidelines, provided under the different categories in the GSSE classification.

More detailed information on the indicators, their use and limitations is available in the OECD’s Producer Support Estimate and Related Indicators of Agricultural Support: Concepts, Calculation, Interpretation and Use (the PSE Manual) available on the OECD public website (http://www.oecd.org/tad/agricultural-policies/psemanual.htm).

Box 2. Definitions of categories in the GSSE classification

Agricultural knowledge and innovation system

Agricultural knowledge generation: Budgetary expenditure financing research and development (R&D) activities related to agriculture, and associated data dissemination, irrespective of the institution (private or public, ministry, university, research centre or producer groups) where they take place, the nature of research (scientific, institutional, etc.), or its purpose.

Agricultural knowledge transfer: Budgetary expenditure financing agricultural vocational schools and agricultural programmes in high-level education, training and advice to farmers that is generic (e.g. accounting rules, pesticide application), not specific to individual situations, and data collection and information dissemination networks related to agricultural production and marketing.

Inspection and control

Agricultural product safety and inspection: Budgetary expenditure financing activities related to agricultural product safety and inspection. This includes only expenditures on inspection of domestically produced commodities at first level of processing and border inspection for exported commodities.

Pest and disease inspection and control: Budgetary expenditure financing pest and disease control of agricultural inputs and outputs (control at primary agriculture level) and public funding of veterinary services (for the farming sector) and phytosanitary services.

Input control: Budgetary expenditure financing the institutions providing control activities and certification of industrial inputs used in agriculture (e.g. machinery, industrial fertilisers, pesticides, etc.) and biological inputs (e.g. seed certification and control).

Development and maintenance of infrastructure

Hydrological infrastructure: Budgetary expenditure financing public investments into hydrological infrastructure (irrigation and drainage networks).

Storage, marketing and other physical infrastructure: Budgetary expenditure financing investments to off-farm storage and other market infrastructure facilities related to handling and marketing primary agricultural products (silos, harbour facilities – docks, elevators; wholesale markets, futures markets), as well as other physical infrastructure related to agriculture, when agriculture is the main beneficiary.

Institutional infrastructure: Budgetary expenditure financing investments to build and maintain institutional infrastructure related to the farming sector (e.g. land cadastres; machinery user groups, seed and species registries; development of rural finance networks; support to farm organisations, etc.).

Farm restructuring: Budgetary payments related to reform of farm structures financing entry, exit or diversification (outside agriculture) strategies.

Marketing and promotion

Collective schemes for processing and marketing: Budgetary expenditure financing investment in collective, mainly primary, processing, marketing schemes and marketing facilities, designed to improve marketing environment for agriculture.

Promotion of agricultural products: Budgetary expenditure financing assistance to collective promotion of agro-food products (e.g. promotion campaigns, participation on international fairs).

Cost of public stockholding: Budgetary expenditure covering the costs of storage, depreciation and disposal of public storage of agricultural products.

Miscellaneous: Budgetary expenditure financing other general services that cannot be disaggregated and allocated to the above categories, often due to a lack of information.

OECD indicators of support
ACT | All Commodity Transfers
CSE | Consumer Support Estimate
GCT | Group Commodity Transfers
GSSE | General Services Support Estimate
MPS | Market Price Support
NAC | Nominal Assistance Coefficient
NPC | Nominal Protection Coefficient
OTP | Other Transfers to Producers
PEM | Policy Evaluation Model
PSE | Producer Support Estimate
SCT | Single Commodity Transfers
TSE | Total Support Estimate

Sources and Definitions of Contextual Indicators

Table X.2. Contextual indicators

Gross Domestic Product – GDP (USD billion in PPP): OECD National Accounts, Gross domestic product, USD, current PPPs, current prices. Latest year benchmarked from Economic Outlook projections. For EU member countries, data come from EUROSTAT. World Bank, World Development Indicators (WDI) data for Emerging Economies not available in the OECD database.

Population (million): OECD.Stat, National accounts, Main aggregates, Population and employment by main activity, OECD.Stat, Demography and Population, Population statistics, Historical population data and projections (1950-2050) for latest years not available in National accounts database. UN World population prospects, 2017 Revision for Emerging Economies not available in the OECD database. EUROSTAT for the European Union.

Land area (thousands km2): FAO, Land use database, Land area (000 ha) recalculated to thousands km2. Land area excludes water areas.

Agricultural area (AA) (thousand ha): FAO, Land use database, Agricultural area. EUROSTAT for the European Union.

Population density (inhabitants/km2): OECD.Stat, Regions and cities, Regional demography, Population density and regional area. UN World population prospects, 2017 Revision, Population density by region, subregion and country, 1950-2100 (persons per square km) for countries not available in OECD database. For EU members calculated from EUROSTAT population and area.

GDP per capita (USD in PPP): OECD.Stat, National accounts, Main aggregates, Gross domestic product (output approach), per head, USD, current prices, current PPPs. EU countries, EUROSTAT, GDP and main components - Current prices. World Bank, World Development Indicators (WDI) data for Emerging Economies not available in OECD database.

Trade as % of GDP: Trade data from UN COMTRADE Database. Customs data; Average trade: (exports+imports)/2. EU does not account for intra-EU trade.

Agriculture share in GDP (%): OECD.Stat, Country statistical profiles; Value added in agriculture; hunting and forestry; fishing as % of total value added. EU countries: EUROSTAT, Gross value added - Agriculture and fishing - % of all branches (NACE). World Bank, World Development Indicators (WDI) for countries not available in OECD database.

Agriculture share in employment (%): OECD.Stat, Employment by activities and status (ALFS), employment in agriculture, hunting, forestry and fishing as a share of the employment in all activities (ISIC rev.3, A-B and A-X; ISIC rev.4, A and A-U). EUROSTAT for the EU corresponds to the share of employed persons, aged 15 years and over, in agriculture, hunting, forestry and fishing in total NACE activities. World Bank, World Development Indicators (WDI), employment in agriculture, hunting, forestry and fishing as a share of total employment, and national data for countries not available in OECD database.

Agro-food exports in total exports (%): UN COMTRADE Database. Agro-food definition does not include fish and fish products. Agro-food codes in H0: 01, 02, 04 to 24 (excluding 1504, 1603, 1604 and 1605), 3301, 3501 to 3505, 4101 to 4103, 4301, 5001 to 5003, 5101 to 5103, 5201 to 5203, 5301, 5302, 290543/44, 380910, 382360.

Agro-food imports in total imports (%): UN COMTRADE Database. Agro-food definition does not include fish and fish products.

Crop in total agricultural production (%): Share of value of total crop production (including horticulture) in total agricultural production. National data.

Livestock in total agricultural production (%): Share of value of total livestock production in total agricultural production. National data.

Share of arable land in AA (%): FAO, Land use database, arable land in percentage of agricultural area.

Table X.3. Productivity and environmental indicators

TFP annual growth (%): USDA Economic Research Service, International Agricultural Productivity Database, October 2017. It presents agricultural Total Factor Productivity indexes, using primarily FAO data supplemented by national data. Agricultural TFP indexes are estimates by country and for groups of countries aggregated by geographic region and income class. The European Union single area was recalculated from individual countries data and weights. As reported by USDA, the October 2017 data release no longer used the Hodrick-Prescott filter to smooth the output series. The agricultural output index was replaced by the FAO index of gross agricultural output. Further new input cost shares from Rada, Liefert, and Liefert (2017) were introduced and applied to all former Eastern European Soviet Union States and Russian Federation in the post-1991 periods. As a result of these methodological changes, the reported values have changed considerable as compared to previous releases. The full documentation of the revision is available at: https://www.ers.usda.gov/data-products/international-agricultural-productivity/update-and-revision-history/.

Nitrogen balance (Kg/ha): Balance (surplus or deficit) expressed as kg nitrogen per hectare of total agricultural land. OECD aggregate for nitrogen balance is calculated as the ratio between the total surplus and the total agricultural land area in the OECD area. European Union as a single area was calculated as the Gross Nitrogen Balance in the EU area over the Utilised agricultural area of the EU.

OECD (2017), Agri-environmental indicators, http://www.oecd.org/tad/sustainable-agriculture/agri-environmentalindicators.htm.

Phosphorus balance (Kg/ha): Balance (surplus or deficit) expressed as kg phosphorus per hectare of total agricultural land. OECD aggregate for phosphorus balance is calculated as the ratio between the total surplus and the total agricultural land area in the OECD area. European Union as a single area was calculated as the Gross Phosphorous Balance in the EU area over the Utilised agricultural area of the EU.

OECD (2017), Agri-environmental indicators, http://www.oecd.org/tad/sustainable-agriculture/agri-environmentalindicators.htm.

Agriculture share of total energy use (%): Share of agricultural consumption over total final consumption (TFC).

IEA (2017), "World energy balances", IEA World Energy Statistics and Balances (database), http://dx.doi.org/10.1787/data-00512-en.

Agriculture share of GHG emissions (%): OECD (2017), “Greenhouse gas emissions by source, excluding land use, land-use change and forestry (LULUCF)”. European Union as a single area was calculated from UNFCCC data for Greenhouse gas emissions in the EU area over the total GHG emissions in EU area.

OECD (2017), Agri-environmental indicators, http://www.oecd.org/tad/sustainable-agriculture/agri-environmentalindicators.htm.

UNFCCC (2017), website of the UNFCCC Greenhouse Gas Inventory Database, http://ghg.unfccc.int.

Share of irrigated area in Agricultural Area (AA) (%): Share of irrigated area in total agricultural area. FAO data for Emerging Economies not available in OECD database.

OECD (2017), Agri-environmental indicators, http://www.oecd.org/tad/sustainable-agriculture/agri-environmentalindicators.htm.

Share of agriculture in water abstractions (%): Share of agriculture in total freshwater abstractions. European Union as a single area was calculated as the total abstractions for agriculture in the EU area over the total freshwater abstractions in the EU area.

OECD (2017), Agri-environmental indicators, http://www.oecd.org/tad/sustainable-agriculture/agri-environmentalindicators.htm.

Water stress indicator: The indicator refers to the intensity of use of fresh water resources. It is expressed as gross abstraction of freshwater as percentage of total available renewable freshwater resources. European Union was treated as a single area. OECD (2017), "Water: Freshwater abstractions", OECD Environment Statistics (database), http://dx.doi.org/10.1787/data-00602-en.

Figure X.4. Main macro-economic indicators, 1995 to 2017

Real GDP growth (%): OECD.Stat, Country statistical profiles, real GDP growth. EU countries: Eurostat, GDP volumes, percentage change over previous period. World Bank, World Development Indicators (WDI) data for Emerging Economies not available in OECD database.

Inflation rate (%): OECD Analytical DataBase (ADB), Annual average rate of change in Harmonized Indices of Consumer Prices (HICPs), EUROSTAT for the European Union, World Bank, World Development Indicators (WDI) for Emerging Economies not available in ADB.

Unemployment rate (%): OECD Analytical DataBase (ADB), labour force statistics. ILO estimates and projections, Unemployment rate by sex and age for emerging countries. EUROSTAT for the European Union.

Figure X.5. Agro-food trade

Agro-food exports (USD billion), 1995 to 2016: UN COMTRADE Database. Agro-food definition does not include fish and fish products.

Agro-food imports (USD billion), 1995 to 2016: UN COMTRADE Database. Agro-food definition does not include fish and fish products.

Composition of agro-food trade, 2016: UN COMTRADE Database, Agro-food definition in HS classification (see above) combined with the Classification by Broad Economic Categories (BEC) to generate breakdowns into type of commodities (Primary or Industrial commodities) and type of destination (Consumption or Industry).

Figure X.6. Composition of agricultural output growth, 2005-14

TFP annual growth (%): USDA Economic Research Service, International Agricultural Productivity Database, October 2017. It presents agricultural Total Factor Productivity indexes, using primarily FAO data supplemented by national data. Input growth is the weighted-average growth in quality-adjusted land, labour, machinery power, livestock capital, synthetic NPK fertilisers, and animal feed, where weights are input (factor) cost shares. Special breakdown created to dissociate primary factors (land, labour, machinery and livestock) from intermediate input growth. Output growth corresponds to Gross agricultural output for each country.

Agricultural TFP indexes are estimates by country and for groups of countries aggregated by geographic region and income class. The European Union single area was recalculated from individual countries data and weights.

As reported by USDA, the October 2017 data release no longer used the Hodrick-Prescott filter to smooth the output series. The agricultural output index was replaced by the FAO index of gross agricultural output. Further new input cost shares from Rada, Liefert, and Liefert (2017) were introduced and applied to all former Eastern European Soviet Union States and Russian Federation in the post-1991 periods. As a result of these methodological changes, the reported values have changed considerable as compared to previous releases. The full documentation of the revision is available at: https://www.ers.usda.gov/data-products/international-agricultural-productivity/update-and-revision-history/.

Currencies
AUD | Australian dollar
BRL | Brazilian real
CAD | Canadian dollar
CLP | Chilean peso
COP | Colombian peso
CHF | Swiss frank
CNY | Chinese yuan renminbi
CRC | Costa Rican colon
EUR | Euro
ILS | Israeli shekel
ISK | Icelandic krona
JPY | Japanese yen
KRW | Korean wong
KZT | Kazakh tenge
MXN | Mexican peso
NOK | Norwegian krone
NZD | New Zealand dollar
PHP | Philippines peso
RUR | Russian rouble
TRY | New Turkish lira
UAH | Ukrainian hryvnia
USD | United States dollar
VND | Vietnamese dong
ZAR | South African rand

Abbreviations and acronyms

AAFC

Agriculture and Agri-Food Canada

ABC plan

Low carbon Emissions Agriculture plan (Brazil)

ACC

Agricultural Credit Cooperatives (Turkey)

ACCC

Australian Competition and Consumer Commission

ACEP

Agricultural Conservation Easement Program (United States)

ADR

Rural Development Agency (Colombia)

AGF

Direct Government Purchases (Brazil)

AIS

Agriculture Innovation System

AMIS

Agricultural Market Information System

AMS

Aggregate Measurement of Support

ANC

Areas of Natural Constraints (European Union)

ANT

National Land Agency (Colombia)

APEC

Asia-Pacific Economic Cooperation

APL-s

Sustainable Production Agreements (Chile)

APP

Advance Payments Program (Canada)

ARC

Agriculture Risk Coverage (United States)

SEAN

Association of South East Asian Nations

BBA

Bipartisan Budget Act (United States)

BPS

Basic Payment Scheme (European Union)

BRM

Business Risk Management (Canada)

CAP

Canadian Agricultural Partnership

CAP

Common Agricultural Policy (of the European Union)

CASP

Common Agricultural Support Programme (South Africa)

CEPA

Comprehensive Economic Partnership Agreement

CETA

Canada-European Union Comprehensive Economic and Trade Agreement

CFIA

The Canadian Food Inspection Agency

CGCS

Cotton Ginning Cost Share programme (United States)

CIIL

Crown Irrigation Investments Limited (New Zealand)

CO2

Carbon dioxide

COMESA

Common Market for Eastern and Southern Africa

CONAB

National Food Supply Agency (Brazil)

CPI

Consumer Price Index

CPTPP

Comprehensive and Progressive Trans-Pacific Partnership

CRDP

Comprehensive Rural Development Programme (South Africa)

CRP

Conservation Reserve Program (United States)

CSP

Conservation Stewardship program (United States)

DAFF

Department of Agriculture, Forestry and Fisheries (South Africa)

DCFTA

Deep and Comprehensive Free Trade Area (Ukraine, EU)

DFIP

Dairy Farm Investment Program (Canada)

DIRA

Dairy Industry Restructuring Act of 2001 (New Zealand)

DP

Direct Payments

DPDP

Dairy Product Donation Program (United States)

DPIF

Dairy Processing Investment Fund (Canada)

DRDLR

Department of Rural Development and Land Reform (South Africa)

EAEU

Eurasian Economic Union (Kazakhstan, Russia)

EAFRD

European Agricultural Fund for Rural Development

EAGF

European Agricultural Guarantee Fund

EEA

European Economic Area

EFAs

Ecological Focus Areas (European Union)

EEC

European Economic Community

EFP

Environmental Farm Plans (Canada)

EFTA

European Free Trade Association

EPA

Economic Partnership Agreement

EQIP

Environmental Quality Incentive Program (United States)

ERF

Emission Reduction Fund (Australia)

ETS

Emissions trading scheme (New Zealand)

EU

European Union

FAO

Food and Agriculture Organization of the United Nations

FCC

State agency Food Contract Corporation (Kazakhstan)

FDA

Food and Drugs Administration (United States)

FDI

Foreign Direct Investment

FEP

Commodity Price Stabilisation Fund (Colombia)

FINAGRO

Financing Fund for the Agricultural Sector (Colombia)

FMD

Foot and Mouth Disease

FMD

Farm Management Deposit (Australia)

FPT

Joint Federal, Provincial and Territorial agreements (Canada)

FSA

USDA Farm Service Agency (United States)

FTA

Free Trade Agreement

FY

Financial (fiscal) year

GAEC

Good Agricultural and Environmental Conditions (European Union)

GAO

Gross Agricultural Output

GATT

General Agreement on Tariffs and Trade

GDP

Gross Domestic Product

GF2

Growing Forward 2 (Canada – new multilateral agricultural policy framework)

GHG

Greenhouse Gases

GIA

Government Industry Agreements on Biosecurity Readiness and Response (NZL)

GRA

Global Research Alliance on Agricultural Greenhouse Gases (New Zealand)

GSP

Generalised System of Preferences

IFSS

Integrated Food Security Strategy (South Africa)

IHS

Import Health Standards (New Zealand)

IMF

International Monetary Fund

INDAP

National Institute for Agricultural Development (Chile)

IPARD (I,II)

Instruments for Pre-Accession Assistance for Rural Development (Turkey)

LDC

Least Developed Countries

LEADER

Links Between Actions for the Development of the Rural Economy (EU)

LFA

Less Favoured Areas

LRAD

Land Redistribution and Agricultural Development (South Africa)

MAFISA

Micro-Agricultural Financial Institutions of South Africa

MADR

Ministry of Agriculture (Colombia)

MAG

Ministry of Agriculture and Livestock (Costa Rica)

MARD

Ministry of Agriculture and Rural Development

MAPA

Ministry of Agriculture, Livestock and Food Supply (Brazil)

MAPIP

Māori Agribusiness: Pathway to Increased Productivity (New Zealand)

MAV

Minimum access volume

MDA

Secretariat for Family Agriculture and Agrarian Development (Brazil)

MERCOSUR

Southern Common Market

MEP

Minimum Export Price (Viet Nam)

MFN

Most Favoured Nation

MMA

Minimum market access

MOU

Memorandum of Understanding

MoFAL

Ministry of Food, Agriculture and Livestock (Turkey)

MPP

Margin Protection Programme (for dairy producers) (United States)

MY

Marketing year

NAFTA

North American Free Trade Agreement

NAMC

National Agricultural Marketing Council (South Africa)

NDC

Nationally Determined Contribution

NAP Ag

National Adaptation Plan in Agriculture (Viet Nam)

NDRC

National Development and Reform Commission (China)

NIA

National Irrigation Administration (Philippines)

NFA

National Food Authority (Philippines)

NFRS

National Farmer Registration System (Turkey)

NLP

National Land Care programme (South Africa)

NPF

Next Agricultural Policy Framework (Canada)

NRCS

USDA Natural Resources Conservation Service (United States)

NTMs

Non-tariff measures

ODEPA

Office of Studies and Agrarian Policies of the Ministry of Agriculture (Chile)

OECD

Organisation for Economic Co-operation and Development

OPEC

Organisation of Petroleum Export Countries

PAA

Government purchases from small-scale agriculture (Brazil)

PCF

Pan-Canadian Framework on Clean Growth and Climate Change

PEM

Policy Evaluation Model

PEP

Product Reward Prize programme (Brazil)

PEPRO

Rural Equity Prize programme (Brazil)

PGPAF

Minimum price programme for family farms (Brazil)

PGP

Primary Growth Partnership (New Zealand)

PLC

Price Loss Coverage (United States)

PPP

Purchasing Power Parity

PRAN

National Agriculture Revitalisation Programme (Colombia)

PROAGRO

General Agriculture Insurance Programme (Brazil)

PROCAMPO

Programme providing payments based on historical areas (Mexico)

Productive PROAGRO

Programme providing payments based on historical areas, replacing PROCAMPO (Mexico)

PROGAN

Programme providing payments based on livestock numbers (Mexico)

QR

Quantitative restrictions

R&D

Research and Development

RDCs

Rural Research and Development Corporations (Australia)

RDP

Rural Development Plan (Programme)

REID

Rural Enterprise and Industrial Development programme (South Africa)

REP

Regional Environmental Programmes (Norway)

RID

Rural Infrastructure Development programme (South Africa)

RMA

Resource Management Act 1991 (New Zealand)

RMA

USDA Risk Management Agency (United States)

SACU

South African Customs Union

SADC

Southern African Development Community

SAFP

Andean Price Band System (Colombia)

SAGARPA

The Ministry of Agriculture, Livestock, Rural Development, Fisheries and Food (Mexico)

SAPARD

Special Accession Programme for Agriculture and Rural Development (EU)

SAPS

Single Area Payment Scheme (European Union)

SCO

Supplementary Coverage Option (United States)

SDR

Special Drawing Rights, IMF

SENARA

National Irrigation and Drainage Service institution (Costa Rica)

SFF

Sustainable Farming Fund (New Zealand)

SGA

State Grain Administration (China)

SINOGRAIN

China Grain Reserves Corporation

SNAP

Supplemental Nutrition Assistance Program (United States)

SPS

Single Payment Scheme (European Union)

SPS

Sanitary and Phytosanitary

SSG

Special Safeguard

STAX

Stacked Income Protection Plan (United States)

STE

State Trading Enterprise

TBT

Technical Barriers to Trade

TCZB

Ziraat Bank (Turkey)

TDCA

Trade, Development and Co-operation Agreement

TFP

Total Factor Productivity

TNA

Transitional National Aid (European Union)

TPP

Trans-Pacific Partnership Agreement

TRQ

Tariff Rate Quota

TTIP

Transatlantic Trade and Investment Partnership (EU, US)

UN

United Nations

UNFCCC

United Nations Framework Convention on Climate Change

URAA

Uruguay Round Agreement on Agriculture

USA

United States of America

USDA

United States Department of Agriculture

VAT

Value Added Tax

VCS

Voluntary Coupled Support (European Union)

WTO

World Trade Organization

ZARC

Agricultural Climate Risk Zoning (Brazil)

Executive Summary

In 2015-17, the agricultural policies of the 51 countries covered in this report provided a total of USD 620 billion (EUR 556 billion) a year on average to their agricultural sectors. Around 78% of this, USD 484 billion (EUR 434 billion) a year, was transferred to individual producers, representing around 15% of gross farm receipts. This report considers recent policy developments across these 51 developed, emerging and developing economies.

Future growth in demand for diverse and high-quality food offers significant opportunities for agriculture. However, the sector faces a number of challenges in meeting future demand sustainably. These include increasing productivity growth, which in many economies is well below potential, enhancing the environmental performance of the sector, including in the context of a changing climate, and improving the resilience of farm households to weather, market and other ‘shocks’ that cannot always be anticipated.

Most agricultural policies in place today are not well-aligned with these objectives, although a few countries have long provided support in such a targeted manner and a number of others are moving in this direction. Lower levels of support and a shift towards less distorting and, in some cases, better targeted measures have reduced the trade-distorting effects of current policies. This in many cases has reduced the overall negative trade impacts of agricultural policies even beyond the reductions in support levels. However, progress within many countries remains partial, is not shared across all countries, and in some countries reliance on production and trade distorting measures is even increasing. In 2015-17, almost two-thirds of producer support across the 51 countries covered continued to be provided via measures that distort farm business decisions particularly strongly.

It is imperative that consideration be given, on a much more urgent basis, to shifting the policy effort towards addressing these challenges. Doing so requires a clear separation of measures that provide income support to farm households in need, from measures that would underpin increased farm productivity, sustainability, resilience, and overall profitability. Targeting transitional income support to farm households in need can both make that support more effective and free-up resources for public investment in agricultural innovation, environmental care, and resilience.

Recommendations

A first step is to remove existing policy dis-incentives to increasing productivity, sustainability, and resilience. Remaining production- and trade-distorting support, directly linked to output and input use, should be reduced over time and eventually eliminated. This would allow domestic and international markets to function better, discourage over-use of inputs that can damage the environment, and make limited public funds available for more efficient and effective alternative investments.

In many countries, agricultural support should then be re-directed to ensure the availability of public services that benefit producers, consumers and society overall. This can include effective human, animal and plant health systems, appropriate science-based biosecurity efforts, well-functioning agricultural innovation systems, and adequate physical and ‘soft’ infrastructure, amongst others.

Public investment in research, including efforts to ensure that the outputs of this research reach farmers, can go a long way to ensure that the sector has the capacity to respond to evolving needs and challenges. Collaboration on knowledge generation and transfer with public and private actors – nationally, regionally and internationally – should be encouraged. New information and communication technologies (ICT) also appear to offer untapped potential to improve policy performance and performance on farms - productivity, sustainability, and resilience.

Where knowledge of agri-environmental performance allows, consideration should be given to drawing on the full range of economic instruments (including information, education, regulation, payments and taxes) in pursuit of environmental and climate change goals. Where this knowledge is inadequate, relevant data and indicators need to be developed. Improved policy performance will require a robust information base on environmental outcomes from alternative agricultural production practices, and their links to policy incentives.

Governments should streamline their risk management policies by clearly defining the limits between normal business risks, risks for which market solutions can be developed, and catastrophic risks requiring public engagement. Doing so enables pre-defined public intervention, when required, while sending clear signals to farmers and other private agents for developing relevant on-farm and market-based, privately-organised risk management tools. Governments can also play a proactive role in providing information on market risks and coping strategies for farmers and the private sector in order to facilitate the development of risk management strategies and tools.

In many countries there is a long-standing need to improve understanding of the financial and well-being situation of farm households in order to design effective farm income support measures. Internally consistent data are often lacking on the income and wealth status of farm households, going beyond aggregates and averages to encompass the distribution of financial conditions across the full range of farm households, relative to non-farm households in any given country.

Finally, it is important to recall that farm households respond to the full set of economic, market and policy factors at play. An essential implication is that policy makers need to design coherent policy packages that can address the many opportunities and challenges confronting the sector, and farm households, at any given moment in time. This requires a well-integrated and comprehensive approach to policy development, within and across governments, both domestically and internationally.

Chapter 1.

Developments in agricultural policy and support

The key economic and market developments which provide the framework for the implementation of agricultural policies are analysed in the first part of this chapter. The next part presents the main recent changes and new initiatives in agricultural policies 2017-18 in OECD countries and key Emerging Economies. Then the developments in the estimated support (using the OECD Producer Support Estimate methodology) are evaluated in terms of its level, composition and changes over time in the OECD countries and Emerging Economies included in this report. The chapter also focuses on developments in approaches to support and policies related to agricultural innovation for sustainable productivity growth. The chapter ends with an assessment of support and policy reforms and related recommendations.

Key economic and market developments

Conditions in agricultural markets are heavily influenced by macro-economic variables such as global gross domestic product (GDP) growth (which supports demand for agricultural commodities) and energy prices, especially for crude oil (which determines the price of inputs into agriculture, such as fuel, chemicals and fertiliser, and influences demand for cereals, sugar crops, and vegetable oils through the market for biofuels).

The global economy strengthened in 2017, growing at 3.6%, its fastest rate since 2011, as economic conditions improved in several regions (Table 1.1). Growth in the OECD economies strengthened to 2.4% in 2017, up from 1.8% in 2016, and the OECD-wide unemployment rate fell below its pre-crisis level (OECD, 2018a). In the United States, economic growth increased in 2017 as the drag of past exchange rate appreciations and oil price movements abated. Unemployment was at its lowest level since 2000. Growth in the Euro area continued steadily in 2017, broadening across sectors and countries, and supported mostly by domestic demand. In Japan, growth rebounded to 1.5% in 2017, aided by stronger international trade and fiscal stimulus (OECD, 2017a).

Growth in the Emerging Economies is lower than in the past. After recessions in 2016, growth in Brazil and the Russian Federation recovered in 2017. Growth has resumed in Brazil – initially driven by agriculture, the recovery is now becoming firmer and more broad-based. In the Russian Federation, investment and consumption picked up on the back of higher oil prices and low inflation, and the economy continued to grow slowly. Growth in the People’s Republic of China (hereafter, “China”) strengthened somewhat in 2017, driven by services and some strategic industries (OECD, 2017a).

Global trade has rebounded since the first half of 2016 and become increasingly broad-based across economies. Global trade growth was 4.8% in 2017, compared with 2.6% in 2016 and 4.7% on average in the period 2005-14. Key factors underlying this include the recovery in Europe (a relatively trade intensive part of the world economy), the strong pick-up in electronics trade in Asia, and a shift in the composition of demand towards investment, which is more trade intensive (OECD, 2017a).

Table 1.1. Key economic indicators
OECD area, unless noted otherwise
| Average | 2015 | 2016 | 2017
2005-14
| Per cent
Real GDP growth¹ |  |  |  |
World² | 3.8 | 3.3 | 3.1 | 3.6
OECD² | 1.5 | 2.4 | 1.8 | 2.4
United States | 1.5 | 2.9 | 1.5 | 2.2
Euro area | 0.8 | 1.5 | 1.8 | 2.4
Japan | 0.6 | 1.1 | 1.0 | 1.5
Non-OECD² | 6.2 | 4.0 | 4.1 | 4.6
Brazil | 3.5 | -3.8 | -3.6 | 0.7
China | 10.0 | 6.9 | 6.7 | 6.8
Colombia | 4.7 | 3.1 | 2.0 | 1.7
Russia | 3.5 | -2.8 | -0.2 | 1.9
South Africa | 3.1 | 1.3 | 0.3 | 0.7
Output gap³ | -0.9 | -1.4 | -1.2 | -0.5
Unemployment rate⁴ | 7.2 | 6.8 | 6.3 | 5.8
Inflation1,5 | 2.0 | 0.8 | 1.1 | 1.9
World real trade growth¹ | 4.7 | 2.7 | 2.6 | 4.8
1. Percentage changes; last three columns show the increase over a year earlier.
2. Moving nominal GDP weights, using purchasing power parities.
3. Per cent of potential GDP.
4. Per cent of labour force.
5. Private consumption deflator.
Source: OECD (2017a), OECD Economic Outlook, Volume 2017 Issue2, OECD Publishing, Paris, http://dx.doi.org/10.1787/eco_outlook-v2017-2-en. Last updated 27 November 2017. OECD Economic Outlook 102 database.
StatLink  http://dx.doi.org/10.1787/888933754937

World prices for primary non-agricultural commodities rose in 2017, partly reflecting strong industrial demand as well as geopolitical risks and supply constraints following the agreement amongst Organization of the Petroleum-Exporting Countries (OPEC) and select non-OPEC members to restrict oil production through to March 2018 (Figure 1.1) (OECD, 2017a). Crude oil prices increased by 25% in nominal terms in 2017, however, prices are still considerably below the historical peaks of 2011-2013, and hence did not induce increases in agricultural commodity prices. Demand for biofuels was sustained by obligatory blending and by higher demand for fuel due to lower energy prices, which remained low despite higher crude oil prices (OECD/FAO, 2018). Fertiliser prices were lower during the first 9 months of 2017 as markets continued to face relatively weak global demand due to low crop prices. Markets remain well supplied with adequate stocks and growing low-cost capacity (World Bank Group, 2017).

Food commodity prices increased slightly between January 2016 and January 2017, and saw some further increases thereafter, supported by the global economic recovery and rising production costs (Figure 1.1). In comparison to the preceding years, however, commodity prices remained relatively low. Production in 2017 of most cereals, meat types and dairy products exceeded the already high levels recorded in previous years. Together with high stocks and stagnant demand, this offset the drivers for increased prices discussed above, so that prices for most commodities moved relatively little. Low prices persisted for cereals as global production, notably of maize and rice, reached historical highs in 2017.

Figure 1.1. Commodity world price indices, 2007 to 2017

Index 2002-04=100

Note: The top part of the graph relates to the left scale, while the bottom part of the graph to the right scale.

Source: IMF (2017), Commodity Market Review, for all commodities, food and energy indices, http://www.imf.org/external/np/res/commod/index.aspx; FAO (2017), FAO Food Price Index dataset, for meat, dairy and cereal indices. Base year is 2002-04 http://www.fao.org/worldfoodsituation/foodpricesindex/en/.

StatLink  http://dx.doi.org/10.1787/888933754956

World meat production rose moderately in 2017, driven by increases in the United States mainly, but also in Argentina, China, India, Mexico, Turkey and the Russian Federation. Despite this, world meat prices increased by 9% in 2017, underpinned by increasing import demand for bovine and pig meat and short supplies of sheep meat. The highest price increase was for sheep meat.

Dairy production growth was moderate in 2017, below the average growth rate of the last decade. Prices increased strongly in 2017, driven by declines in milk production in the last quarter of 2016 and first quarter of 2017 (including in major exporters), and by a strong demand for fat solids. This resulted in strongly diverging developments for butter and skim milk powder prices. Butter prices showed a spectacular jump in the first half of 2017, but came down by the end of 2017. On average butter prices were 65% higher than in 2016. Strong demand for milk fats in the form of butter, but also in other products (e.g. cream, full-fat milk and cream yogurts) exceeded the moderate growth in dairy supplies. Constant low prices of skim milk powder (+3% in 2017) were also linked to high stock levels in the European Union (and to a lesser extent in the United States). The price of whole milk powder increased by 46%.

In other commodities, prices of oilseeds did not change, with production remaining broadly at 2016 levels. After increasing strongly in 2016, sugar prices fell sharply in 2017 as production rose in 2017 following two years of shortages. Cotton prices increased even as production continued to recover from the strong drop in 2015. Production grew in all major producing countries except China (OECD/FAO, 2018).

Recent developments in countries’ agricultural policies

This section briefly summarises the main developments in countries’ agricultural policies in 2017, as well as key policy developments that will be implemented in 2018. More details on the developments summarised below, and details on adjustments made to policy settings and programmes within countries current agricultural policy frameworks, can be found in the second part of this report. More information is also available in the extended country chapters that are available online.

A number of countries are reviewing current agricultural policy frameworks. Canada’s Federal, Provincial, and Territorial Ministers of Agriculture reached an agreement on the core elements of the next framework agreement, the Canadian Agricultural Partnership (CAP). Canada is also undertaking a Review of its Business Risk Management (BRM) programmes that focuses on the effectiveness of BRM programmes in managing risks and the programmes’ impact on innovation and growth. In Iceland, the Government and the Farmers’ Association concluded new agreements for the ten-year period 2017 to 2026, with extensive reviews scheduled in 2019 and 2023. Korea’s Development Plan for 2018-22 foresees adjustments to current programmes; investment support for young farmers, for the integration of digital technology into food and agriculture, and for the promotion of renewable energy generation; and measures to further enhance food safety and traceability in the supply chain. In Norway, the government and farmers’ organisations reached an agreement on various agricultural support measures. Norway also released the White paper No. 11 (2016-17) Change and development - A future-oriented agricultural production, which considers plans to reform agricultural policies. Switzerland extended the policy framework adopted for the period 2014-17 without significant changes for the period 2018-21.

Reforms to existing policies and support measures occurred in several countries. China lowered the 2017/18 minimum support prices for wheat and rice, and replaced the soybeans target price by a “market-oriented soybeans price plus a direct subsidy to soybean farmers” based on area planted. The European Union abolished the sugar production quota as initiated in the 2006 reform. Iceland began to redeem the milk quota and redistribute it. From 2018, Japan abolished its government administered rice production quota and the income support payment for rice producers who meet the rice production target. Korea increased the per hectare rate of direct payments for farms and for less-favoured areas. Korea also plans to reduce the area eligible for rice support, by providing a higher payment for diversification along with measures to stimulate demand. Kazakhstan eliminated the VAT preference applied to certain agricultural producers and processors as part of its WTO accession protocol. Viet Nam will re-introduce a fee for irrigation services from 2018.

New support measures were introduced into a number of countries. Canada established two programmes to help dairy farmers and processors adapt to the anticipated impacts of increased cheese imports from the European Union as a result of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). Chile implemented a new programme that targets young farmers (18-35 years old), by providing subsidies for variable and fixed inputs, finance, capacity building, training and the development of networks. Colombia implemented a range of new support measures, including a subsidy to rice farmers to store grain; an income compensation payment to cotton producers; and debt rescheduling and debt relief for farmers (from 2018). The Philippines abolished the irrigation service fee paid by farmers to increase support for rice producers. The Russian Federation announced conditions for intervention purchases of dry milk and butter for the first time. However, no purchases were made as prices remained above the minimum levels. Ukraine abolished its VAT accumulation mechanism and introduced a specific “development subsidy”. The United States authorised a second Cotton Ginning Cost Share (CGCS) programme to help cover cotton ginning costs for the 2017 crop year and made revisions to cotton and dairy programmes. In addition, the 2017 Tax Cuts and Jobs Act includes a number of provisions that will affect agricultural producers, beginning 2018.

There have been institutional and regulatory developments in a number of countries. In Australia, dairy industry participants signed a voluntary code of conduct to overcome issues surrounding the determination of farm gate prices and perceived unfair practices in the value chain. Chile’s Ministry of Agriculture created the Ministerial Technical Committee on Climate Change to address the challenges faced by the agriculture sector due to its high vulnerability to weather variability. Costa Rica established regulations, general principles and procedures related to chemical registration and use. In the European Union, the Omnibus regulation (EU Regulation 2017/2393) amends the financial regulation governing the implementation of the EU budget and 15 sectorial legislative acts, including agriculture. The agreement is aimed at simplifying the CAP. The European Union also renewed the current approval of the herbicide glyphosate for a five-year period. Israel introduced several programmes to reduce regulatory burden, facilitate market linkages, and increase competition in the agro-food chain, particularly in the fruit and vegetable sector. In Kazakhstan, the partial privatisation of KazAgro was delayed as no buyers came forward at auctions held in 2017 for the privatisation of 11 KazAgro subsidiaries. Korea strengthened procedures for product certification and pest and disease control and restructured some of its agricultural organisations. Turkey abolished two of its four state-owned marketing boards for agricultural products (for sugar and tobacco), but maintained the Turkish Grain Board, and the Meat and Milk Board. The Ministry of Food, Agriculture and Livestock took over responsibility for administering marketing regulations in 2017. Ukraine continued efforts to improve the legislative basis for its food safety, hygiene and quality systems.

On risk management, Australia expanded its concessional loans programme, which is used to help producers recover from adverse events and put in place better risk management strategies. In Brazil, the Veterinary Inspection system is to be modernised to improve the management of animal disease risks. The government is recruiting six hundred additional sanitary professionals. In the European Union, the income stabilisation tool (within the rural development regulation) was amended to include a new sector-specific measure that triggers support if average annual income in the sector drops by more than 20%. Further, support for insurance contracts becomes available when more than 20% of a farmer’s average annual production is destroyed. In Korea, the scope and coverage of the agricultural disaster insurance scheme were expanded to three additional products (citron, fig, and crown daisy raised in facilities). Turkey extended the coverage of support provided to agricultural insurance in 2018 to more products and risks.

The European Union, New Zealand and the United States implemented measures in response to exceptional circumstances or natural disasters. Exceptional measures as a result of the Russian embargo were continued in the European Union in response to market conditions in the dairy, fruit and vegetables, and pig sectors. New Zealand provided relief funding in response to several medium-scale adverse events in 2017. Relief funding was made available for repairing essential infrastructure along with repairs to uninsurable infrastructure. Affected producers could also apply for Rural Assistance Payments. The United States implemented a number of measures to provide disaster assistance to producers affected by hurricanes and wildfires in 2017.

On land reform and investment, in China a draft of the revised Rural Land Contracting Law plans to extend existing rural land contracts by 30 years upon expiration. Access to land continued to be a priority in Colombia and, in 2017, around 3 000 land plots were formalised or legally registered under the auspices of the new ANT Agency. In New Zealand rules on access for foreign investors to “sensitive agricultural land” were extended to virtually all agricultural land. In South Africa a bill was passed allowing expropriation without compensation of commercial farms owned by white farmers. A change in legislation also prohibits foreigners from buying agricultural land and they can only lease it under long term contracts.

On innovation, Colombia approved a law to create a National Agricultural Innovation System. Costa Rica is reforming its extension services to better link them with the Innovation and Transfer of Agricultural Technology (INTA), the country’s agricultural R&D institution. Viet Nam announced a lending programme to promote the development of high-tech, clean agriculture that offers interest rates 0.5-1.5% lower than market interest rates.

On measures and programmes that affect agri-environmental and climate outcomes, Brazil passed its national biofuel policy in December 2017. The policy is an attempt to respond to Brazil’s Intended Nationally Determined Contribution commitments under the Paris Climate Agreement. Provincial local governments in China delineated additional “environmental control zones” – where livestock farming activities are prohibited, in order to address environmental concerns in congested areas and waterways across the South, East and Centre regions of China. Costa Rica modified the water pricing system based on consumption at the farm level. Israel detailed a new pricing system for freshwater use in agriculture, encompassing two flat rates for agriculture users with or without alternative water sources throughout the country. Countries’ progress in implementing greenhouse gas (GHG) mitigation policies in agriculture at a national level are explored in Box 1.1.

On trade promotion and market development, the Russian Federation announced the development of agricultural export potential as a new policy orientation. The new Priority Project on Export of Agricultural Products focuses on sanitary and phytosanitary improvements and market research and promotion. Switzerland’s Ordinance on “Swissness” came into force, which defines the regulations which have to be fulfilled in order to use the Label “Swiss” and the label of the Swiss cross. In Viet Nam, the Prime Minister approved a rice export development strategy for 2017-20, with a vision to 2030.

On trade, in March 2018 Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Viet Nam signed a new agreement called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP). Trade negotiations between the European Union and Mexico and the European Union and the Mercosur advanced in 2017. In September 2017, the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) entered into force provisionally, allowing application of about 90% of the agreement’s provisions pending EU Member States ratification of the agreement by their national parliaments. The negotiation of the Free Trade Agreement between the Central American Republics and Korea was finalised, and the Korea-Central America Free Trade Agreement was signed in February 2018. In September 2017, the European Parliament approved two EU-Iceland agreements, one on agricultural trade and one on mutual recognition of geographical indications. In December 2017, the Economic Partnership Agreement between the European Union and Japan was finalised. Pending a final agreement on the investment protection chapter, the deal is expected to enter into force in 2019. Australia concluded a free trade agreement with Peru in February 2018 and both Australia and New Zealand signed the Pacific Trade and Economic Agreement (PACER Plus) in June 2017.

Box 1.1. Climate change mitigation policy progress in agriculture

The agriculture sector is responsible for a substantial share of global greenhouse gas (GHG) emissions, and this is expected to grow over the course of the next century. Stronger economy-wide mitigation efforts to slow down global warming are being embraced worldwide, and a clear trend towards the inclusion of agricultural emissions in national and regional mitigation efforts is visible. Despite this encouraging momentum, national policies that can incentivise the agriculture sector to make a meaningful contribution to national GHG mitigation goals are still lacking. This box provides a brief snapshot of progress on national level GHG mitigation policies in agriculture, based on the countries reviewed in this report. It is not exhaustive and also does not cover subnational and industry-led initiatives.

Some 11% of global anthropogenic GHG emissions are directly attributed to primary agriculture, with another significant share related to increases in agricultural land use. Agriculture’s share of total national GHG emissions varies considerably among the countries reviewed in this report, from 3% (Japan and Israel) to 48% (New Zealand).

The Paris Agreement, negotiated at the 21st session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC), provides the framework for co-ordinated global action on climate change. It allows Parties to set their own emission reduction targets set out in their Nationally Determined Contributions (NDCs), to try and meet the Agreement’s goal of keeping global warming to well below 2oC while pursuing efforts to limit warming to 1.5°C above pre-industrial levels, by the end of the century (UNFCCC, 2015). To date, the agreement has been ratified by 175 of the 195 signatories. All 23 countries and the European Union which feature in this report are signatories, with only the Russian Federation, Turkey and Colombia1 yet to ratify. However, since ratifying the Paris Agreement in 2016, the United States has announced its intention to withdraw.

There is growing recognition that agriculture must play its part in contributing to the goal of the Paris Agreement to limit global warming, with scenarios showing that methane and nitrous oxide emissions, mainly from agriculture, could become the largest source of global emissions by mid-century (Gernaat et al., 2015; Wollenberg et al., 2016). This recognition is reflected in the inclusion of agriculture in the majority of the NDCs submitted by signatories of the Paris Agreement. However, as very few NDCs include sector-specific targets, the contribution of agricultural emission reductions to achieving these pledges remains unclear, and very few national level policies have been implemented to date. Where national policies do exist, these are voluntary and are mostly designed to encourage research, development and the transfer of knowledge about low emission practices and technologies. Several countries also have policies in place that address multiple environmental impacts from agriculture, which may help lower GHG emissions.

Among the countries reviewed in this report, Australia’s Emission Reduction Fund (ERF) and Brazil's Low Carbon Agriculture (ABC) Plan most directly target emission reductions in agriculture. Both of these policies pre-date the signing of the Paris Agreement, but are central to their pledged GHG mitigation goals under the Agreement. The Emission Reduction Fund in Australia uses an auction mechanism to allocate government funds primarily to land use sectors, including agriculture. Since 2015, the Fund has been used to contract 18 million tonnes CO2-eq of abatement in the agricultural sector, with a further 124 and 14 million tonnes CO2-eq contracted in land vegetation and savannah burning projects, respectively (Clean Energy Regulator, 2018). The ABC plan in Brazil provides a substantial amount of credit to finance the implementation of sustainable practices in agriculture, including carbon sequestration from restoring 15 million hectares of degraded pasturelands, by 2030. While the ambition of these national policies is promising, concerns have been raised about their effectiveness, which can only be judged in the future if and when they can deliver their scheduled targets.

Some countries have also specified national targets for GHG emission reductions in agriculture. Switzerland, for example, has proposed to reduce agricultural emissions by one-third by 2050, contributing to a two-thirds reduction of emissions across the whole agro-food chain. Viet Nam proposes to reduce emissions by 20% every ten years, while increasing production by 20%, prioritising research on range of measures, while China has a specific target for achieving zero growth in fertiliser (a major source of nitrous oxide emissions) and pesticide use by 2020.

Most national policies for emission reductions in the agriculture sector rely on research, development (R&D) and the transfer of knowledge regarding low emission practices and technologies. New Zealand is a notable example, with these activities supported through national research programmes and its leading role in co-ordination with the 49 member countries of the Global Research Alliance on Agricultural Greenhouse Gases (GRA) (see also section on Innovation). Several other reviewed countries have indicated that R&D and the promotion of low emission practices are central to their national ambitions to lower agricultural emissions, including Canada, Costa Rica, Japan, Mexico, Viet Nam and a number of European Union Member States.

A number of the countries included within this report have agri-environmental policies in place that contribute to the abatement of agricultural GHG emissions. For the European Union, GHG abatement is mainly addressed through Common Agricultural Policy (CAP) elements that aim to improve environmental performance such as cross-compliance and greening under Pillar 1, and agri-environmental and climatic measures under Pillar 2. EU Member States have also developed specific national policies to tackle climate change, including Germany, France, Hungary and Sweden among others provide support for technologies that reduce GHGs and ammonia from manure handling and storage. While the United States does not have a specific national mitigation programme for agriculture, the United States Department of Agriculture (USDA) does provide some incentives to producers through various conservation practices and programmes, some of which have mitigation benefits. Similarly, environmental programmes in Canada (such as the Environmental Farm Plans and the Environmental Stewardship Incentive) deliver multiple environmental outcomes, including some related to climate change mitigation.

Finally, it is worth noting that the state pledges made under the Paris Agreement are only expected to deliver around one-third of the emission reductions required to reach the goal of keeping global warming well below 2oC, by the end of the Century (UNEP, 2017). With agriculture’s share of global GHG emissions likely to increase over time, mitigation policies to reduce this growing emissions source will become increasingly urgent.

Note: 1. The Colombian Congress has passed a bill that ratifies the Paris Agreement, but the process of ratification is not yet completed.

Source: Clean Energy Regulator (2018), “Emissions Reduction Fund”, http://www.cleanenergyregulator.gov.au/ERF; Gernaat et al. (2015), “Understanding the contribution of non-carbon dioxide gases in deep mitigation scenarios”, Global Environmental Change; Wollenberg et al. (2016) “Reducing emissions from agriculture to meet the 2oC target”, Global Change Biology; UNEP (2017), “The Emissions Gap Report 2017”, United Nations Environment Programme (UNEP), Nairobi; UNFCCC (2015), Adoption of the Paris Agreement, United Nations Framework Convention on Climate Change, Paris.

Developments in agricultural support

This section provides a quantitative assessment of developments in policy support to agriculture in 2017, and compares policy support in recent years (2015-17) with support provided to the agricultural sector in the mid-1990s (1995-97). It covers the 35 OECD countries as well as the six non-OECD EU Member States and ten emerging and developing economies. In much of this report, the European Union is presented as one economic region. The assessment is based on a set of OECD indicators that express the diversity of support measures applied in different countries in a few simple numbers that are comparable across countries and over time, where different indicators focus on different dimensions of countries’ support policies. Annex A provides definitions of the indicators used in the report. The OECD is also a key member of the International Organisations Consortium for Measuring the Policy Environment for Agriculture (the Consortium), an initiative that aims to develop a global picture of the distortions introduced by agricultural policies (Box 1.2).

The burden of agricultural support on countries’ economies has generally declined, but public support is still important for the agricultural sectors of some countries

The Total Support Estimate (TSE) is the OECD’s broadest indicator of agricultural support. The TSE combines transfers to agricultural producers individually (measured by the Producer Support Estimate, the PSE); policy expenditures that have primary agriculture as the main beneficiary, but do not go to individual producers (measured by the General Services Support Estimate, the GSSE); and budgetary support to consumers of agricultural commodities (the Consumer Support Estimate, the CSE, measured at the farm gate level and net of the market price support element).

The overall burden of agricultural support on the OECD countries’ economies has declined since the mid-1990s, as measured by total support as percentage of GDP (%TSE, Panel A of Figure 1.2). In the OECD countries on average, total support to agriculture declined from 1.3% of OECD aggregate GDP in 1995-97 to 0.7% in 2015-17. Significant reductions have occurred in countries where the relative cost to the economy of agricultural support was highest, including Korea, Turkey, Switzerland and Iceland. Nevertheless, the %TSE is high in these countries – between 1.1% and 2.2% of GDP – despite the fact that agriculture is an important part of the economy only in Turkey.

There are contrasting trends in the overall burden of agricultural support on the emerging and developing economies covered in this report. The %TSE has declined significantly in Colombia, the Russian Federation and South Africa. In the mid-1990s, Brazil and Ukraine effectively taxed their agricultural sectors on average. In 2015-17, Brazil provided positive support to the sector of around 0.4% of GDP, while Ukraine is again taxing the sector after providing positive support in the late 1990s and 2000s. Total support as a percentage of GDP has increased substantially in China (from 1.4% to 2.3%) and the Philippines (from 3.0% to 4.7%), and to a lesser extent in Costa Rica and the Philippines, despite the declining importance of agriculture to the economy.

Public policy support continues to be important for the agricultural sector in some countries. In 2015-17, total support relative to the size of countries’ agricultural sectors varied widely across the OECD countries, from 160% of agricultural value added¹ in Switzerland, 93% in Japan and 82% in Korea, to less than 15% of agricultural value added in Australia, Chile and New Zealand (Panel B of Figure 1.2). In the European Union, Israel and Norway, TSE relative to agricultural value added was close to the OECD average of 42%. In the emerging and developing countries, total support relative to the size of the agricultural sector ranges from 1% of agricultural value added in Viet Nam to 30% in the Philippines. For most countries, total support has declined relative to the size of the agricultural sector.

Figure 1.2. Total Support Estimate by country, 1995-97 and 2015-17

Notes: Countries are ranked according to the %TSE in 2015-17.

1. For the Philippines and Viet Nam, 1995-97 is replaced by 2000-02.

2. For Kazakhstan and the Philippines, 2015-17 is replaced by 2015-16, due to missing GDP and agricultural value added in 2017.

3. EU15 for 1995-97 and EU28 for 2015-17.

4. The OECD total does not include the non-OECD EU Member States. The Czech Republic, Estonia, Hungary, Poland, the Slovak Republic and Slovenia are included in the OECD total for both periods and in the EU for 2015-17. Latvia is included in the OECD and in the EU only for 2015-17.

5. The 10 Emerging Economies are Brazil, China, Colombia, Costa Rica, Kazakhstan, the Philippines, Russian Federation, South Africa, Ukraine and Viet Nam. The Philippines and Viet Nam are included only for 2015-17. Indonesia is not included in this report.

6. The All countries total includes all OECD countries, non-OECD EU Member States, and the 10 Emerging Economies.

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

StatLink  http://dx.doi.org/10.1787/888933754975

Total support to agriculture averaged USD 620 billion (EUR 556 billion) a year in 2015-17 over all the countries covered in the report. The monetary value of agricultural support in OECD countries and in the emerging and developing economies covered by this report is roughly the same – in 2015-17 total support to agriculture in the OECD countries averaged USD 317 billion (EUR 285 billion) a year on average (51% of total support), compared with USD 297 billion (EUR 266 billion) a year on average in the emerging and developing countries.

Policy transfers to individual producers dominate total support in almost all countries. As measured by the PSE, around 78% of total support was provided to individual agricultural producers – USD 484 billion (EUR 434 billion) a year on average in 2015-17. In contrast, only a small share of total support was provided for general services across all the countries examined – 14% of total support or USD 86 billion (EUR 78 billion) a year in 2015-17 (Figure 1.3).

For the OECD countries on average, the PSE accounted for around 72% of total support provided to the agricultural sector in 2015-17, with support for general services that create enabling conditions for the agricultural sector accounting for almost 13% of total support. As exceptions to this, support to general services accounted for over 70% of total support in New Zealand, and over 50% of total support in Australia and Chile. In these countries, %TSE is around 0.3% of GDP. In the United States, around 49% of total support is provided to consumers. In most other countries, 80% or more of support is provided directly to producers.

Figure 1.3. Composition of the Total Support Estimate by country, 2015-17

Percentage of GDP

1. For Kazakhstan and the Philippines, 2015-17 is replaced by 2015-16.

2. EU28.

3. The OECD total does not include the non-OECD EU Member States.

4. The 10 Emerging Economies are Brazil, China, Colombia, Costa Rica, Kazakhstan, the Philippines, Russian Federation, South Africa, Ukraine and Viet Nam. Indonesia is not included in this report.

5. The All countries total includes all OECD countries, non-OECD EU Member States, and the 10 Emerging Economies.

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

StatLink  http://dx.doi.org/10.1787/888933754994

Box 1.2. The International Organisations Consortium for Measuring Policy Environment for Agriculture

The OECD is a key member of the International Organisations Consortium for Measuring Policy Environment for Agriculture (the Consortium), an initiative that aims to provide continually-updated estimates of agricultural support (or incentives) across a range of countries. Together with the OECD’s monitoring and evaluation reports and indicators, this initiative is expanding the information available for analysing the impacts of agricultural policies and reforms.

There have been many attempts to measure and monitor agricultural policies in the past, from the seminal efforts of the FAO in the early 1970s, the OECD’s PSE/CSE exercise since the early 1980s, and different efforts by other international institutions involved in agricultural policy and development, through to the most recent efforts of the Asian Productivity Organisation (APO), the Food and Agriculture Organisation of the United Nations (FAO), the Inter-American Development Bank (IDB), the International Food Policy Research Institute (IFPRI), and the World Bank (WB). The Consortium builds on these individual efforts to improve knowledge of agricultural policies worldwide and feed more complete information into national policy processes and inter-country dialogue, including at a regional level. By joining forces, the Consortium aims to increase the geographic coverage of policy information, based on a common methodology that assures quality, consistency and comparability across countries and time.

The OECD Global Forum on Agriculture held in December 2013 marked the launch of the Consortium. While FAO, IDB, IFPRI, OECD and the WB are the active members, participation in the Consortium is open to all organisations that wish to contribute their data and analytical resources.

To date, one policy indicator has been derived from the various contributing data sources: the Nominal Rate of Protection (NRP). This measure is the proportional difference between the Producer Price and border prices adjusted for distribution, storage, transport, and other marketing costs, and conceptually equivalent to the OECD’s Nominal Protection Coefficient (NPC). Like the OECD’s NPC, it measures the extent to which policies result in a divergence between domestic and international prices, and thus provide production incentives. The current dataset covers 58 economies (counting the European Union as one), starting from the year 2005 (Table 1.2). The database was officially released to the public during the OECD Committee for Agriculture in May 2017. Incorporating other indicators of agricultural support and updating and extending the time series is foreseen as work develops.

Table 1.2. Country and commodity coverage by International Organisations
International organisation | Region covered | Number of countries | Time period | Number of individual commodities
OECD | OECD countries and 11 Emerging Economies | 25* | 1986-2015 | 58
FAO-MAFAP | Sub-Saharan Africa | 13 | 2005-14 | 26
IDB-AGRIMONITOR | Latin America and Caribbean | 17 | 2004-15 | 34
World Bank | South Asia | 3 | 2004-14 | 19
Notes: Not all countries report all data for all commodities listed and all years. *EU treated as one.

The new database helps to shed light on producer support policies across many countries at different levels of income and development. While the development of support in OECD economies and selected Emerging Economies is well documented in the OECD PSE/CSE data, the data assembled by the Consortium reveal fresh insights on policies in low income countries. For example, during 2005-15, the NRPs of low income countries oscillated around zero, indicating no or little price support to agriculture producers. However, this average hides many countries with negative NRPs, i.e., countries that tax agricultural producer prices, especially for export commodities. The taxation in many cases was driven by high levels of world prices and the use of the agricultural sector as a source of government revenue.

The database of the Consortium is available on a common data platform developed by IFPRI. The address of the platform is www.ag-incentives.org/. The website also contains descriptive information about the Consortium, its members and its organisation.

Support to producers in the OECD area and Emerging Economies has converged, and follows a similar trend in recent years

On average, the level of support provided to individual producers in the countries covered by this report has followed a declining trend over time, although changes in the average %PSE have been marginal in recent years (Figure 1.4). In 2017, around 14.5% of gross farm receipts were due to policies that support farmers, down from 16% in 2016. The monetary value of this support was USD 461 billion (EUR 409 billion) in 2017, down from USD 499 billion (EUR 451 billion) in 2016. The moderate year-on-year change is mainly due to market developments, including movements in world prices for agricultural commodities and exchange rates, rather than changes in policy.

The trend in the average %PSE masks differences between the OECD countries and the emerging and developing economies (Figure 1.4). The average level of producer support in the OECD countries has followed a declining trend, from just under 30% of gross farm receipts in 1995-97 to around 18% in 2015-17. In the mid-1990s the emerging and developing economies on average provided very low levels of support to agricultural producers. Since then, the level of producer support in the emerging and developing economies has increased to around 14% of gross farm receipts in 2015-17, with lower levels of support in 2008 and 2011 reflecting periods of higher world commodity prices. In large part, the %PSE change in the emerging and developing economies is driven by producer support in China.

Figure 1.4. Evolution of the Producer Support Estimate, 1995 to 2017

Percentage of gross farm receipts

1. The All countries total includes all OECD countries, non-OECD EU Member States, and the 10 Emerging Economies.

2. The OECD total does not include the non-OECD EU Member States. Latvia is included only from 2004.

3. The 10 Emerging Economies are Brazil, China, Colombia, Costa Rica, Kazakhstan, the Philippines, Russian Federation, South Africa, Ukraine and Viet Nam. The Philippines and Viet Nam are included from 2000 onwards. Indonesia is not included in this report.

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

StatLink  http://dx.doi.org/10.1787/888933755013

These broad trends are also evident when looking at countries individually (Figure 1.5). In most countries, producer support has declined since the mid-1990s, although the extent varies across countries. Levels of producer support have fallen by two-thirds or more in Australia, Chile and South Africa, while producer support in Canada, Colombia and the European Union fell by over 40%. However, producer support has increased since the mid-1990s in some emerging and developing countries, including China, Costa Rica and the Philippines, and also in Mexico. Producer support has also increased in Brazil, but from negative levels in the mid-1990s.

Nevertheless, current levels of producer support continue to vary widely across countries (Figure 1.5). New Zealand, Australia, South Africa, Chile and Brazil provide very low levels of support to producers, with %PSEs below 3% in 2015-17. In contrast, Japan, Korea, Switzerland, Norway and Iceland support their producers at levels above 45% of gross farm receipts, despite reductions in support since the mid-1990s. Of the emerging and developing economies, only the Philippines provides support at higher levels than the OECD average (PSE of 26% in 2015-17 compared with the OECD average of 18%).

Figure 1.5. Producer Support Estimate by country, 1995-97 and 2015-17

Percentage of gross farm receipts

Notes: Countries are ranked according to the 2015-17 levels.

1. For the Philippines and Viet Nam, 1995-97 is replaced by 2000-02.

2. EU15 for 1995-97 and EU28 for 2015-17.

3. The OECD total does not include the non-OECD EU Member States. The Czech Republic, Estonia, Hungary, Poland, the Slovak Republic and Slovenia are included in the OECD total for both periods and in the EU for 2015-17. Latvia is included in the OECD and in the EU only for 2015-17.

4. The 10 Emerging Economies are Brazil, China, Colombia, Costa Rica, Kazakhstan, the Philippines, Russian Federation, South Africa, Ukraine and Viet Nam. The Philippines and Viet Nam are included only for 2015-17. Indonesia is not included in this report.

5. The All countries total includes all OECD countries, non-OECD EU Member States, and the 10 Emerging Economies.

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

StatLink  http://dx.doi.org/10.1787/888933755032

Producer support declined in 2017 in most of the countries covered in the report. In the majority of countries, the observed change in the PSE was largely driven by the change in market price support (MPS) – more specifically, by a widening or narrowing of the gap between domestic and border prices. Exceptions included Australia, where producer support fell due to lower budgetary payments only, and Brazil, Canada and Mexico, where budgetary payments were equally important in driving the year-on-year change (Box 1.3). On average, producer support in OECD countries fell from 19% of gross farm receipts in 2016 to 18% in 2017.

Box 1.3. What drove changes in the monetary value of producer support in 2017?

Figure 1.6 shows the contributions of market price support (MPS, horizontal axis) and budgetary payments (BP, vertical axis) to the annual change in the monetary value of support to farmers (PSE, expressed in local currencies) between 2016 and 2017. Country points farther from the vertical axis indicate a higher contribution of changes in MPS to the change in PSE. Points farther from the horizontal axis indicate a higher contribution of budgetary payments. As an example, the point for Canada indicates that changes in MPS decreased the monetary value of Canada’s PSE by around 2% while changes in budgetary payments increased the monetary value of Canada’s PSE by a similar amount, resulting in Canada’s level of support (in CAD) in the most recent year remaining almost unchanged.

Figure 1.6. Contribution of MPS and budgetary payments to the change in PSE, 2016 to 2017

Notes: Kazakhstan, Ukraine and Viet Nam not shown due to negative MPS data. Indonesia is not included in this report.

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

StatLink  http://dx.doi.org/10.1787/888933755051

Changes in the monetary value of support to farmers in 2017 were driven mainly by changes in MPS, although changes in budgetary support were also important in some countries. Lower MPS drove changes in the monetary value of support in Colombia, New Zealand,1 Norway, Turkey and Switzerland, with changes in budgetary payments playing a much smaller role. Higher MPS increased producer support in Chile and South Africa; however, producer support remained at very low levels in both countries (less than 3% of gross farm receipts).

Lower MPS and budgetary payments reduced producer support in Brazil, the Russian Federation and, to a lesser extent, the European Union. In contrast, producer support increased in Korea and the United States as a result of an increase in MPS and budgetary payments. In Mexico, lower budgetary payments offset an increase in MPS.

Figure 1.7 further disaggregates the change in MPS into its two components: the gap between domestic and border prices (horizontal axis) and the quantities of production which receive support (vertical axis). In most countries, year-on-year developments in MPS were driven by changes in price gaps, with changes in production quantities having a smaller effect. Moreover, as border prices increased on average for most countries, changes in the price gap depended on relative movements in domestic (producer) prices. In the OECD countries on average, producer prices increased relatively less than border prices, contributing to a decline in MPS in 2017. Exceptions were Chile and Japan, where border prices declined on average, contributing to a small increase in MPS. Producer prices declined on average in in the emerging and developing economies, resulting in a relatively larger decline in MPS between 2016 and 2017. While border prices declined on average in Brazil, Kazakhstan and the Philippines, producer prices declined by relatively more.

On average, currencies depreciated against the US dollar, which also contributed to lower price gaps, in the OECD countries in particular. This is because a weaker local currency will, all other factors being equal, increase reference (border) prices expressed in local currencies for a given country, reducing the country’s MPS and overall support level.

Figure 1.7. Contribution of price gaps and output quantities to the change in PSE, 2016 to 2017

Notes: Kazakhstan, Ukraine and Viet Nam not shown due to negative MPS data. Indonesia is not included in this report.

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

StatLink  http://dx.doi.org/10.1787/888933755070

Note: 1. In New Zealand, price support is measured only for poultry and eggs and is due to non-tariff protection applied on SPS grounds.

In most countries, support is predominantly provided through measures that are most distorting to production and trade

The way in which countries provide support to farmers is as important as the overall level of that support. Governments have a large portfolio of measures at their disposal: they can raise domestic prices by intervening directly in markets or by limiting imports through tariffs or other border measures; they can provide subsidies to reduce farmers’ input costs; or they can provide payments to farmers on the basis of farm output, area, animal numbers, or as a top-up to farmers’ income. Payments may be conditional on specific production practices, for example, to achieve environmental protection objectives.

These distinctions are important. The measures listed above will affect agricultural production, incomes, trade and other outcomes differently. For example, MPS has negative impacts on world markets and distorts price signals faced by farmers, reducing incentives to improve efficiency in agricultural production. Moreover, the way in which producer support is provided also influences the ability of agricultural producers to participate in agriculture and food global value chains (GVCs), and the benefits obtained from participation (Box 1.4). Some measures may target specific policy objectives or beneficiaries more effectively than others. For example, unlike MPS, payments per hectare, per animal or based on farm incomes can be targeted to specific locations or groups of farms, and tailored to specific policy objectives. These considerations highlight the need for a more detailed analysis of the measures through which producer support is provided.

Most countries provide the majority of producer support through measures that are most distorting for production and trade (Figure 1.8). OECD analysis has shown that MPS, payments based on output, and payments based on unconstrained variable input use have a significantly higher potential to distort agricultural production and trade than payments based on other criteria (OECD, 2001). The effects of these types of policies are explored below. Moreover, depending on the exact policy design, this type of support tends to have negative impacts on the environment as it gives additional incentives to expand and intensify land use.

On average, support provided through measures that are most distorting for production and trade accounted for almost two-thirds of the support provided to farmers in 2015-17. In general, such measures are more important in the emerging and developing economies, where they account for over 75% of producer support, compared with 52% of producer support in OECD countries. On the other hand, a larger share of producer support is provided through less-distorting measures in Australia, Brazil, Chile, the European Union, Kazakhstan and the United States.

Figure 1.8. Composition of the Producer Support Estimate by country, 2015-17

Percentage of gross farm receipts

Notes: Countries are ranked according to the absolute values of the 2015-17 levels.

1. Support based on output (including market price support and output payments) and on the unconstrained use of variable inputs

2. EU28.

3. The OECD total does not include the non-OECD EU Member States.

4. The 10 Emerging Economies are Brazil, China, Colombia, Costa Rica, Kazakhstan, the Philippines, Russian Federation, South Africa, Ukraine and Viet Nam. The Philippines and Viet Nam are included from 2000 onwards. Indonesia is not included in this report.

5. The All countries total includes all OECD countries, non-OECD EU Member States, and the Emerging Economies.

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

StatLink  http://dx.doi.org/10.1787/888933755089

In many OECD countries – as well as in most Emerging Economies – MPS makes up the largest part of support to producers (PSE). However, this also includes some countries with very low levels of support. MPS allows policy makers to support producers without directly burdening the public budget, as support to farmers is paid by consumers of protected products, some of whom may be poor and food insecure. Moreover, importing countries often generate some of their public revenues from import tariffs on agricultural commodities. But market price support does not allow policy makers to discriminate between beneficiaries or target non-farm income objectives. Moreover, the income transfer efficiency of border protection is low, limiting its effectiveness as a measure for raising farm incomes (OECD, 2003).

For the OECD as a whole, MPS was around 45% of the PSE in 2015-17. MPS represents a significant component of producer support in Israel, Japan and Turkey (more than 80% of the PSE) and more than 90% of the PSE in Korea. However, the share of MPS is notably less in countries that rely to a greater extent on direct payments to support producers like Mexico, the United States, the European Union, and also high support countries like Norway and Switzerland. MPS is also significant in the emerging and developing economies, accounting for over 90% of producer support in Costa Rica, the Philippines, more than 80% in Colombia, and more than 50% in China, the Russian Federation and South Africa (although as noted previously, South Africa’s PSE is low at less than 3% of producer support).

In contrast, MPS was negative in Ukraine and Viet Nam as producers of some commodities receive prices below those on world markets. However, in some cases the implicit taxation of producers is not exclusively a policy outcome but reflects what can be broadly termed a ‘market development gap’. This can arise from underdeveloped physical infrastructure and institutional deficiencies in emerging and developing economies, which can impede market adjustment and exacerbate the impacts of policies on prices, contributing to the negative results. For example, in Viet Nam producers of export-competing commodities receive prices that are lower than international prices, resulting in negative MPS in some years. However, poor infrastructure contributes to the negative results (OECD, 2015a). Similarly, the forthcoming OECD Review of Agricultural Policies in India finds that negative producer support was due to a combination of factors, as discussed in Box 1.5.

Regarding the other measures that are potentially most distorting for agricultural production and trade, payments based on output are provided to farmers in Iceland (23% of the PSE in 2015-17) and Kazakhstan (15%), and account for 5% to 8% of the PSE in Norway, Turkey and Brazil. Support for variable inputs without constraints (e.g. without conditions on how inputs are used or on any other farming practices) is provided to farmers in Kazakhstan, Mexico and South Africa (20% or more of the PSE in 2015-17), as well as in Chile, Israel and the Russian Federation. In the European Union, around 6% of producer support is provided as support for variable inputs without constraints, where it is mostly provided within the national programmes of the Member States. While such measures reduce the impact on consumers relative to market price support (as they are transfers to producers from taxpayers), they also fail to target the market failures or policy objectives at the heart of government intervention in agricultural markets. Moreover, support for specific production inputs increases the risk of their over- or misuse, with potentially harmful consequences for farmers’ and consumers’ health and the environment.

Less distorting forms of support include two broad categories of (tax-financed) payments. First, payments based on other inputs (mostly support for on-farm investments) or on variable inputs with constraints (e.g. restrictions on specific farming practices allowed) are used in a number of countries. Such payments account for more than 70% of producer support in Chile and Kazakhstan, and more than 60% in South Africa, and also a significant share of producer support in Australia (41%) and Mexico (35%).

Second, payments based on area, animal numbers, farm receipts or farm income are increasing in the OECD countries (Figure 1.9). In 2015-17, such payments accounted for a large share of producer support in the European Union (64% of the PSE in 2015-17), the United States (45% of the PSE), Norway (40%), Australia (54%) and Switzerland (32%), among other countries. These types of payments are also increasing in China and Kazakhstan, where they represented 14% and 15% of the PSE in 2015-17. However, they are less common in the other emerging and developing economies, accounting for less than 5% of the PSE on average.

Box 1.4. Domestic support and global value chain development and benefits

Agricultural support, and the way that support is provided, can influence the ability of agricultural producers to participate in agriculture and food global value chains (GVCs). It also influences the benefits obtained from participation. GVC participation can be summarised in two ways. First, through looking at purchases of foreign inputs (value added) to be converted into exports – backward participation in GVCs. For example, a flour miller buys foreign wheat to produce exports, or a fruit grower uses imported machinery to help produce exports. Second, through looking at the use of domestic production (value added) in other country exports – forward participation in GVCs. This includes, for example, the use of exports of flour in another country’s exports of biscuits. The benefits from GVC participation are measured by domestic value added – the returns to land, labour and capital (including taxes paid and excluding subsidies). Participation in agro-food GVCs can lead to sector growth through both export growth and through influencing overall sector performance (Greenville, Kawasaki and Jouanjean, 2018). Thus, measures to enhance GVC participation can have longer run payoffs. More immediately, policies can also influence the gains from current participation in GVCs through influencing the returns (domestic value added) created.

Policies that influence market prices and confer market price support, such as tariffs, have been found to negatively influence both backward and forward participation. Specifically, countries’ own tariffs reduce backward participation, while forward participation is reduced by trading partners’ tariffs (Greenville, Kawasaki and Beaujeu, 2017). Furthermore, these policies and other aspects of market openness (such as the ability to import inputs from a wide range of sources) enhance the potential benefits from GVC participation (Greenville, Kawasaki, Jouanjean, forthcoming; Greenville, Kawasaki and Beaujeu, 2017).

General support measures can have a positive influence on backward participation (Greenville, Kawasaki and Beaujeu, 2017). While each general support measure needs to be evaluated on its merits to ensure that it addresses market failures, agricultural support policies that are geared towards general support payments – measured as the share of general services support in total support – are likely to promote backwards participation through providing public services and inputs that promote competitiveness and access to international markets without overly creating distortions in the domestic economy and sector that may negatively affect competiveness (in contrast with some PSE-related measures). Looking at specific aspects of general support, agricultural research and development was found to enhance backward participation. On the forward participation side, the level of general services payments overall was found to enhance forward participation in agro-food GVCs. Specific elements of general support – research and development and infrastructure – were also found to enhance the benefits from GVC participation by leading to higher levels of domestic value added earned from exports into GVCs. These elements can provide producers with the skills and economic capacities to adopt new techniques and technology, often sourced internationally. These factors underpin competitive access to foreign markets through GVCs.

The influences of producer support on participation and domestic value added creation are more complex. For forward participation, all types of support (potentially most-distorting and less-distorting ones) were correlated with higher levels of participation. However, higher levels of most-distorting payments were also found to decrease domestic value added from GVC participation. That is, while increasing forward participation, they decrease the domestic returns from being part of GVCs, so while a country may see greater participation from this form of support, it is worse off for doing so (in terms of total domestic returns) – the country pays to participate in GVCs rather than earning from it. In contrast for less-distorting payments, the positive impact on forward participation is not accompanied with a negative effect on domestic value added creation. Thus it can enhance this type of participation without the costs seen for most distorting forms of support – possibly through allowing producers to enter value chains by correcting market failures or by allowing them to produce in a more sustainable and traceable fashion.

Sources: Greenville, Kawasaki and Jouanjean (2018), “Dynamic changes and effects of agro-food GVCs”, OECD Food, Agriculture and Fisheries Papers (forthcoming); Greenville, J., K. Kawasaki and R. Beaujeu (2017), “How policies shape global food and agriculture value chains”, OECD Food, Agriculture and Fisheries Papers, No. 100, OECD Publishing, Paris, http://dx.doi.org/10.1787/aaf0763a-en.

There is a trend towards payments that are less coupled with production decisions (Figure 1.9). Increasingly, payments are provided on the basis of historical criteria, in some cases without the need for recipient farmers to produce. In the European Union, Iceland, Norway and Switzerland, such payments accounted for between 6% and 10% of gross farm receipts in 2015-17. In the European Union, payments based on current area, animal numbers, farm receipts or incomes have been cut by almost two-thirds since the mid-1990s in favour of direct payments based on non-current criteria without production requirements. Similar programmes also exist in Australia, Japan, Korea, Mexico and the United States, among others, although their importance as a share of producer support varies between those countries.

Figure 1.9. Use and composition of support based on area, animal numbers, receipts and income, by country, 1995-97 and 2015-17

Percentage of gross farm receipts

Notes: Countries are ranked according to the 2015-17 levels.

1. EU15 for 1995-97 and EU28 for 2015-17.

2. For the Philippines and Viet Nam, 1995-97 is replaced by 2000-02.

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

StatLink  http://dx.doi.org/10.1787/888933755108

Box 1.5. Insights from the Review of Agricultural Policies in India

The Review of Agricultural Policies in India (OECD, forthcoming) has been undertaken jointly by the OECD and the Indian Council for Research on International Economic Relations (ICRIER). Agriculture is a key sector in India, at around 47% of total employment and 17% of GDP. The study analyses structural change and performance in India’s agricultural sector over the past decades. Sustained by an improved access to inputs such as fertilisers and seeds, as well as better irrigation and credit coverage, production has been increasing and diversifying towards fruit, vegetables and livestock products. India also emerged as a major agricultural exporter of several key commodities, currently being the largest exporter of rice and the second largest of cotton.

Despite these notable achievements, challenges remain; among them, the prevalence of very large numbers of smallholders, low productivity, climate change, pressure on natural resources such as water, persistent food insecurity, and an under-developed food processing and retail sector.

The Review also explores India’s agricultural policy settings and calculates support indicators covering 2000-16, comparable to those presented for OECD members and a number of non-OECD economies in this report. Throughout the last decades, agricultural policies in India have sought to achieve food security, often interpreted as self-sufficiency, while ensuring remunerative prices to producers and safeguarding the interest of consumers by making supplies available at affordable prices. As reflected in the analysis based on the support indicators - and in the context of the pressing structural challenges hampering the sustainable growth of the sector the policy instruments applied with the view to achieve these objectives have had mixed results, with farm incomes at less than one-third of those of non-agricultural households.

The level of support to producers as measured by the share of transfers from consumers and taxpayers in gross farm revenues (the %PSE) averaged -6.2% in 2014-16 (equivalent to INR -1 643 billion) made up of budgetary spending corresponding to 6.9% of gross farm receipts (INR 1 816 billion) and market price support of -13.1% of gross farm receipts (INR -3 458 billion). This negative %PSE, made up from negative and positive components, needs careful interpretation.

Almost all commodities examined experienced at least one year of negative market price support in the 2000 to 2016 period, and several commodities registered negative market price support in all years. In other words, producer prices have for many years and for many commodities remained below comparable reference prices in international markets and domestic producers were implicitly taxed. This is partly policy-induced, partly related to other inefficiencies in the marketing chain and partly due to minimum support prices being set below international prices for several commodities at different periods between 2000 and 2016. Policy-induced inefficiencies result from both domestic regulations and trade policy measures. Policies that govern the marketing of agricultural commodities in India include the Essential Commodities Act (ECA) and the Agricultural Produce Market Committee Acts (APMC). Through these Acts, producer prices are affected by regulations influencing pricing, procuring, stocking, moving, and trading commodities. Restrictions stemming from the ECA and APMC Acts also deter private sector investment in marketing infrastructure. Differences among the states in the status of their respective APMC Acts and in how these acts are implemented add to the uncertainties in supply chains and drive up transaction costs. Overall, the combination of market regulations and infrastructure deficiencies has had a price depressing effect.

In addition, a variety of trade policy measures - such as export prohibitions, export quotas, export duties, and minimum export prices - impede the export of several key commodities and contribute to depressed producer prices. For example, export restrictions or export bans were applied to wheat, non-basmati rice, chickpeas, sugar and milk at different times over the course of the period studied.

Virtually all of the budgetary transfers to agricultural producers in India are accounted for by payments based on variable input use, with overwhelmingly subsidised fertilisers, electricity, and irrigation water. In turn, public expenditures financing general services to the sector (GSSE) have declined over the last decades. Most of this expenditure is in development and maintenance of infrastructure (particularly hydrological infrastructure), followed by the cost of public stockholding and expenditure on the agricultural innovation system.

A corollary to the farm price-depressing effect of the policy set is the resulting support to consumers, as reflected by the %Consumer Support Estimate (%CSE) of 24.7% on average across all commodities in 2014-16. This support is made up of low prices and government subsidies. With producer prices for many commodities below the border reference prices, consumers are paying less for food than they otherwise would. An additional important component of consumer support in India is the food subsidy, which allows large segments of the population to purchase food grains at prices that are much lower than their already low domestic market prices.

The sum of all positive transfers (i.e. budgetary transfers to producers, to agriculture as a whole, and transfers to consumers from taxpayers), without accounting for the negative market price support, amounts to 1.9% of GDP in 2014-16. This shows the high cost to the Indian economy and contrasts with the sector’s relatively poor performance in productivity growth, highlighting the need for resources to be used more effectively.

Source: OECD (2018c), Agricultural Policies in India, OECD Food and Agricultural Reviews, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264302334-en.

The level of price distortions is generally falling, although there are large gaps between domestic and world prices in some countries

Prices received by producers have become more closely aligned with those prevailing on world markets, as countries provide a larger share of support through less distorting measures. The Nominal Protection Coefficient (NPC) in Figure 1.10 compares effective prices received by producers – including per unit output payments – with world market prices. In a number of countries, the gap between domestic and world market prices has narrowed considerably, meaning that market signals are becoming more important for producers’ decisions. For the OECD countries, effective producer prices were, on average, 10% higher than world market prices in 2015-17, compared with around 30% higher in the mid-1990s. Countries that have made substantial progress in aligning effective producer prices with world market prices include Chile, Colombia, the European Union, Korea, South Africa and Switzerland.

Figure 1.10. Producer Nominal Protection Coefficient by country, 1995-97 and 2015-17

Notes: Countries are ranked according to the distance of 2015-17 NPC levels to a neutral NPC of 1.

1. For the Philippines and Viet Nam, 1995-97 is replaced by 2000-02.

2. EU15 for 1995-97 and EU28 for 2015-17.

3. The OECD total does not include the non-OECD EU Member States. The Czech Republic, Estonia, Hungary, Poland, the Slovak Republic and Slovenia are included in the OECD total for both periods and in the EU for 2015-17. Latvia is included in the OECD and in the EU only for 2015-17.

4. The 10 Emerging Economies are Brazil, China, Colombia, Costa Rica, Kazakhstan, the Philippines, Russian Federation, South Africa, Ukraine and Viet Nam. The Philippines and Viet Nam are included only for 2015-17. Indonesia is not included in this report.

5. The All countries total includes all OECD countries, non-OECD EU Member States, and the 10 Emerging Economies.

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

StatLink  http://dx.doi.org/10.1787/888933755127

As with the other indicators of producer support, there are significant differences between countries. Effective prices received by producers are closely aligned with international levels only in Australia, Brazil, Chile and New Zealand. Effective producer prices are less than 3% above world market prices in Mexico, South Africa and the United States. In almost all other countries, effective prices received by producers are, on average, higher than world prices. Effective producer prices are 28% higher than world prices in Turkey and 36% higher in the Philippines, whereas effective producer prices in Iceland, Japan, Korea, Norway and Switzerland are 60% to 100% higher than world prices, suggesting that producer support plays an important role in guiding producers’ decisions. Nevertheless, gaps between domestic and world price have narrowed also in those countries since the mid-1990s.

A number of the emerging and developing economies have increased their price support, widening the gap between domestic and world market prices. Effective producer prices in China were, on average, close to world price levels in the mid-1990s, but 14% higher than world market prices in 2015-17. Effective producer prices have also increased in Costa Rica and the Philippines. As noted above, in Brazil prices received by farmers have increased since 1995-97, bringing them into alignment with world prices. There are exceptions, most notably Ukraine, where effective producer prices were around 10% lower than their international benchmarks in 2015-17.

Nevertheless, a large share of support targets individual commodities, which distorts the production mix in the sector

While the NPC in Figure 1.10 indicates that many countries are moving away from MPS and output related support that increases (or decreases) effective prices relative to world market prices, a large share of producer support in 2015-17 was provided to individual commodities. The use of single commodity support is considered to be one of the most production and trade distorting forms of support. The reason for this is that the measures employed are, by definition, targeted to the production of specific products or the use of specific inputs into the targeted sectors. This can create allocative inefficiencies within countries’ agricultural sectors by biasing production and resources towards certain commodities at the expense of others.² It can also reduce resilience and adaptation to climate change by encouraging farmers to plant specific crops, even if they are not well suited to local climate conditions (OECD, 2017b).

On average, single commodity transfers (SCTs) have declined from 17% of the gross farm receipts for each commodity in 2000-02³ to 11% in 2015-17 (Figure 1.11). Importantly, variability across commodities has also declined – significant differences in SCTs across commodities can impede adjustment in the agricultural sector and efficient resource use. Support has declined for some of the commodities that received the highest relative levels of support in 2000-02, such as rice, milk, sugar, sheep meat and palm oil. However, support for some heavily supported commodities has trended up over time compared with 2000-02, in particular cotton, rapeseed and wheat. The reforms and policy developments underlying these trends are discussed in more detail in OECD (2017c).

Because market price support represents the largest share of SCT (Figure 1.11), trends in SCTs tend to move with developments in international markets. As discussed in OECD (2017c), SCTs have declined as a share of the PSE since the early 2000s. However, the fall was uneven – after falling between 2000 and 2008 (the height of the food price spike), SCTs subsequently increased. This suggests that in aggregate, the policies directed at isolating domestic markets from international prices for individual commodities have not changed significantly over the period.

Figure 1.11. Single Commodity Transfers, all countries, 2000-02 and 2015-17

Percentage of gross receipts for each commodity

Notes: Commodities are ranked according to the absolute value of % SCT in 2015-17. Not all commodities are relevant for all countries. Indonesia is not included in this report.

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

StatLink  http://dx.doi.org/10.1787/888933755146

Payments are increasingly tied to specific production practices, reflecting the importance of objectives related to society at large

In some countries, payments are increasingly tied to specific production practices to encourage producers to adopt specific production practices that may improve the environmental performance of farming or animal welfare. Input subsidies may be subject to mandatory constraints on their use, or receipt of payments may be conditional on the adoption of specific production practices. Payments may also be linked to agri-environmental constraints or to programmes to which farmers can opt-in on a voluntary basis. The number of countries using these approaches and the levels of these payments has increased in recent decades, reflecting the growing importance of objectives for the sector that reflect societal concerns and the expectation that agriculture will provide various public goods, such as the maintenance of agricultural landscapes and biodiversity.

Payments linked to mandatory production practices have become more important in Chile, the European Union, Switzerland and the United States (Figure 1.12). In these countries, up to half of the total support to farmers is provided in the form of direct payments that are subject to “cross-compliance” with environmental conditions. Some support to fixed capital formation is also tied to investments in facilities for environmental and animal welfare friendly production. Brazil has made all its credit and insurance programmes subject to complying with an elaborate zoning scheme which determines planting times based on weather, soil and crop cycle related criteria; today these programmes make up over two-thirds of Brazil’s support to farmers. Payments linked to the adoption of voluntary agri-environmental constraints and programmes are increasingly used in Japan, Korea and Norway. Other countries also use these types of payments to promote environmental objectives, including Australia, the European Union, Switzerland and the United States.

In some countries, this form of support has become more important for farmers as well, including in countries with high levels of support overall. Over 15% of gross farm receipts derive from such conditional payments in Norway, 23% in Switzerland, and almost 12% in the European Union. In contrast, payments tied to specific production practices are not widely used in the emerging and developing economies.

Figure 1.12. Support conditional on the adoption of specific production practices, 1995-97 and 2015-17

Percentage of gross farm receipts

Notes: Countries are ranked according to 2015-17 levels.

1. EU15 for 1995-97 and EU28 for 2015-17.

2. Other countries include Canada, Iceland, Israel, Kazakhstan, New Zealand, the Philippines, Russian Federation, South Africa, Ukraine and Viet Nam. Indonesia is not included in this report.

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

StatLink  http://dx.doi.org/10.1787/888933755165

The trade distortive effects of support has often declined more strongly than support levels

Lower levels of farm support, as well as the shift towards less-distorting measures, has helped to make agricultural policy packages more market oriented in many countries. To show this, this section discusses changes in the Trade Impact Index over the past two decades and compares these across countries. The Trade Impact Index and the %PSE are both expressed relative to gross farm receipts (GFR), but rather than being a measure of transfers to producers, the %TII measures distortions to international markets through the trade effects of the policies in place. Box 1.6 provides details on the way the Trade Impact Index is generated.

Figure 1.13 shows that in most countries, the trade impact of their portfolio of agricultural policies has declined more strongly over the past two decades than the reduction in support levels alone would suggest. For the OECD as a whole, while the %PSE declined by about 11 percentage points between 1995-97 and 2015-17, its Trade Impact Index declined by 13 percentage points during the same period. This section explores this further by considering changes in the Trade Impact Index of individual countries’ policies, given changes in the level and structure of their support.

Figure 1.13. Percentage point changes in %PSE and Trade Impact Index, 1995-97 to 2015-17

Notes: Countries are ranked according to the Trade Impact Index (TII) changes towards zero. Positive bars show increases in the trade impacts of policies, which in some cases indicate reduced distortions. For example, Brazil's %PSE increased from strongly negative to slightly positive, a policy change that eliminated most of the trade distortive effect that arose from the negative support; hence the increase in the country’s Trade Impact Index indicates a removal of an originally negative trade impact in favour of a small positive one.

1. For Mexico, 1995-97 is replaced by 1991-93.

2. EU15 for 1995-97 and EU28 for 2015-17.

3. For the Philippines and Viet Nam, 1995-97 is replaced by 2000-02.

4. The OECD total does not include the non-OECD EU Member States. The Czech Republic, Estonia, Hungary, Poland, the Slovak Republic and Slovenia are included in the OECD total for both periods and in the EU for 2015-17. Latvia is included in the OECD and in the EU only for 2015-17.

5. The 10 Emerging Economies are Brazil, China, Colombia, Costa Rica, Kazakhstan, the Philippines, Russian Federation, South Africa, Ukraine and Viet Nam. The Philippines and Viet Nam are included only for 2015-17. Indonesia is not included in this report.

6. The All countries total includes all OECD countries, non-OECD EU Member States, and the 10 Emerging Economies.

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

StatLink  http://dx.doi.org/10.1787/888933755184

For some countries, the difference between the PSE reduction and the decline in the associated trade impact is particularly strong. Switzerland, for instance, has reduced its level of farm support by 9 percentage points, from 65% in the mid-1990s to 56% in 2015-17. At -18 percentage points, the reduction in its Trade Impact Index was much greater, falling from almost 50% in the mid-1990s to less than 32% in the most recent period. This is because the reduction in the level of support was mainly driven by the decline in market price support, which was almost halved during these twenty years (from 47% to 28% of gross farm receipts). In turn, there was an increase in support provided through: payments based on historical entitlements, which rose from 4% of gross farm receipts (GFR) in 1995-97 to 10% of GFR in 2015-17; and payments for non-commodity outputs, which increased from less than half a percent of GFR to almost 6% of GFR during the same period. As payments based on historical entitlement have a very small trade impact relative to that of MPS (according to PEM simulations, less than 1%) and given that payments for non-commodity outputs are presumed to have none (Box 1.6), this has little effect on trade even though the payments partially offset lower producer support from MPS, and hence only very partially offsets the liberalising effect of the MPS cut. Other categories saw additional minor changes, including a small increase in output payments and some reductions in payments for cereal land and for inputs subject to input constraints and others. But changes in these components alter the overall outcomes for %PSE and Trade Impact Index very little and tend to cancel each other out.

Other countries show similar differences between the change in the %PSE and that in the Trade Impact Index, though in most cases these are smaller than in the case of Switzerland. In the case of the European Union, the reduction in the Trade Impact Index is similar to that of Switzerland in percentage points (down from an equivalent of just under 25% of GFR to less than 7% over the two decades), while that of the %PSE was more pronounced (falling from 34% to 19% of GFR). Here too, the principal changes were the reduction in MPS and an increase in payments based on historical entitlements, with the increase in the latter partly offsetting the MPS. Lower MPS in the European Union, from 19% to 4% of GFR, was complemented by the virtual elimination of other distorting support measures: small output payments, worth more than 1% of GFR in 1995-97; headage payments in different forms (3%); and area payments for individual crops (1%) or all cereals (3%). Such payments tend to have trade-distorting effects below those of MPS, but well above those of some of the more decoupled payments. Japan is a similar case, although support levels in Japan are closer to those in Switzerland than the European Union: reductions in (highly-distorting) market price support were partly compensated by increased payments of a much less distorting nature, thus reducing the %PSE by less than the Trade Impact Index. Most other OECD countries (as well as a few Emerging Economies) show reductions in the Trade Impact Index that also go beyond those in the %PSE.

In contrast, the change in Canada’s Trade Impact Index is much less pronounced (-3.5 percentage points) than the reduction in its %PSE would suggest (-6.8%, down from 16% to 9% of gross farm receipts). This is because a reduction in payments based on historical entitlements, worth 2.6% of GFR in 1995-97, accounted for a large part of the decline in producer support. Therefore, a significant part of the PSE reduction affected support with very little trade effect.

Israel, too, has seen its Trade Impact Index change by less than the PSE. While Israel has reduced support for variable inputs without constraints to their use, which is found to have a particularly high potential to distort production and trade, MPS actually increased as a share of gross farm receipts. More importantly for the difference in support and trade impact, and similar to Canada, some of the reduction in support concerned measures that were less trade distorting, such as payments based on farm income or on historical entitlements.

For different reasons, several of the Emerging Economies show different patterns from those discussed above. China has increased its levels of support over the past two decades from less than 3% to more than 15% of gross farm receipts. However, the increase in its trade impact was somewhat less pronounced. Because some of the increase in support was in the form of less-distorting policies, including area payments (both to individual crops and to crop groups), payments based on farm income and, to a small extent, historical entitlements, China’s Trade Impact Index ‘only’ increased from 2% to 12.5% relative to GFR. The Philippines and Costa Rica also show increases in their trade impacts that are smaller than those in their %PSEs, though these changes are much smaller than for China.

Brazil’s development tells a very different story. While Brazil also increased support to farmers, this was from a negative overall level (-15% of GFR), to slightly positive support (3%). In particular, strongly negative MPS became slightly positive. However, given that negative MPS is as distortive as positive MPS, the increase in the Trade Impact Index associated with this increase in the PSE and visible in Figure 1.13 indicates significantly reduced distortions.

Ukraine also slightly increased its farm support from negative levels. However, by moving from -8.5% to -7.7% of GFR, its PSE remained strictly negative due to continued (although shrinking) negative MPS. Here again, the positive change in the Trade Impact Index indicates that the trade distortive impact of Ukraine’s policies was actually reduced, as average MPS relative to GFR became less negative and hence less distorting.

Kazakhstan, in contrast, has barely changed its overall level of farm support, but strongly changed its composition. Although MPS was eliminated on average (in fact, MPS was marginally negative during 2015-17), this was almost completely compensated by other, less-distorting forms of support, such as support for fixed capital formation and support based on farm incomes.

Finally, in South Africa, the level of support and the Trade Impact Index both declined by about 8 percentage points relative to gross farm receipts. Here, almost all of the change in support concerned MPS, while some increased support in less-distorting forms (based on farm incomes) is associated with an increase in payments based on unconstrained input use, which is more distorting than MPS.

On average over the past two decades, the Emerging Economies covered in this report have increased their level of support by more than 10 percentage points relative to gross farm receipts, while the aggregate Trade Impact Index increased by 9 percentage points. The comparatively small difference between these changes is due to the fact that in the mid-1990s, negative support in Brazil offset some of the effects on international markets of positive support in other Emerging Economies. In both periods, however, the Trade Impact Index was smaller than the average %PSE.

This is even more so in the aggregate of all countries covered in this report: while the change in the average Trade Impact Index is similar to that of the average %PSE, the Trade Impact Index is about 5 percentage points below the %PSE in both periods.

To assess agricultural policies in terms of their impacts on markets and, notably, on trade, it is therefore important to carefully examine not only the level of support but also the composition of the policy bundle. In addition to the different trade impacts that alternative policy categories can have, negative MPS is as trade-distorting as positive MPS. While positive and negative MPS estimates may cancel each other out in the aggregate, their trade impact does not necessarily do so. This in particular holds for the combination of positive and negative MPS across commodities within individual countries. Future work could deepen the analysis by exploring the details of commodity-specific support further.

Box 1.6. How were the Trade Impact Indices generated?

The Trade Impact Index, an indicator of the relative trade distortion generated by policy packages, is based on the estimated trade impact of individual policies relative to that of market price support. The Policy Evaluation Model (PEM) provides a means to estimate the trade impact of various policies by simulating alternative policy mixes resulting in the same trade outcomes. The trade impact ratio of policy support compares the transfers provided through a given policy measure to the monetary value of market price support (MPS) that would generate the same trade effect. This approach is rooted in the derivation of summary indexes of trade policy pioneered by Anderson and Neary (1996), taking it to a detailed measuring and modelling of agricultural policies. A trade impact ratio greater (or smaller) than 1 suggests that a measure has a stronger (weaker) trade effect than MPS. Previous analyses have shown that the trade impact of support linked to the unconstrained use of variable inputs is greater than that of MPS (a trade impact ratio greater than 1), while the trade impact of other measures tends to be smaller, ranging from a few percent of the trade impact of MPS in the case of area payments based on non-current parameters, to close to the trade impact of MPS in the case of output payments (Martini, 2011).

The trade impact ratios obtained from PEM for each of the two periods (1995-97 and 2013-15) and for each of the PEM countries¹ in which a given policy category was present in those years. Rations are then averaged across countries and years. For instance, in the three years 1995-97 and across PEM countries, single-commodity area payments were applied in Canada, Switzerland and the EU; these were found to have a trade effect of between 11.8% and 23.7% across countries and years. This results in an average of 19.3% for that period, similar to the 17.0% for the 2013-15 period. The resulting ratios for the 1995-97 and 2013-15 periods are then applied to the support data for all countries in the PSE database associated with this report, reported for the 1995-97 and 2015-17 periods, respectively. As in the example given above, trade impact ratios for a given policy category generally differ to a certain extent across countries and time, and further research may be required to better understand the exact reasons for these differences. To avoid spurious differences across countries, averages are used for the relative trade impacts across policy categories.

The trade impact ratios thus obtained for individual forms of support represented in the PEM are then used to calculate the countries’ trade impact equivalents. These equivalents represent the level (or value) of MPS that would generate the same trade effect as a country’s entire policy package. This method, updating and extending previous PEM applications including Martini (2011), allows a comparison of the trade impact of the policy packages across countries and time, by extrapolating PEM results (available only for a limited set of jurisdictions and commodities) to all countries and products covered by this report, based on the level and type of support provided in existing policy mixes.

Several policy categories, such as support for non-commodity outputs, are not reflected in PEM. These are implicitly assumed to not affect market decisions. For most of them, this probably underestimates their trade effect, while some forms of support may in reality may have a negative effect on agricultural output and, hence, on trade (for example, if some productive land is used for amenities such as hedges or green strips). As most of the policies not covered by PEM are unlikely to have a strong trade impact of either sign, and as they represent only a small share of countries’ PSE, the error in the estimation of the overall trade effect is probably small.

Similar to the PSE, the value of an MPS equivalent is difficult to compare across countries and time, as it tends to be larger for large agricultural sectors than for smaller ones. As in the case of the %PSE, the Trade Impact Index therefore expresses the value of the MPS equivalents as a percentage of gross farm receipts (GFR). As opposed to the %PSE, which is a measure of transfers, the Trade Impact Index is a measure for the distorting trade impact generated by the policy mix. As negative support can result in distortions worth eliminating just as much as positive support, a negative Trade Impact Index may be considered as much of a problem as a positive one. An increase of a negative Trade Impact Index towards zero therefore indicates a decline in the distorting effects of the policy package.

Due to the uncertainties around country-specific trade-impact ratios, a caveat on the precision of the results shown above applies: these should be seen as indications of relative changes rather than as exact in their magnitudes.

1. Countries covered by PEM currently include Canada, the European Union, Japan, Korea, Mexico, Switzerland and the United States.

Sources: Anderson, J. and J.P. Neary (1996), “A New Approach to Evaluating Trade Policy”, Review of Economic Studies, Vol 63 pp. 107-125; Martini, R. (2011), “Long Term Trends in Agricultural Policy Impacts”, OECD Food, Agriculture and Fisheries Papers, No. 45, OECD Publishing, Paris, http://dx.doi.org/10.1787/5kgdp5zw179q-en.

Support to general services varies significantly across countries in both importance and priorities

Beyond support provided to individual producers, governments also support agriculture through public financing of services that create enabling conditions for the agricultural sector, measured by the General Services Support Estimate (GSSE). As described previously, on average, support for general services accounts for a much smaller share of total support than support provided directly to producers, averaging 14% of the TSE for all countries covered in this report in 2015-17.

The relative importance of general services in total support varies across countries. As shown in the first panel of Figure 1.14, Australia (54% of total support), Chile (51%) and New Zealand (71%) provide most of their support to agriculture through financing sector-wide services, while South Africa provides 38% of total support, and Brazil and Canada just under 30% of total support. General services account for a much smaller share of total support in most other countries. In some countries, the %GSSE has declined since the mid-1990s, most significantly in China (from almost 45% of total support in the mid-1990s to 15% in 2015-17) but also in Iceland, Japan, Korea, Mexico, the Russian Federation and Turkey.

Figure 1.14. General Services Support Estimate: Share in TSE and composition

Notes: Countries are ranked according to 2015-17 GSSE shares in the TSE. The residual “miscellaneous” category is not shown. AIS = Agricultural Innovation System.1. For the Philippines and Viet Nam, 1995-97 is replaced by 2000-02. Data is not applicable for Viet Nam in 2015-17. 2. EU15 for 1995-97 and EU28 for 2015-17. 3. The OECD total does not include the non-OECD EU Member States. The Czech Republic, Estonia, Hungary, Poland, the Slovak Republic and Slovenia are included in the OECD total for both periods and in the EU for 2015-17. Latvia is included in the OECD and in the EU only for 2015-17. 4. The 10 Emerging Economies are Brazil, China, Colombia, Costa Rica, Kazakhstan, the Philippines, Russian Federation, South Africa, Ukraine and Viet Nam. The Philippines and Viet Nam are included from 2000 onwards. Indonesia is not included in this report. 5. The All countries total includes all OECD countries, non-OECD EU Member States, and the 10 Emerging Economies.

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

StatLink  http://dx.doi.org/10.1787/888933755203

Countries also emphasise different elements of general services to the agricultural sector. Investments in agricultural infrastructure are prioritised in a number of countries. More than 70% of expenditure on general services is on infrastructure in Japan, Turkey and Viet Nam, and infrastructure represents more than half of general services expenditure in Chile, Korea and the Philippines – often to improve irrigation coverage and quality. The agricultural innovation system (AIS) is prioritised in Australia, Brazil, Colombia, the European Union, Israel, Mexico, New Zealand, Norway, Switzerland and Ukraine, and plays a key role in many other countries as well. For the OECD countries on average, infrastructure (44% of the GSSE) and the AIS (32% of the GSSE) accounted for more than three-quarters of all expenditures on general services. Expenditures on inspection and control systems accounted for between 30% and 50% of general services expenditure in Canada, Iceland, Kazakhstan, New Zealand and Ukraine. Expenditures on public stockholding accounted for a significant share of the GSSE in China and Iceland. Public support for the agricultural innovation system is explored further in the following section on Developments in approaches to support and policies.

Consumers continue to bear most of the costs of producer support in many countries

Producer support also affects consumers of agricultural commodities, namely food processors, livestock producers and final consumers. In most of the countries covered in this report, domestic prices are higher than world market prices, which increases costs for consumers. In some countries, other policies may provide compensation for some or all of these additional costs, for example, through budgetary subsidies to food processors or through domestic food assistance programmes. The percentage Consumer Support Estimate (%CSE) expresses the monetary value of the transfers to consumers as a percentage of consumption expenditures (measured at the farm gate). When domestic prices are higher than those on the world market, they contribute negatively to the %CSE, indicating an implicit tax imposed on consumers.

This implies an important redistribution, which burdens poor consumers relatively more than rich ones, as the share of food expenditures in household budgets tends to fall with rising incomes. Moreover, small agricultural producers may be net buyers of agricultural products, meaning that price support is ineffective in helping those most in need – this is particularly the case in emerging and developing economies. It also disadvantages food processing industries, which have to pay higher prices for their material inputs, making them less competitive on international markets. Finally, such support often creates significant distortions to markets and economies, reducing economic welfare.

Consumers in almost all countries are harmed by agricultural policies, although to different degrees (Figure 1.15). In 2015-17, the implicit tax on consumers – as indicated by a negative %CSE – ranged from less than one percent in Brazil, Chile and Mexico, to more than 40% in Iceland, Japan, Korea and Norway. In all cases, this negative CSE is due to market price support, implying transfers from consumers to domestic producers and, for importing countries, to taxpayers. In some emerging and developing countries, increasing use of market price support has increased the implicit taxation of consumers. In China, Costa Rica, the Philippines and the Russian Federation, the %CSE is more negative in 2015-17 relative to its value in the mid-1990s.

A minority of countries provide positive net-support to their consumers, specifically Ukraine (%CSE of 11% in 2015-17), the United States (14%) and, to a lesser extent, Kazakhstan (3%). However, they do so in very different ways. In Ukraine and Kazakhstan, domestic market prices are, on average, below prices on world markets, which benefits consumers at the expense of agricultural producers. In contrast, the United States has significant domestic food assistance programmes for specific groups of the population, more than offsetting the somewhat higher domestic prices. The %CSE has more than tripled since the mid-1990s, as a result of declining market price support and the expansion of the nutrition programmes, making it the highest consumer support among the countries covered in this report – in value terms, relative to consumer expenditures, and as a share of the Total Support Estimate.

Figure 1.15. Consumer Support Estimate by country, 1995-97 and 2015-17

Percentage of consumption expenditure at farm gate

Notes: Countries are ranked according to absolute values of the 2015-17 levels. A negative percentage CSE is an implicit tax on consumption.

1. EU15 for 1995-97 and EU28 for 2015-17.

2. For the Philippines and Viet Nam, 1995-97 is replaced by 2000-02.

3. The OECD total does not include the non-OECD EU Member States. The Czech Republic, Estonia, Hungary, Poland, the Slovak Republic and Slovenia are included in the OECD total for both periods and in the EU for 2015-17. Latvia is included in the OECD and in the EU only for 2015-17.

4. The 10 Emerging Economies are Brazil, China, Colombia, Costa Rica, Kazakhstan, the Philippines, Russian Federation, South Africa, Ukraine and Viet Nam. The Philippines and Viet Nam are included from 2000 onwards. Indonesia is not included in this report.

5. The All countries total includes all OECD countries, non-OECD EU Member States, and the 10 Emerging Economies.

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

StatLink  http://dx.doi.org/10.1787/888933755222

Developments in approaches to support and policies: A closer look at agricultural innovation for sustainable productivity growth

Notwithstanding the diversity of countries featured within this report, the challenges facing their agricultural sectors – and motivating their agricultural policies – are broadly the same. These include ensuring the economic viability of the sector; responding to growing demand for food and non-food uses of agricultural commodities; using available land, water and biodiversity resources more sustainably; and adapting to and mitigating climate change effects. This section takes a closer look at the extent to which the innovation policy environment in the countries included within this report fosters the creation and adoption of appropriate agricultural innovation that can potentially contribute to sustainable productivity growth. To this end, it highlights two key elements of agricultural innovation systems: knowledge generation (agricultural research and development) and knowledge transfer (agricultural extension, training and agricultural education).

The agricultural sector faces significant challenges

In recent years, significant productivity improvements in agriculture have enabled the sector to rise to the abovementioned challenges. Nevertheless, global productivity growth figures mask significant differences across regions, with lagging growth in some countries (OECD, 2016a; USDA, 2017b). In addition, while the sustainability performance of the sector in OECD countries has improved in some respects – reflecting declining trends in nutrient surpluses, for example (Figure 1.16) – trends in sustainability performance vary across countries, and national averages mask serious local problems. Unsustainable agricultural practices persist, potentially constraining long-term sustainable productivity growth. Environmental conditions may also pose obstacles to sustainable productivity growth in the long term (OECD, 2016a). Countries in emerging and developing regions, Southeast Asia, for example, also face pressing challenges with respect to both the sustainability of current agricultural practices and changing environmental conditions (OECD, 2017e).

Figure 1.16. OECD agri-environmental performance

Average annual percent change 1990-92 to 2001-03 and 2001-03 to 2012-14, or nearest available period

Source: OECD (2018d), Agri-environmental Indicators (database), http://www.oecd.org/tad/sustainable-agriculture/agri-environmentalindicators.htm; IEA (2016), World Energy Balances (database), http://www.iea.org/statistics/topics/energybalances/; USDA (2017a), USDA Economic Research Service International Agricultural Productivity (database), www.ers.usda.gov/data-products/international-agricultural-productivity.aspx.

StatLink  http://dx.doi.org/10.1787/888933755241

Innovation is a key driver of sustainable productivity growth

A large body of work suggests that innovation – the generation and application of new knowledge to productive or organisational processes – can be crucial to achieving the necessary sustainable productivity growth of the sector in the face of climate change and resource pressures (IO, 2012; OECD, 2015b). Appropriate innovation can drive productivity growth by enabling farmers to increase their efficiency through the adoption of new technologies and practices (OECD, 2013). It can also play an important role in ensuring the long-term sustainability of that growth by increasing the resilience of the sector to environmental challenges that may constrain growth, and by allowing for the more sustainable use of resources.

Governments and the international community have recognised the importance of innovation for sustainable productivity growth. The United Nations sustainable development goals (SDGs), for example, which were adopted in 2015, highlight the need for investment in innovation and in the agricultural innovation system in particular. This message was reiterated at the Ministerial Meeting of the OECD Committee for Agriculture in 2016, where 46 countries, together with the European Union, agreed that innovation should be prioritised in order to achieve sustainable productivity growth, including through organisational change, cross-sectoral co-operation, greater public and private investment in research and development (R&D), technology transfer and adoption, education and training, and advisory services (OECD, 2016b).

As the challenges faced by the sector become increasingly important, so too will knowledge generation and knowledge transfer that can lead to appropriate changes in farm practices. And as agricultural systems become more complex, farmers will require more advanced innovation skills. While large improvements in sustainable productivity could be achieved with greater adoption of current technologies, shifting challenges require the continuous creation of innovative solutions that are better adapted to evolving and diverse demands. However, this poses a challenge for agricultural innovation systems (networks of actors that contribute to the development, diffusion and use of new agricultural technologies and institutional innovations), which may struggle with limited resources to find an appropriate balance between investment in research in new innovations (and in the anticipation of future research needs) and in training and advisory services that enable adoption and diffusion of innovation by farmers (OECD, 2016c).

Agricultural innovation can be influenced by a range of policy areas

Innovation in agriculture is influenced by a broad range of policies, both economy-wide and agriculture-specific, in addition to measures explicitly focused on innovation. These are identified within an OECD framework for the review of policy incentives and disincentives to innovation (OECD, 2015b). Economy-wide policies that affect innovation choices include macro-economic policy-settings; institutional governance; environmental standards; investment, land, labour and education policies; and incentives for investment, such as a predictable regulatory environment and robust intellectual property rights. Agricultural policies, broadly defined, can also stimulate or inhibit agricultural innovation. As discussed earlier in this report, agricultural domestic and trade-related policies that distort markets reduce producers’ incentives to use production factors more productively, thus potentially discouraging innovation. On the other hand, allowing producers to face production risks and access appropriate risk management systems, where applicable, is essential to improve the adoption of innovation. Finally, innovation policies directly support and guide the development and diffusion of technologies and practices related to management, and the production, processing and marketing of food and agricultural products. These include policies that contribute to agricultural knowledge generation, such as direct investments in public and private research and development (R&D) and R&D institutions, as well as indirect support to private R&D through tax rebates, credit guarantees, competitive grants and funding of public-private partnerships. They also include measures that facilitate agricultural knowledge transfer, such as agricultural education, extension and advisory services, in addition to data collection and dissemination networks related to agricultural production and marketing. Robust governance of agricultural innovation systems is also important to ensure optimal use of resources for the provision and adoption of needed information.

Agricultural innovation features within many country policy frameworks

Agricultural innovation is referred to – albeit with varying degrees of emphasis – within the policy frameworks of a large number of countries and regions featured in this report, including Australia, Canada, Costa Rica, the European Union, Japan, Korea, Norway, Switzerland and Turkey. In the European Union, for example, fostering knowledge transfer and innovation, and the promotion of resource efficiency are two of the six priority areas of Pillar 2 of the Common Agricultural Policy for 2014-20, which funds programmes specifically dedicated to research and innovation in agriculture. In addition, a Strategic Approach to EU Agricultural Research and Innovation was developed in 2016, in consultation with stakeholders (European Commission, 2016). Canada’s agricultural policy framework until 2018, Growing Forward 2 (GF2), stresses three broad priority areas, one of which is innovation. Provinces must spend a minimum of 25% of their funding envelope on innovation programming. The agricultural policy framework for the 2018-22 period, the Canadian Agriculture Partnership, will focus on enhancing the competitiveness of the sector through research, science and innovation, and the adoption of innovative products and practices, with an emphasis on sustainable growth (AAFC, 2018). In Costa Rica, the State Policy for the Costa Rican Agri-food Sector and Rural Development 2010-2021 emphasises innovation and technological development, in addition to competitiveness and sustainability objectives (OECD, 2017f). In Australia, the Agricultural Competitiveness White Paper aims to boost innovation within the sector, amongst other objectives.

Agriculture is also an explicit priority of a number of national innovation strategies, such as the National Science and Technology Plan 2002–20 (NSTP) in the Philippines (OECD, 2017e) and the 13th Five Year Plan for Science and Technology Innovation in China.

Public expenditure on AIS is increasing, yet accounts for a decreasing share of total support for agriculture in some regions

While the role of governments in AIS is not limited to the provision of budgetary support, public expenditure data can provide an indication of the engagement of governments in knowledge generation and transfer. Indeed, it would appear that the increasing emphasis of agricultural innovation systems within policy frameworks has largely been reflected in increases in public expenditure allocated to AIS over the last 20-year period. Although expenditure in both OECD and developing and emerging regions has fallen slightly in the most recent years, both have generally increased over the 1997-2017 period, with increases in expenditure of emerging and developing regions particularly significant, and largely driven by developments in China (Figure 1.17).

Figure 1.17. Government expenditure on Agricultural Innovation Systems, 1997 to 2017

Real USD

Notes: Absolute dollar values are expressed in real 1997 USD using United States GDP deflator.

1. The OECD total does not include the non-OECD EU Member States. Latvia is included only from 2004.

2. The 10 Emerging Economies are Brazil, China, Colombia, Costa Rica, Kazakhstan, the Philippines, Russian Federation, South Africa, Ukraine and Viet Nam. The Philippines and Viet Nam are included from 2000 onwards. Indonesia is not included in this report.

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

StatLink  http://dx.doi.org/10.1787/888933755260

As a share of total support to the sector, however, a slightly different picture emerges, with AIS expenditure in developing and emerging regions representing a decreasing share of the TSE in the last 20-year period, falling from 8.4% in 1995-97 to 3.5% in 2015-17. In contrast, the share has increased slightly in the OECD region as a whole, rising from 2.1% of TSE in 1995-97 to converge with developing and emerging region levels in 2015-17. Of all countries included within this report, expenditure as a share of TSE increased the most in Australia, while South Africa decreased the most (Figure 1.18). These differences between actual expenditure and expenditure as a share of TSE may be due to the fact that, as mentioned earlier, support to individual producers remains an important feature of the policy landscape in a number of countries.

Differences in government expenditure on AIS across countries are explained by a number of factors. With respect to knowledge generation, these include: 1) different ambitions and scope of agricultural research across countries, with emerging and smaller countries tending to focus on adaptive research, while larger and more affluent countries are active in all research fields and stages; and 2) the extent of private research and its complementarity with public efforts. With regard to knowledge transfer, the respective roles of private and public actors in funding and delivering advice to farmers differ widely (see section on Extension, below). In many economies, moreover, the funding of agricultural education cannot be distinguished from general funding for education, posing difficulties for the accurate comparison of countries.

Figure 1.18. Government expenditure on Agricultural Innovation Systems as a share of TSE by country, 1995-97 and 2015-17

Notes: Countries are ranked according to the 2015-17 levels.

1. Brazil 1995-97, Ukraine 1995-97 and 2015-17, and Viet Nam 2015-17 are not applicable due to negative TSEs.

2. For the Philippines and Viet Nam, 1995-97 is replaced by 2000-2002.

3. EU15 for 1995-97 and EU28 for 2015-17.

4. The OECD total does not include the non-OECD EU Member States. The Czech Republic, Estonia, Hungary, Poland, the Slovak Republic and Slovenia are included in the OECD total for both periods and in the EU for 2015-17. Latvia is included in the OECD and in the EU only for 2015-17.

5. The 10 Emerging Economies are Brazil, China, Colombia, Costa Rica, Kazakhstan, the Philippines, Russian Federation, South Africa, Ukraine and Viet Nam. The Philippines and Viet Nam are included only for 2015-17. Indonesia is not included in this report.

6. The All countries total includes all OECD countries, non-OECD EU Member States, and the 10 Emerging Economies.

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

StatLink  http://dx.doi.org/10.1787/888933755279

R&D accounts for the majority of public expenditure on AIS in many regions

With respect to the components of AIS, governments have an important role to play in both knowledge generation and transfer, in addition to the maintenance of knowledge infrastructure (such as life science infrastructure - e.g. gene banks -, agricultural research institutions, networks and centres of excellence, and databases) that can enable collaborative efforts both with the private sector and internationally (OECD, 2013; OECD, 2015b). The appropriate mix of knowledge generation and transfer components will inevitably differ across countries, with some necessarily prioritising research and development (R&D) and others public education or extension.

Public engagement in Research and Development (R&D), either as a performer of R&D, a funder, or both, can play a vital role in innovation that can contribute to sustainable productivity growth. As a performer of R&D, the public sector tends to focus on basic research with a long-term horizon and uncertain returns. It also often focuses on areas with “public good” aspects, such as environmental and natural resources benefits (OECD, 2013). Moreover, because of the public good nature of public research, it encourages the diffusion and transmission of knowledge to farmers. Public engagement in R&D can also serve to incentivise private investment, either by the co-financing of research projects, by public-private partnerships, or by stimulating R&D in projects that capitalise on the knowledge spillovers generated by public R&D. In addition, public investment in agricultural R&D is estimated to have significant impacts on agricultural TFP growth and competitiveness (Alston, 2010). Indeed, public spending on agricultural R&D has been found to be more effective at raising sustainable agricultural productivity than other public expenditures in agriculture, such as irrigation and fertiliser subsidies (Diaz-Bonilla, Orden and Kwiecinski, 2014).

The public sector continues to be the main source of funding for agricultural R&D, whether performed in public or private organisations (OECD, 2015b; OECD, 2013). In a number of countries, the public research mandate has been broadened to include environmental, food and other issues. The focus has also shifted away from primary agriculture to innovation along the food chain and to non-technological innovations, such as institutional or marketing innovations (OECD, 2013). In both the OECD and emerging and developing regions, R&D accounts for the majority of public expenditure on AIS as a share of total support. In the OECD region in 2015-17, agricultural R&D accounted for 2% of total support, marginally higher than that of developing and Emerging Economies (1.9%) during the same period.

R&D intensity figures (the share of budget appropriations on agricultural R&D as a share of agricultural value added) at country level can shed further light on government efforts. Between 1996 and 2016, R&D intensities increased for a number of countries for which comparable data are available, including Germany, Denmark, Ireland, the United Kingdom, Norway, Switzerland, Spain and Japan, but decreased in others, suggesting that in some countries, public funding is not keeping pace with agricultural sector growth (Figure 1.19). In some cases where public expenditure declined, agricultural sciences R&D has nevertheless benefited from increased private sector funding, as has been the case with producer levy co-funded Rural R&D Corporations (RDCs) in Australia, for example (OECD, 2013; see also section below), although this has not been sufficient to prevent total expenditure from decreasing. In the United States, the share of public expenditure has decreased due to significant increases in private efforts, with the result that public funding accounted for less than a quarter of the total in 2016 (OECD, 2016d).

Figure 1.19. Public R&D intensity of agricultural sciences, 1996 and 2016

Government budget appropriations or outlays for research and development (GBAORD) on agricultural sciences as a percentage of agricultural value added

Notes: Countries are ranked according to the 2016 levels.

* or nearest available year: 2016 is replaced by 2015 for Belgium, Estonia, Greece, Hungary, Ireland, Israel, Italy, Japan, Korea, Poland, Slovenia, Spain, Sweden, Turkey, the United Kingdom, and the United States; by 2014 for Iceland, New Zealand, South Africa, Switzerland; by 2013 for Brazil, Canada, Chile, China, Colombia; and by 2010 for Viet Nam. 1996 is replaced by 1995 for New Zealand.

1. For the Russian Federation, recent data are not available.

Source: OECD (2017d), “Research and Development”, OECD Statistics (database), http://stats.oecd.org/; and for Brazil, Chile, China, Colombia, South Africa and Viet Nam: ASTI (2017), Agricultural Science and Technology Indicators (database), www.asti.cgiar.org/data.

StatLink  http://dx.doi.org/10.1787/888933755298

Public support is increasingly used to leverage private engagement in R&D

In addition to funding public research, governments also play an important role in providing direct and indirect support for private investment and participation in agricultural R&D. Private investment is lower in agriculture than other sectors, due to the small-scale nature of farms and agri-food firms, and tends to take place in large input and food processing companies, and in areas such as farm equipment and seeds (OECD, 2015d).

A variety of measures are adopted by governments to encourage greater participation of private actors in R&D. Public funds are often allocated directly to a range of projects of different scales that are selected in a competitive manner, including the United States-Israel Binational Agricultural Research and Development (BARD) fund (BARD, 2012), the Centres of Scientific Excellence and Competence Centre programmes in Estonia (OECD, 2018e) and the Conservation Innovation Grants in the United States. The latter aim to stimulate public and private innovation, farmers included, in resource cultivation (USDA NRCS, n.d.). Other direct funding arrangements include public-private partnerships (PPPs), which are increasingly used to capitalise on synergies between private and public research capacities and stimulate private investment in innovations that have a public goods nature (OECD, 2013). Chile favours PPP and competitive funding for agricultural R&D. In Brazil, the research agency of the Ministry of Agriculture, Embrapa, is expanding its partnerships with both private and public actors, including a recent agreement with the association of cotton producers. In the Netherlands, the national R&D strategy involves the funding of PPPs in the “top sectors” of the economy, agriculture included (OECD, 2015f).

In countries such as Australia and New Zealand, co-funding instruments, with contributions from producers, are also used to leverage private participation in R&D. In New Zealand, for example, 29% of public expenditure on agricultural R&D in 2017 was directed to Primary Growth Partnerships (PGP) schemes, which normally receive 50-50 matching funds from the industry. PGP schemes aim to boost the productivity, economic growth and sustainability of the primary, forestry and food sectors (OECD, 2013). Investments cover education and skills development, R&D, commercialisation, commercial development, and technology transfer. In Australia, rural research and development corporations (RDCs) are the Australian Government’s primary vehicle for supporting rural innovation and drive agricultural productivity growth. RDCs are a partnership between the government and industry created to share the funding and strategic direction setting for primary industry R&D, investment in R&D and the subsequent adoption of R&D outputs. A levy system provides for the collection of contributions from farmers to finance RDCs, and the Australian Government provides matching funding for the levies, up to legislated caps.

In addition to direct forms of funding, a variety of funding mechanisms such as R&D tax rebates and credit guarantees to industry, venture capital, and “pull mechanisms” such as innovation prizes or Advance Market Commitments (AMCs) have been adopted by governments (OECD, 2013). R&D tax concessions are provided by the majority of countries, including the Philippines, Viet Nam, Canada and Korea, for example (OECD, 2013; OECD, 2017e). In Korea, the national food cluster FOODPOLIS, an R&D-focused and export-oriented platform, offers tax exemptions to participating companies.

The public sector nevertheless remains a key performer of agricultural R&D in most countries

In most countries featured in this report, the public sector also plays a leading role in performing agricultural R&D. Generally speaking, the share of R&D performed by governments is higher for agricultural sciences and agricultural R&D than for total R&D (OECD, 2013). In 2015, agricultural R&D performed by government and higher education institutions accounted for 60% of total (public and private) expenditure on agricultural sciences in the majority of countries for which data are available, and for over 90% of total expenditure in some cases (Figure 1.20). While there may be inconsistencies in data across time, trends in this share between 2000 and 2015 appear to be mixed, reflecting the stronger involvement of the private sector in certain countries or the decrease in public R&D in some cases. Private sector efforts tend to concentrate on seed sectors and food processing (OECD, 2016d). Nevertheless, data on the shares of public and private involvement are limited for the majority of countries, and it is likely that the government share is even higher in emerging and developing economies. Examples of agricultural R&D performed by governments include the development of new rice varieties in Viet Nam (OECD, 2017e), research on agricultural soils and agriculture and climate in France (the Agriculture-Innovation 2025 programme), the development of climate adaptation technologies in the United States (via a network of Regional Climate Hubs) and, in New Zealand, the R&D of mitigation technologies to reduce agricultural greenhouse gas emissions at the New Zealand Agricultural Greenhouse Gas Research Centre (NZAGRC).

Figure 1.20. Expenditure on agricultural sciences R&D performed by government and higher institutions, selected countries, 2000 and 2015

Percentage of Gross Domestic Expenditure (GERD) on agricultural sciences R&D

Notes: Countries are ranked according to the levels of the most recent presented year.

* or nearest available year: 2015 is replaced by 2014 for the Czech Republic, the Netherlands, Poland, Portugal, the Slovak Republic, Slovenia, Turkey and the United States; and by 2013 for Hungary and South Africa. 2000 is replaced by 2003 for Mexico; by 2002 for Australia; by 2001 for South Africa; and by 1999 for Iceland.

Source: OECD (2017d), “Research and Development”, OECD Statistics (database), http://stats.oecd.org/; For the United States: USDA (2017a), Agricultural Research Funding in the Public and Private Sectors, https://www.ers.usda.gov/data-products/agricultural-research-funding-in-the-public-and-private-sectors/.

StatLink  http://dx.doi.org/10.1787/888933755317

Regional and international research collaboration is important to overcome regional and global challenges

Governments also play a key role in the facilitation of regional and international research collaboration in projects, networks and capacity building. R&D collaboration is a valuable means for countries to optimise their domestic research resources and benefit from specialisation and international research spillovers, and thus more efficiently address mutual challenges (OECD, 2013). The Consultative Group on International Agricultural Research (CGIAR), the Global Forum for Agricultural Research (GFAR), the Global Research Alliance on Agricultural Greenhouse Gases, the INNOVAGRO Network and the Global Conference on Agricultural Research for Development (GCARD) are just a few notable examples (OECD, 2013). In some regions, cross-country research collaboration is explicitly required by innovation policy – the European Union is one such example. While the main objective of this policy is the co-ordination of research across EU Member States, third countries can also participate in some cases.

A broad variety of models exist for the funding and delivery of extension, training and advisory services

Beyond agricultural R&D, the capacity of AIS to contribute to sustainable agricultural productivity growth depends on the availability of effective extension, training and advisory services from a diversity of actors. These are important for the facilitation of farmers’ access to and adoption of technology and knowledge, in addition to their participation in innovation networks and ability to formulate their specific demands (OECD, 2013). Advisory services can also to some extent compensate for farmers’ lack of skills or training by providing information that supports innovation (OECD, 2016c).

Governments can play an important role in ensuring that extension and advisory services continue to respond to demands from an increasingly diverse farm population on a wide range of topics. Where advisory services are important for the provision of public goods, but not necessarily financially rewarding for the private sector, public financing may be required. In some countries, advisory services that combine public and private providers may be optimal. Even when agricultural extension is farmer-led, however, governments have a role to play in encouraging environmentally-friendly technologies and practices (OECD, 2013).

While the public sector plays a major advisory role in some countries, producer organisations traditionally play a major role in others, occasionally with public co-funding. In some countries, the public sector has either reduced the direct provision of advice or now focuses solely on ensuring access to advice from diverse sources (OECD, 2016c).

One area generally focused on by the public extension system is agri-environmental management. Estimates of public expenditure for services in this area, where data are available, are significant, even if they remain a very small proportion of total public support for the sector (OECD, 2015c). Nevertheless, public investment in training, extension and advisory services, while important, is only one tool that governments have at their disposal to foster effective extension for sustainable productivity growth. The creation of broader policy incentives that exist for the adoption of practices and technologies, referred to earlier, is also key.

Current extension systems provide an increasing number of services, ranging from technical and financial advice to implementation of policy. Diverse models also exist for financing and providing these services, and there can be broad variations in the mix of options that is best suited to support the agricultural development strategy of countries (OECD, 2015c). The last two decades have witnessed a shift away from the delivery of advice by governments to various combinations of private and public funding of services delivered by private sector organisations. While some extension systems are entirely publicly financed and managed (e.g. in Belgium, Italy, Greece, Slovenia, Sweden, Spain, Portugal, Luxembourg, Japan, and Poland), in other countries (e.g. England, the Netherlands and New Zealand), systems are privately funded and delivered. In countries such as Canada, Chile and Ireland, services are provided by both public institutions and private companies, and farmers finance part or all of the cost. Finally, there are systems co-managed by farmers’ organisations (e.g. in Austria, Denmark, France and Finland), with funding from the government, farmers’ organisations and individual farmers. In the United States, all four arrangements can be found (OECD, 2015c). Although concerns have been raised as to whether the trend towards privatisation of extension is constraining the effectiveness of AIS (OECD, 2015c), both public and private funding of initiatives have roles to play in many cases, and will reflect government policies and resources, the nature of the issues, the type of provider, and the purpose of the measure.

One of the innovative forms of extension delivery that has emerged in recent years has been the peer group initiative. Group initiatives encourage dialogue between facilitators and farmers, allowing facilitators to gain insight into what makes farmers most receptive to advice. Farmer-to-farmer extension is also considered to result in more efficient information dissemination (OECD, 2015c). Experience of predominantly local peer group or co-operative initiatives is growing in Europe in particular. In Ireland, for example, farmer discussion groups, or “knowledge transfer groups”, have become an important means of interaction between public sector advisers and farmers. In 2015, the Irish government launched the latest Knowledge Transfer Group scheme with a focus on profitability, breeding, animal health and environmental sustainability (Teagasc, 2017). Sweden also operates a peer group initiative focused on nutrient use (OECD, 2015c). Another method of extension delivery that is becoming increasingly widespread is information and communications technology (ICT)-based extension and information provision, such as the e-Extension programme in the Philippines (OECD, 2017e).

Subject areas addressed by extension are varied, including advisory services for sustainable land use in Iceland (Stjornarradid, 2016) and Australia (OECD, 2015c; Landcare, 2017); training and extension in water-saving practices in Turkey; extension programmes explicitly targeting smaller-scale and impoverished farmers, such as in Chile (OECD, 2015c), Mexico and South Africa (DAFF, n.d.); risk management training in the United Kingdom (Northern Ireland); and training on climate change adaptation in Chile, Costa Rica (OECD, 2017f), New Zealand (MPI, 2017) and a number of European Union Member States, for example. The United States provides public technical assistance to land owners through various conservation practices and programmes, such as the Conservation Stewardship Program (CSP), which aim to help producers to conserve and enhance soil, water, air, and related natural resources.

Agricultural education needs to better reflect changing needs

In addition to extension provision, agricultural education is key to ensure that farmers have the necessary skills, understanding and innovative capacity to foster future sustainable productivity growth, and to train agricultural specialists, scientists and service providers who can enhance the relevance and efficiency of agricultural innovation systems. Aside from technical knowledge in areas such as production, processing, agribusiness and biotechnology, graduates require professional skills, such as leadership, communication, facilitation, and organisational capabilities that are important for AIS.

In many countries included within this report, higher education in agriculture is dominated by public (often regional) universities, which may receive some private funding. In some countries, both agricultural universities and agricultural departments in general universities exist. Applied agricultural education is provided through public and private technical (vocational) schools (OECD, 2013).

Generally speaking, however, specialised agricultural education has become less attractive for students in many developed countries, potentially slowing the adoption of innovation in the sector (OECD, 2013). Exceptions include the Netherlands, which has successfully adapted and broadened curricula to meet emerging needs (OECD, 2015f). In contrast, agricultural education continues to attract students from emerging and developing economies, who also represent a significant share of agricultural students in some OECD countries (such as the United States, Australia, Canada and the Netherlands) (OECD, 2015e; 2016d; 2015f; 2015g).

Assessing support and reforms

In 2015-17, agricultural support policies in the 51 countries covered in this report provided a total of USD 620 billion (EUR 556 billion) a year on average to their agricultural sectors. Around 78% of this, USD 484 billion (EUR 434 billion) a year, was transferred directly to individual producers. In 2015-17, 15% of gross farm receipts were due to policies that support agricultural producers.

Future growth in demand for diverse and high-quality food offers significant opportunities for agriculture. However, the sector faces a number of challenges in meeting future demand sustainably in the context of a changing climate. These include the need to be more responsive to the uncertainties ahead, to increase resilience to weather, market or other shocks, and to enhance the environmental performance of the sector. With respect to climate, for example, agricultural production is responsible for a significant share of anthropogenic greenhouse gas emissions. While this share varies significantly across the countries covered in this report, efforts to reduce emissions from farming are indispensable for achieving the goals set by the Paris Agreement of the COP21. In most countries, clear strategies for agricultural contributions to emission reductions have yet to be developed and implemented. Faced with opportunities and challenges such as the above, it is important that agricultural policy packages are efficient and effective, and promote a productive, sustainable and resilient sector.

Appropriate general services are needed to equip the agricultural sector for future challenges

To strengthen the sector’s capacity to respond to future challenges and opportunities, a variety of general services will be crucial. This includes various forms of sector-specific hard and soft infrastructure, appropriate biosecurity efforts, and a well-functioning agricultural innovation system adapted to the needs of the sector. On average, countries spent around 14% of total support or USD 86 billion (EUR 78 billion) a year in 2015-17 on general services for the sector. Given the dominance of transfers to individual producers, there is scope in many countries to shift the focus away from direct support of producers and towards general services for the sector that can foster its long-term performance, in order to better capitalise on opportunities and address challenges.

In addition to ensuring sufficient and stable funding of AIS, governance systems need to ensure that funding is both effective and relevant. This has been achieved in some cases by means of collaboration between public and private actors on extension and advisory services, as well as in research and development (R&D). Collaboration across national systems, regions and internationally, can also serve to maximise the gains from domestic resources and benefit from specialisation and knowledge spillovers, as demonstrated by a number of ongoing regional and international research collaboration efforts. International co-operation could be facilitated via the removal of institutional constraints, for example. The effectiveness of public funding for the AIS could also be improved by focusing on areas that are not covered by private sector efforts.

In terms of other general services to the sector, appropriate investments in physical and knowledge infrastructure, from ICT to transportation facilities, are vital to the delivery of, and access to, important services, and have an important role in improving farmers' connectedness to markets, knowledge and other services. Similarly, biosecurity efforts are important for maintaining access to valuable export markets and reducing the risk of pest and disease outbreaks that can cause harm and damage to agricultural industries. Appropriate investments in animal and plant health systems that create incentives for producers’ own prevention measures are also key.

Countries should therefore shift the focus of agricultural support to general services for the sector, where there is a net benefit to society from doing so. In particular, well-functioning agricultural innovation systems, appropriate science-based biosecurity efforts, and investments in adapted physical and other infrastructure are required to enhance the preparedness of their agricultural sectors to respond to future challenges and opportunities. Redirecting producer support to general services can also provide a pathway to transition the sector away from distorting forms of support.

In particular, appropriate investments in research, together with efforts to ensure that the outputs of this research reach farmers, can go a long way to ensure that the sector has the capacity to respond to evolving needs and challenges. While the appropriate mix of knowledge generation and transfer efforts will inevitably differ across countries, with some necessarily prioritising R&D and others public education or extension, governments should strive for balance between investments in knowledge generation and transfer where possible. Collaboration on knowledge generation and transfer with public and private actors – nationally, regionally and internationally, where relevant and possible – should be encouraged. Public funds should primarily target innovations that the private sector does not deliver, typically those with long-term impacts such as on sustainability or those related to the creation of positive externalities or avoidance of negative ones. Countries should also evaluate innovation systems to ensure that these maximise payoffs to investments, and do not crowd out private efforts.

Improved targeting of producer support is also vital to achieve sector goals

Within the envelope of transfers to individual producers, there are also opportunities to improve the targeting of support, to better align the measures used with countries’ goals for the sector. In a number of OECD countries, payments tied to specific production practices, or associated with mandatory or voluntary agri-environmental constraints, are increasing as a share of producer support, albeit from a low base. Their use reflects the growing importance of societal concerns about the environmental performance of farming or animal welfare, and the expectation that agriculture will provide various public goods, such as the maintenance of agricultural landscapes and biodiversity. Such payments are a more effective instrument for achieving policy objectives if they target the intended beneficiaries and specific investments where market failures prevent an efficient allocation of resources (such as those addressing agriculture’s environmental externalities and public goods).

There is significant scope within budgets to reorient transfers to individual producers towards payments that target well defined and measurable objectives for the sector, as well as broader societal objectives. Tax-financed support to farmers is predominantly provided via payments that are untargeted to beneficiaries or outcomes, reducing their effectiveness. This includes direct payments based on area, animal numbers, farm receipts or farm income, which are increasing in the OECD countries, as well as payments based on outputs and on variable inputs without constraints. These payments are often used to support farm incomes. However, farm income support is not generally well-targeted to those farm households in need, and often privileges large farms if linked to historical production data.

Governments should therefore identify and target the market failures that lead to persistent low incomes in agriculture. A better understanding of the financial situation of farm households – and how this differs from non-agricultural households – is essential in order to define specific policy objectives for farm income levels and related policy instruments.

Ideally, payments to farmers should target the production of the non-market goods and services sought by society (for instance improving environmental performance, animal welfare, or addressing other societal concerns). Tailoring the payments requires information on both the size of the problem at hand and the marginal costs of reducing it. Such information may not always be readily available or prohibitively costly to obtain. However, both appropriate proxies (often already applied for objectives related to natural resources) and the improvements in data availability that come with modern information technology should help to overcome such shortcomings.

Payments should also be conditional on delivery of the outcomes and public goods demanded by society. Current cross-compliance requirements could be made mandatory, to provide a baseline for delivering new and more ambitious public good and environmental outcomes linked to support payments.

Continued reliance on most-distorting support undermines efforts to improve agricultural productivity and sustainability

Shifting the focus of support towards general services for the sector and targeted producer support will help the sector to address challenges related to sustainable productivity growth in the context of a changing and uncertain climate. However, these efforts are undermined by countries’ continued reliance on measures that strongly distort production and trade. In 2015-17, almost two-thirds of producer support was provided via measures that distort production and trade particularly strongly.

For example, innovation will be important for achieving sustainable productivity growth in the face of climate change and resource pressures. But by disconnecting farmers from market signals, countries also obstruct efforts to strengthen their agricultural innovation systems. The payoff to public investments in knowledge generation and transfer, as well as to efforts to leverage greater private sector engagement, will not be maximised if producers lack the right incentives to adopt innovations.

This is because support provided through measures that distort production and trade is inconsistent with the goal of competitive, sustainable, productive and resilient farm and food businesses. Exposure to competition in domestic and world markets plays a fundamental role in encouraging on-farm innovation. Yet almost 60% of support to individual producers is provided by maintaining higher prices on domestic markets compared with those on international markets. Market price support shields producers from market signals and impedes adjustments within the sector by biasing production and resources towards more heavily-protected commodities. This in turn weakens incentives for innovation – not only to adopt more efficient and sustainable technologies, but to improve product quality and develop new markets.

Most-distorting forms of support are also inconsistent with the goal of improving the environmental sustainability of the sector and can increase pressures on the environment. By encouraging production, market price support and payments based on outputs can lead to more intensive use of inputs, while support for variable inputs without constraints increases the risk of their over- or misuse. Support targeted to specific commodities can also reduce resilience and adaptation to climate change by encouraging farmers to plant specific crops, even if they are not well-suited to local climate conditions. Finally, while the existence of environmental externalities and public goods linked to agricultural activities can justify some form of public policies, the most-distorting forms of support discussed here are blunt instruments that fail to target the underlying market failures and often worsen the situation.

Market price support is also an ineffective instrument for providing income support. On the producer side, such support is disproportionally captured by large producers who are arguably not in need of support. Moreover, the income transfer efficiency of border protection is low, limiting its effectiveness as a measure for raising farm incomes. When it comes to food security, the use of market price support is most often counterproductive. Driven through a push for food self-sufficiency, higher market prices act as a regressive tax on households – disproportionally hurting poorer vulnerable households due to the greater relative importance of food in their budgets.

Some progress has been made in a number of countries to reduce the trade distorting effects of policy packages, by both reducing support levels and by shifting support to less distorting (and generally more targeted) forms. This has resulted in Trade Impact Indices often falling more significantly than support levels over the past two decades. This progress is, however, not shared across all countries and often has remained partial, with significant trade distortions remaining and increasing in several countries.

On these grounds, there is a need for countries to re-orient their agricultural support policies from an approach that emphasises direct and untargeted support to producers – particularly support provided through highly distorting measures – to one that directly addresses the recognised opportunities and challenges facing the sector.

Market price support should be reduced and eliminated, including the negative market price support that is still prevalent in some countries. Market price support is a non-transparent and untargeted measure that is inconsistent with the goals of enhancing innovation and improving productivity and the environmental sustainability of the sector. A well-functioning domestic market and international trading system is important to connect producers to market opportunities, to enhance the food security of the poorest, and to maximise the payoffs to public investments in agricultural innovation systems.

Similarly, output payments and distorting input subsidies should also be reduced with a view to eventual elimination. They represent an inefficient use of government budgets, generally fail to appropriately target specific policy outcomes, and increase the risk of environmental damage. Scaling down these forms of support can help to free public funds for more targeted farm support and for better funding of needed general services.

Risk management systems should increase producers’ resilience to weather, market and other shocks

Helping producers to better manage risk is a key policy objective for a number of countries. As an alternative to more distorting forms of support, facilitating access to risk management tools can improve producers’ resilience to risks emanating from both domestic and international sources, and provide a more stable operating environment for investment in innovation. Current support systems for risk management tools involve a large range of insurance and stabilisation schemes, as well as ad hoc assistance in response to extreme weather events. This can blur the borders between the normal business risks, medium-size marketable risks and those of catastrophic nature, reducing incentives for on-farm or market-based risk management options.

There are also strong links between risk management policies and on-farm adaptation to climate change. Government initiatives to protect farmers from climate change risks can affect farmers’ choice of strategies. For example, public support for insurance schemes and for ex post payments may reduce the incentive to diversify farm production away from more climate sensitive crops and farm practices. In this sense, government-supported instruments can potentially crowd out appropriate adaptation strategies by farmers (Antón et al., 2012).

The OECD has proposed a three-tier risk management system that distinguishes normal business risks (to be borne and managed by farmers) from larger risks suitable for market solutions (such as insurance systems and futures markets) and infrequent catastrophic risks requiring public engagement (OECD, 2011). Countries should clarify and streamline their risk management policies accordingly to increase producers’ prevention measures and resilience to risk:

First, the limits between normal business risks, risks for which market solutions can be developed, and catastrophic risks requiring public engagement should be clearly defined, to avoid crowding out market solutions and farmers’ own risk management practices. These definitions will allow administrations to become active when public involvement is required, while sending clear signals to farmers and other private agents for developing relevant on-farm and market-based, privately-organised risk management tools for non-catastrophic risks.

Second, government support should focus only on managing catastrophic risks for which private solutions cannot be developed. Care should be taken that public support does not crowd out private solutions based on market tools. Disaster assistance criteria should adapt to changing temperatures and precipitation patterns that may characterise the new “normal” due to climate change, keeping farmers’ incentives to increase self-reliance and improve preparedness.

Thirdly, governments should play a proactive role in providing information and other general services for farmers and the private sector to facilitate the development of risk management strategies and tools. Governments should facilitate the provision of information on market risks, animal and plant health risks, climate risks and adaptation solutions.

To conclude, while some progress is evident in a number of the abovementioned areas, greater efforts are needed to align agricultural policies with the emerging needs of the sector. Indeed, the current structure of agricultural support suggests that there is scope within the budgets of many countries to ensure that policy settings effectively promote the productivity, sustainability and resilience of agriculture. This will require greater focus of support on the provision of general services – notably appropriate agricultural innovation systems, biosecurity efforts, and sector-specific infrastructure – and the improved and consistent targeting of producer support. There is an urgent need to shift away from most production- and trade-distorting forms of support that can also harm the environment and reduce incentives for innovation. Appropriate risk management systems that improve the resilience of farmers to market, climate and other shocks are a valuable alternative to more-distorting forms of support.

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Notes

 1.  Value added is the value of the gross output of producers less the value of intermediate goods and services consumed in production, before accounting for consumption of fixed capital in production (World Bank, 2017).

 2.  In some countries, programmes applied broadly across commodities are captured in SCT – such as the crop insurance programmes in the United States. In such instances, the distorting effect on production will be less.

 3.  Commitments made under the Agreement on Agriculture were completed in 2000, and a new and unfinished round of negotiations commenced in Doha in 2001. This section assesses developments in single commodity transfers since 2000-02 to coincide with this period.

Developments in Agricultural Policy and Support by Country

This part contains an overview of the developments of support in the OECD area and selected Emerging Economies overall, followed by chapters on agricultural policy developments and support to agriculture in each of the countries covered in this report. Each country chapter includes a brief summary of policy developments and support to agriculture and related assessments and recommendations; information on the context in which agricultural policies are implemented; and a description of the main policy developments in 2017-18.

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.

StatLink  http://dx.doi.org/10.1787/888933755336

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.

StatLink  http://dx.doi.org/10.1787/888933755355

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.

StatLink  http://dx.doi.org/10.1787/888933755374

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

StatLink  http://dx.doi.org/10.1787/888933758300

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.

StatLink  http://dx.doi.org/10.1787/888933755393

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.

StatLink  http://dx.doi.org/10.1787/888933755412

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

StatLink  http://dx.doi.org/10.1787/888933755431

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

StatLink  http://dx.doi.org/10.1787/888933758319

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.

StatLink  http://dx.doi.org/10.1787/888933755450

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.

StatLink  http://dx.doi.org/10.1787/888933755469

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.

StatLink  http://dx.doi.org/10.1787/888933755488

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

StatLink  http://dx.doi.org/10.1787/888933758338

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.

Chapter 3.

Australia

Support to agriculture

Australia has reduced its support to its agricultural producers continuously from already relatively low levels in 1986-88. Australia’s Producer Support (%PSE) is one of the lowest in the OECD area at 1.7% of gross farm receipts for the period 2015-17, with total support to agriculture (TSE) representing around 0.1% of GDP. Support to Australian agriculture is roughly equally split between support directly to producers (PSE) and general services support (GSSE).

Australia no longer uses any policy measures that convey market price support to its producers, meaning that domestic prices for its main agricultural outputs are at parity with world prices. In 2017, of the support that is provided directly to producers, around 46% was provided in the form of subsidies to input use. Much of this relates to measures that provide subsidies for upgrading on-farm water infrastructure to help reduce negative environmental externalities, and payments that seek to help producers deal better with droughts and other natural events through concessional loans at concessional interest rates. Much of the remaining producer support is directed towards risk and environmental management, with income tax averaging arrangements, farm management deposits and other environmental programmes accounting for 47% of the PSE (those payments are based on non-current area with production not required).

Australia has developed an extensive Agricultural Knowledge and Innovation System which, with the development of infrastructure, accounts for the greatest share of the general services support provided to the sector – respectively, these two areas account for 51% and 34% of GSSE expenditure. Over time, coupled with the move away from producer support, the share of general services in total support has increased from 6% in 1986-88 to 56% in 2017.

Main policy changes

In 2017, new policies were developed that increased the scope of the concessional loan arrangements. The use of concessional loans as an intervention to enable recovery from adverse events has a long history in Australia. During 2017, steps were taken to extend existing programmes for some producers. Specifically, Business Improvement Concessional Loans were introduced in July 2017 that expanded the pool of eligible farm businesses. Loans are only available to former recipients of the Farm Household Allowance, are capped at AUD 1 million, and are subject to specific eligibility criteria.

Australia has continued to foster its strong trade links with major trading partners. In March 2018, Australia and ten other countries signed the Comprehensive and Progressive Trans-Pacific Partnership. A month earlier, Australia also signed a bilateral free trade agreement with Peru. In June 2017, Australia concluded the negotiations for the Pacific Trade and Economic Agreement (PACER Plus). Australia continues to further negotiations with Indonesia, India and the European Union along with a number of plurilateral agreements.

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 under 2%. Australia also removed the potentially most distorting forms of support in the early 2000s, when remaining policy measures that conveyed market price support were removed. 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, with recent policies on insurance and savings concessions focusing on market and producer-level decisions as the core response to risk. Despite this, in recent years there has been increased use of concessional loans with subsidised interest rates (concessional variable interest rates lower than commercially available interest rates). Similar past programmes have been questioned in terms of their the efficiency and effectiveness (PC, 2009). These measures should be reviewed to ensure they are effective and efficient responses to the challenges that are faced by the sector and do not encourage additional risk taking by producers or reduce overall sector resilience.

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. Water policy remains a contentious area, however, reforms completed to date have allowed market mechanisms to deliver scarcity pricing signals to producers. In this light, water market reforms and basin management should continue to be a policy priority, alongside efforts to help producers better adapt to climate change.

Agriculture, through the opportunities provided to land owners, is covered by Australia’s Direct Action climate policy. There are questions about the programmes ability to deliver additional emissions reductions over those that would have occurred anyway. These provisions should be reviewed to ensure they deliver additionality with respect to purchases of land related emissions reductions.

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.

Figure 3.1. Australia: 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.

StatLink  http://dx.doi.org/10.1787/888933755507

Support to farmers (%PSE) has declined gradually over the long term. During 2015-17, support has been less than 2% of gross farm receipts, well below the OECD average. The share of potentially most distorting support has decreased significantly over time due to decline in market price support (MPS) following reforms to various marketing arrangements, and sits well below the OECD average (Figure 3.1). Prices received by Australian farmers are on par with international prices, with only sugar producers the recipient of single commodity transfers (SCT) related to capital subsidies to reduce environmentally detrimental run-off (Figure 3.3). Most distorting forms of support now represents very small share of the (low) PSE. Overall, the value of farm support fallen by some 7% in 2017 due to a reduction in budgetary expenditures (Figure 3.2); as production levels also fell between 2016 and 2017, however, the %PSE has remained unchanged (Table 3.1). Expenditures for general services (GSSE) have increased over time, but growth has slowed over the most recent period. Total support to agriculture as a share of GDP has declined significantly over time with the majority of support made up of GSSE expenditure– around 56% of the total support is provided as GSSE.

Figure 3.2. Australia: 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.

StatLink  http://dx.doi.org/10.1787/888933755526

Figure 3.3. Australia: Transfer to specific commodities (SCT), 2015-2017

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

StatLink  http://dx.doi.org/10.1787/888933755545

Table 3.1. Australia: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758357

Contextual information

Australia is the world’s 14th largest economy (in 2016) and the sixth largest country by land area accounting for 10% of all land in the countries included in this report. It has a high GDP per capita, relatively low unemployment levels and low and stable inflation. While the largest share of total land characterised by low fertile soils, Australia nevertheless is an important producer and exporter of agricultural products. Agriculture’s share of the economy, both in GDP and in employment, has been falling over time, a trend that has continued in recent years. However, overall, agricultural exports remain significant and account for around 17% of total exports in 2016.

Australian agriculture has a strong export focus with many sectors heavily reliant on foreign markets as the primary source of their demand. Australia maintains a positive and growing agro-food trade balance. Around half of Australia’s agro-food exports target final consumption (around 54%) – that is they are delivered directly to foreign consumers – with the other half exported as intermediate goods that are further processed in overseas markets. On the import side, Australia import primarily final goods for domestic consumption with no further domestic-based processing – around 78% of all agro-food imports. This shows that domestic food processes are not reliant on imported intermediates for their own production activities. This lower reliance on imports is due to the ability to source competitively produced domestic inputs.

Table 3.2. Australia: Contextual indicators
| Australia | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 403 | 1 181 | 1.5% | 1.4%
Population (million) | 18 | 24 | 0.6% | 0.7%
Land area (thousand km2) | 7 682 | 7 682 | 10.3% | 10.2%
Agricultural area (AA) (thousand ha) | 463 348 | 406 269 | 17.2% | 15.1%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 2 | 3 | 38 | 45
GDP per capita (USD in PPPs) | 22 099 | 48 243 | 9 650 | 24 866
Trade as % of GDP | 14 | 15 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 3.7 | 3.0 | 3.0 | 3.1
Agriculture share in employment (%) | 4.9 | 2.6 | - | -
Agro-food exports (% of total exports) | 25.7 | 16.7 | 7.7 | 7.3
Agro-food imports (% of total imports) | 4.7 | 6.7 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) | 50 | 58  | - | -
Livestock in total agricultural production (%) |  50 | 42  | - | -
Share of arable land in AA (%) | 9 | 12 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933758813

Australia’s agricultural sector has continued to undergo structural adjustment on the back of continued reforms and the uptake of innovative technologies and practices. These developments have contributed to continued productivity growth. Productivity growth has been central to the continued viability, and competitiveness, of Australian farm businesses. However, productivity growth has lessened in recent years and over the period 2005-14, total factor productivity (TFP) growth in Australia (1.9% per annum) fell, but remained above the world average (1.6%) (Figure 3.6). Average TFP growth between 2005 and 2014 was well below that seen between 1991 and 2000, partly due to the increasing impact of climate change on the sector.

Figure 3.4. Australia: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933755564

Figure 3.5. Australia: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933755583

Agriculture in Australia is a large consumer of natural resources. In terms of water, agriculture consumes over half of all water withdrawals – a share above the world average, but one which has fallen significantly since the 1970s. Low water availability in Australia’s agricultural producing regions, which will be accentuated by climate change, is a principal factor limiting the expansion of agricultural activities. Agriculture is also the significant source of both methane and nitrous oxide and emits around 14% of Australia’s total greenhouse gas emissions.

Figure 3.6. Australia: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933755602

Table 3.3. Australia: Productivity and environmental indicators
| Australia | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 3.36% | 1.94% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | 19 | 20 | 33 | 30
Phosphorus balance, kg/ha | 1.1 | 1.1 | 3.7 | 2.4
Agriculture share of total energy use (%) | 2.3 | 2.9 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 17 | 13 | 8.5 | 8.5
Share of irrigated land in AA (%) | 0.4 | 0.6 | - | -
Share of agriculture in water abstractions (%) | 70 | 52 | 45 | 43
Water stress indicator | 6.2 | 3.6 | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759269

Description of policy developments

Main policy instruments

Australia’s agriculture sector remains strongly market oriented with domestic and international prices aligned for all of its major production activities. Support to agriculture is provided through a mix of direct budgetary outlays and taxation concessions. Budget-financed programmes are used to incentivise investments to improve preparedness in the face of risk (weather and market) through concessional loan schemes along with farm household income support during periods of hardship. Direct support is also provided to upgrade on-farm infrastructure with the aim of improving natural resource use and environmental management. Tax concessions form part of the policy approach aimed at helping producers manage production and market risk through allowing them to smooth their incomes and also provide further incentives for on-farm preparedness-related investments.

With a low level of direct government support to farmers and no permanent farm subsidy scheme, research and development (R&D) programmes are a major component of Australian support to agriculture. Rural research and development corporations (RDCs) are the Australian Government’s primary vehicle for supporting rural innovation and drive agricultural productivity growth. RDCs are a partnership between the government and industry created to share the funding and strategic direction setting for primary industry R&D, investment in R&D and the subsequent adoption of R&D outputs. A levy system provides for the collection of contributions from farmers to finance RDCs, and the Australian Government provides matching funding for the levies, up to legislated caps.

Australia has negligible tariff protection on imports of agriculture and food products; however, it has in place a number of sanitary and phyto-sanitary (SPS) arrangements to manage pest and disease risks that could harm the sector. These SPS arrangements mean that a number of import restrictions are in place for agricultural products from certain regions across the globe. Australia’s agricultural trade policy is directed towards seeking further market opening in multilateral, bilateral and regional trade agreements.

Australia has ten comprehensive free trade agreements in force, both regional and bilateral, with New Zealand (ANZCERTA 1983), Singapore (SAFTA 2003), Thailand (TAFTA 2005), the United States (AUSFTA 2005), Chile (Australia-Chile FTA 2009), the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA 2010), Malaysia (2013), Republic of Korea (KAFTA 2014), Japan (JAEPA 2015), and China (ChAFTA 2015). In total, agricultural trade covered by these agreements covered 67% of total Australian agro-food exports in 2016 and 59% of total agro-food imports.

While no specific policy instruments for agriculture have been developed in response to the 2016 Paris Agreement on Climate Change, Australia has in place a number of policies that include agriculture and will contribute to it meeting its commitment to reduce GHG emissions – including from land based sectors such as agriculture – by 26-28% in 2030 compared to the 2005 levels, as defined in the Australian Nationally Determined Contribution (NDC). In Australia, the Department of the Environment and Energy leads the development of domestic climate change policy issues across the Australian Government. Australian policy directed towards agriculture seeks to address both adaptation and mitigation, and to develop policy responses that maintain or enhance productivity, profitability and food security.

Australia has shifted towards a ‘Direct Action Plan’ to cut emissions across the economy. This plan involves moving away from a carbon tax or cap-and-trade arrangement to one where the government effectively purchases emission reductions from actors in the economy across a range of sectors. For large non-agricultural emitters, a ‘safeguard mechanism’ exists to keep emissions within baseline levels which is enforceable by Clean Energy Regulator under a range of graduated enforcement options ranging from advice to fines to forced corrective actions and also, in extreme situations, criminal sanctions (Australian Government, 2016). For agriculture, the Direct Action Plan builds on the Carbon Farming Initiative, a scheme where farmers and land owners were able to earn carbon credits by storing carbon or reducing greenhouse gas emissions on the land they own. Once registered under the Carbon Farming Initiative, the credits could be sold to those wishing to offset their emissions (Department of Environment and Energy, 2018a).

The Direct Action Plan is funded through the Australian Government’s Emission Reduction Fund (ERF). The ERF is a voluntary scheme that is open to farmers and land managers and allows them to seek funds (incentives) to undertake emission reductions and carbon sequestration (capture and storage of carbon) projects. The methods approved under the ERF must meet strict integrity requirements including in relation to additionality. Under the scheme, landowners and farmers who adopt approved Emission Reduction Fund methods can generate Australian Carbon Credit Units, which can be sold, either to the government through a competitive reverse auction, in which sellers engage in price bidding, or to third parties, to provide alternative or additional income streams, while benefitting the environment. The scheme does not set limits on agriculture and is entirely voluntary for the sector.

So far, six ERF auctions have been held. From these auctions the Australian Government has contracted a total of 191.7 million tonnes of abatement, of which approximately 83% (160 million tonnes) has been contracted by the land sector (which includes but is not limited to agriculture).

However, despite the integrity requirements in place, a number of studies have questioned the ability of the scheme to deliver additional carbon abatement relative to what may have occurred anyway (Burke, 2016; Fairbairn, 2016) and for the funded projects to deliver on their intended reductions – so far of the nearly 160 mtCO2e contracted, only about 15 mtCO2e has actually been reduced. Much of this rests on the issues around the asymmetric information that exists between the government and private actors. The approach also shifts the burden of emission reduction costs to the government and away from the sectors which generate the emissions themselves.

In 2017, the Australian Government reviewed its climate change policies to ensure they remain effective in achieving Australia’s international obligations – including the Paris Agreement on Climate Change. As a result of this review, the government plans to develop a long-term emissions reduction strategy by 2020. The strategy will explore the emissions reduction opportunities and implications across all major sectors of the economy (Department of Environment and Energy, 2017). For agriculture, as a major emitter and as land clearing continues to contribute to total emission (emissions from the conversion of forest to other uses stopped declining in 2015 and has remained stable since (Department of Environment and Energy, 2018b, p.18), future climate policies will likely impact the sector to a greater extent than in the past.

Domestic policy developments in 2017-18

In recognition of Australia’s history of drought events and the increasing likelihood of such conditions, Australian governments agreed (in 2013) to refocus policies to support farmers in time of hardship, regardless of the cause, and assist farmers manage and prepare for business risks, including climate variability. The Intergovernmental Agreement on National Drought Program Reform (IGA) provides principles, objectives and outcomes, and outlines the roles and responsibilities of governments in providing drought and rural assistance. This approach led to a number of policy developments including the introduction of the Managing Farm Risk programme, improvements to Farm Management Deposits, and income tax averaging arrangements. The success of the IGA in refocussing drought policy has led to Agriculture Ministers agreeing to extend the current IGA (due to expire 1 July 2018) until a new agreement has been finalised.

In 2017, policy developments related to increases in the scope of the concessional loan arrangements. The use of concessional loans as an intervention to enable recovery from adverse events has a long history in Australia. Primarily used for post-drought and natural disaster recovery, a number of reviews have questioned the efficiency and effectiveness of past programmes (PC, 2009). Notwithstanding past reviews, during 2017 steps were taken to extend existing programmes for some producers. Specifically, Business Improvement Concessional Loans were introduced in July 2017. These loans are available to producers, who have already exhausted, or are close to exhausting, their maximum 1 095 day Farm Household Allowance entitlement (a household based hardship payment) and who are deemed to need additional time to recover from financial hardship. The Loans are available under the Farm Business Concessional Loans Scheme, and are for debt restructuring purposes only. Loans attract the same conditions to those provided under the Drought Assistance Concessional Loans and Dairy Recovery Concessional Loans programmes and are capped at AUD 1 million (USD 0.77 million).

In September 2016, the Australian Senate referred the Australian dairy industry to the Senate Economics References Committee for inquiry and report by 24 February 2017. This was in order to establish a fair, long-term solution to disputes over pricing in Australia’s dairy sector, with particular reference to that of fresh milk. In February 2017 the Senate granted an extension to the committee to report by 30 March 2017. The Australian Government is considering the twelve recommendations contained in the report.

In November 2016 at the request of the Australian Treasurer, the Australian Competition and Consumer Commission (ACCC – an independent statutory authority responsible for the promotion of competition and fair trade in markets in Australia) commenced an inquiry into the competitiveness of prices, trading practices and the supply chain in the Australian dairy industry. In September 2017 the Treasurer granted an extension of the reporting period to 30 April 2018. The ACCC released an Interim Report in November 2017 and is currently considering industry feedback.

Meanwhile, while not government policy, the dairy sector has developed a voluntary code of conduct. The Code sets out good practice for milk supply contracts between farmers and processors and has been agreed in order to address a number of historical issues with past dairy contracts under the Australian Consumer Law (competition law) and Unfair Contract Terms (small business contracts) laws. The Code represents a voluntary industry-based attempt to resolve issues around contracting and pricing between participants in the dairy value chain, and has been adopted by most processors and a number of farmer representative organisations. It came into effect in June 2017 and is scheduled to be reviewed after 12 months.

Regulation of the agriculture sector was also the subject of a review by the Australian Government’s independent microeconomic advisory body the Productivity Commission (PC, 2016). The Commission’s report, released in 2017, suggested that a number of regulations affecting the sector were not justified, including restrictions on the use of land held under pastoral lease arrangements, state bans on cultivating genetically modified crops, barriers to entry for foreign shipping providers, mandatory labelling of genetically modified foods, and the regulated marketing of rice in New South Wales and sugar in Queensland. It also suggested that regulation was the wrong policy tool to deal with concerns over foreign direct investment and found that in a number of areas of justified regulatory interventions regulation making could be improved (around native vegetation, animal welfare and agricultural and veterinary chemicals). To date, the government has not responded to the findings and recommendations of the report.

Trade policy developments in 2017-18

Australia has remained an active participant in the WTO Committee on Agriculture, pursuing options for further reform that were considered at the WTO Ministerial Council in late 2017. Australian signed the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) in March 2018 with 10 other countries. This agreement contains a number of provisions on agriculture with market access improvements expected in a range of countries across a range of products.

In February 2018, Australia signed a free trade agreement with Peru (PAFTA). Australia also completed and signed the Pacific Trade and Economic Agreement (PACER Plus) in June 2017. This agreement includes New Zealand and nine Pacific island countries – Cook Islands, Kiribati, Nauru, Niue, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu (which joined in September 2017). The agreement covers a wide range of agricultural products in most countries, however there are substantial phase in time periods of up to 35 years (Nauru), but commonly over the next 25 years. The Federated States of Micronesia, Palau and Republic of Marshall Islands, who remain part of the agreement, but are still completing their domestic approval processes prior to signing.

Australia and Indonesia have continued to progress the negotiations for the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) which began in 2010 but was reactivated in 2017. Both countries are aiming for a comprehensive agreement that seeks to improve greater economic integration in areas of trade and investment that goes beyond market access concessions (Government of Australia and Government of the Republic of Indonesia, 2017). Australia is engaged in a further eight FTA negotiations. There are three individual bilateral FTA negotiations with Hong Kong China, India and the European Union. The five plurilateral negotiations are the Gulf Cooperation Council (GCC), the Environmental Goods Negotiations, the Pacific Alliance Free Trade Agreement, the Regional Comprehensive Economic Partnership Agreement (RCEP) and the Trade in Services Agreement (TiSA).

References

Australian Government (2016), The safeguard mechanism – Overview, Canberra http://www.environment.gov.au/climate-change/government/emissions-reduction-fund/publications/factsheet-erf-safeguard-mechanism.

Burke, P. J. (2016), “Undermined by Adverse Selection: Australia’s Direct Action Abatement Subsidies”, Economic Papers, vol. 35, no. 3, pp. 216-229.

Department of Environment and Energy (Australian Government) (2018a), About the Carbon Farming Initiative, Canberra, http://www.environment.gov.au/climate-change/government/emissions-reduction-fund/cfi/about.

Department of Environment and Energy (Australian Government) (2018b), Quarterly Update of Australia’s National Greenhouse Gas Inventory: September 2017, Canberra, http://www.environment.gov.au/system/files/resources/c2a05f9f-b95b-4a0a-b10c-21b5eda91ced/files/nggi-quarterly-update-nggi-september-2017.pdf.

Department of Environment and Energy (Australian Government) (2017), 2017 Review of Climate Change Policies, Canberra, http://www.environment.gov.au/system/files/resources/18690271-59ac-43c8-aee1-92d930141f54/files/2017-review-of-climate-change-policies.pdf.

Australian Government and Government of the Republic of Indonesia (2017), Joint Statement between the Government of Australia and the Government of the Republic of Indonesia, 26 February 2017, http://www.pm.gov.au/media/2017-02-26/joint-statement-between-government-australia-and-government-republic-indonesia.

PC (Productivity Commission) 2009, Government Drought Support, Inquiry Report No. 46, Canberra.

Fairbairn, J. (2016), “A Comparison of Policy Instruments to Reduce Greenhouse Gas Emissions”, Economic Papers, vol. 35, no. 3, pp. 204-215.

Productivity Commission (2016), Regulation of Australian Agriculture, Report no. 79, Canberra

Chapter 4.

Brazil

Support to agriculture

Brazil provides a relatively low level of support and protection to agriculture, reflecting its position as a competitive exporter. The level of producer support (PSE) was 2.7% of gross farm receipts in 2015-17, well below the OECD average. The total support estimate to agriculture (TSE) was 0.4% of GDP, and the direct support to farms (PSE) represented 50% of the total support to the sector (TSE) in the same period. Support based on output and payments based on input use are the most prominent elements of the PSE. Expenditures on agricultural knowledge and innovation systems are the main elements of the General Services Support Estimate (GSSE) and accounted for close to 90% of the total GSSE in 2015-17.

More than half of support to producers is provided through measures based on variable input, mainly concessional credit and crop insurance subsidies. Concessional credit is available for farm marketing and working capital but also for investment in fixed capital. Since 2008 all support based on input use is conditional to environmental criteria. One-third of support to producers is provided through measures that distort farm output prices, such as regional minimum guaranteed prices and deficiency payments. While domestic prices were below world prices in the mid-1990s, generating negative market price support (MPS), prices are now almost aligned with the international markets.

Main policy changes

The Agricultural and Livestock Plan 2017/18 increased the maximum budgeted allocation for rural credit by 2.5%, and banks are obliged to provide up to 20% of their deposits to finance subsidised rural credit for working capital and for agricultural products storage were significantly increased up to 20% of their deposits. However, as inflation decelerated and reference interest rates (SELIC) declined in 2017, applied market interest rates were lower than the ones fixed for the 2017/18 period and the regional minimum guaranteed prices for key crops were maintained at or below previous year levels.

A strategic plan for the eradication and prevention of Foot and Mouth Disease was launched and the Veterinary Inspection system is to be modernised, with the government recruiting 600 additional sanitary professionals.

The national biofuel policy RenovaBio passed in December 2017 responds to Brazil’s Intended Nationally Determined Contributions commitments under the Paris Agreement on Climate Change. It is designed to increase biofuel production, and establishes mandates related to biofuel certification and tradable decarbonisation credits.

Assessment and recommendations

The prices received by agricultural producers in Brazil fell in 2017 in the context of a significant decline in inflation, and most regional minimum prices fixed by the Government did not increase. These developments highlight that, in spite of regional price support programmes, prices received by agricultural producers in Brazil are almost aligned with international markets. However, differences in support levels by commodity persist and should be removed to eliminate distortions within the agricultural sector.

Agricultural credit at preferential interest rates is central to Brazil’s agricultural policy. The reduction of the reference interest rate SELIC makes credit more affordable and allows better targeting credit support to small producers and to innovative capital investment. While credit support is intended to address failures in financial markets, it entails default-related risks and most of the credit is concentrated on more distorting short-term borrowing for commercial farmers. A gradual downsizing of those short-term concessional loans should be considered now that market interest rates are lower, and regulations and procedures should be simplified. Agricultural credit support could be better targeted to support on-farm investments that explicitly incorporate technological innovations, advanced farm management and environmental practices.

Expenditure on general services to agriculture constituted almost a third of total support to the agricultural sector in 2015-17, with a focus on R&D and innovation transfer. The agricultural innovation system has helped to maintain relatively high productivity growth rates in the commercial sector. Maintaining the research capacity and focus, and increasing the diffusion and adoption of innovations to a wider range of farmers, will be important, including through partnerships between the Government research agency Embrapa and other private and public actors.

The Ministry of Agriculture’s development of on-line risk assessment tools should help to generate risk awareness and facilitate self-assessment and decision making by farmers. In order to develop more efficient insurance products and monitor the performance of subsidized insurance, it is essential to strengthen the information base of these tools and to facilitate the information sharing among different actors.

Most support programmes in Brazil are currently conditional on environmental criteria and zoning rules, and the ABC plan provides credit to finance the implementation of sustainable practices. The effectiveness of these conditions and credit programmes to achieve specific long-term sustainability and environmental outcomes should be assessed in order to improve their policy design and to inform the strategies to achieve Brazil’s INDCs under the Paris Climate Agreement.

Recent efforts to improve animal health have delivered significant results in 2017 with the OIE declaration of Brazil as free of the contagious bovine pleuropneumonia, and the recognition by the Government of Brazil of the last two states as free of foot and mouth disease with vaccination. The ongoing restructuring of the sanitary and phytosanitary inspection system should pursue further strengthening the system by improving its efficiency and professional independence, in order to restore confidence and open export markets for Brazilian agriculture.

Figure 4.1. Brazil: 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.

StatLink  http://dx.doi.org/10.1787/888933755621

Brazil has moved from taxing the sector in the mid-1990s to a low level of Support to farmers (%PSE) of 2.7% of gross farm receipts in 2015-17, well below the OECD average (Figure 4.1). The share of potentially most distorting support was 35% of the PSE in that period, reflecting Market Price Support and deficiency payments. Since 2008, all support to variable inputs use is conditional to environmental criteria. Prices received by farmers were almost aligned with world prices in 2015-17, while they were 18 % lower in 1995-97. The expenditures for general services (GSSE) corresponded to 2.7% of the agricultural value added in 2015-17, down from 7.3% in 1995-97. Almost 90% of this expenditure was for financing the agricultural knowledge and innovation system. Total support to agriculture was 0.4% of GDP in 2015-17, below the OECD average. About half of the total support (TSE) is provided to individual farmers (PSE). The level of support to producers (PSE) in 2017 has decreased by 41%, due to declines in both MPS and budgetary payments. The decrease in MPS results from a smaller price gap as domestic prices declined more than border prices (Figure 4.2). Transfers to specific commodities (SCT) represented 63% of the support to farmers (PSE) (Figure 4.3). Most of the SCT were in the form MPS. The commodities with highest SCT transfers in 2015-17 were rice (16%), wheat (10%), cotton (5%) and maize (4).

Figure 4.2. Brazil: 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

StatLink  http://dx.doi.org/10.1787/888933755640

Figure 4.3. Brazil: 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

StatLink  http://dx.doi.org/10.1787/888933755659

Table 4.1. Brazil: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758376

Contextual information

Brazil has a large population and is one of the world’s ten largest economies. It is an upper middle income country, with a per capita GDP over USD 15 000. Agriculture contributes a stable 5% of GDP, compared to 3% across all countries in the report. The agriculture sector absorbs a large but declining share of employment: 13.9% as compared to 26.1% in 1995. The country is one of the largest agricultural exporters with agro-food exports accounting for 38.5% of total exports, compared with 7.3% across all countries. The share of agro-food in total imports is 6.7%. Brazil is abundantly endowed with agricultural land representing more than 10% of the total land area of all countries covered in this report. A large share of this land (28%) is arable.

Table 4.2. Brazil: Contextual indicators
| Brazil | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 1 283 | 3 141 | 4.6% | 3.7%
Population (million) | 162 | 206 | 5.7% | 6.0%
Land area (thousand km2) | 8 358 | 8 358 | 11.2% | 11.1%
Agricultural area (AA) (thousand ha) | 258 472 | 282 589 | 9.6% | 10.5%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 19 | 25 | 38 | 45
GDP per capita (USD in PPPs) | 8 073 | 15 153 | 9 650 | 24 866
Trade as % of GDP | 6 | 9 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 5.8 | 5.0 | 3.0 | 3.1
Agriculture share in employment (%) | 26.1 | 13.9 | - | -
Agro-food exports (% of total exports) | 29.3 | 38.5 | 7.7 | 7.3
Agro-food imports (% of total imports) | 12.4 | 7.4 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  72 | 65  | - | -
Livestock in total agricultural production (%) |  28 | 35  | - | -
Share of arable land in AA (%) | 22 | 28 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933758832

Brazil’s GDP recovered in 2017 after a 3% contraction in each of the previous two years. Inflation significantly declined from 9% in 2016 to 3.4% in 2017. However, the unemployment rate continued to grow to 12%, its highest level in twenty years. Agro-food exports have been very dynamic and more than quadrupled between 2002 and 2013 to more than USD 80 billion. The agro-food trade surplus was above USD 60 billion in 2016. Almost three quarters of Brazilian agro-food exports are processed products for consumption or further processing industries.

Figure 4.4. Brazil: Main economic indicators, 1996 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933755678

Figure 4.5. Brazil: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933755697

Brazilian agricultural production has increased at an annual rate of 3.4% between 2005 and 2014, well above the global output growth of 2.4%. During the same period, Total Factor Productivity (TFP) has increased at 2.2%, outperforming the global average. This indicates that a more efficient combination of inputs has been the main driver of output growth compared to the use of additional primary or intermediate inputs that grew together at a rate of 1.2%. Agriculture accounted for 44% of GHG emissions in 2016, slightly less than in 1995, but much above the OECD area average. A large and growing share of water abstractions, 62% in 2016, goes to agriculture, but the water stress indicator of 1.0 is much lower than the OECD average.

Figure 4.6. Brazil: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933755716

Table 4.3. Brazil: Productivity and environmental indicators
| Brazil | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 2.37% | 2.21% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | .. | .. | 33 | 30
Phosphorus balance, kg/ha | .. | .. | 3.7 | 2.4
Agriculture share of total energy use (%) | 5.5 | 5.1 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 50 | 44 | 8.5 | 8.5
Share of irrigated land in AA (%) | .. | 2.0 | - | -
Share of agriculture in water abstractions (%) | 50 | 62 | 45 | 43
Water stress indicator | 0.6 | 1.0 | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759288

Description of policy developments

Main policy instruments

Agricultural policy in Brazil mainly focuses on three areas: market price regulation, rural credit and crop insurance. There are also other policy measures, such as agricultural land zoning and promotion of biofuels and organic production. Agricultural policy is defined in the Agricultural and Livestock Plan administered by the Ministry of Agriculture, Livestock and Food Supply (MAPA) which focuses only on commercial agriculture. The Family Agriculture Plan supports the development of small-scale family agriculture. It is under the responsibility of the Special Secretariat for Family Agriculture and Agrarian Development (MDA) which reports directly to the Presidency.

The basic element of market price policy consists of regionally set minimum guaranteed prices, which cover a broad range of crops and a few livestock products like cow and goat milk, and honey. Given these minimum guaranteed prices, the government implements several price support mechanisms, including direct government purchases (AGF programme); premiums to commercial buyers who pay minimum prices to producers; and public and private options contracts backed by a private risk premium option. In addition to these programmes, producers receive various reduced-interest marketing loans which enable them to withhold the sale of a product in anticipation of a higher market price. The National Food Supply Agency (CONAB) is in charge of operating these programmes on behalf of MAPA and MDA. Several programmes offer deficiency payments calculated as the difference between the market price and the minimum (reference) price (e.g. the Rural Equity Prize programme called PEPRO, and the Product Reward Prize programme known as PEP).

Agricultural credit is the major policy instrument for the sector and it is provided to both commercial and small-scale family farms. The National Rural Credit System (SNCR) directs credit to farmers at preferential interest rates. For commercial agriculture the SNCR system provides credit for marketing, working capital and investment. Sources of funding for this concessional credit come from “compulsory” resources, where banks are obliged to either hold a share of their sight deposits as obligatory reserves at the Central Bank at zero interest rate or to allocate the same proportion in loans to agricultural activities at below market interest rates. In addition, rural savings institutions (Poupança Rural) are obliged to hold 74% of their sight saving deposits for agricultural credit at market or, as long as the National Treasury decides to equalise the difference, preferential interest rates. Some investment credit allocations under SNCR are funded by Brazilian Development Bank and managed by MAPA. Credit for family farms falls under the auspices of PRONAF-Credit of MDA and provides only working capital and investment loans. Support is also provided to producers through debt rescheduling. Major debt rescheduling occurred during the late 1990s and early 2000s for both commercial and family producers.

Agricultural insurance is another important area for the government. Four main programmes provide support either in the form of insurance premium subsidies or by compensating farmers for production losses due to natural disasters. Two of them target commercial farmers and are administered by MAPA: the rural insurance premium programme (PSR) grants insurance premium subsidies to commercial producers who establish contracts with insurance companies listed by the government; the general agriculture insurance programme (PROAGRO) offers eligible farmers partial compensation of the bank debt on working capital loans and indemnity on loss of own resources invested in production. Most of the resources allocated by this programme are directed to the southern region and to grain crops, mainly soybeans. Small-scale family farms can benefit from the PROAGRO-Mais or family agriculture insurance (SEAF), and the crop guarantee programme (Garantía Safra, GS).

In a number of programmes, support is conditioned by environmental criteria. Agricultural zoning represents an important instrument linking agricultural support to environmental sustainability of farming activity. Respect of zoning rules is used as a condition of producers’ eligibility for concessional credit and subsidised insurance programmes. Since 2008, access to subsidised credit for agricultural production in the Amazon biome is conditional on the registration of agricultural producers and ranchers in the Rural Environmental Cadastre and the provision of information on compliance with environmental regulations, in particular land use regulations set out in the Forestry Code.

In addition, several specific programmes promote sustainable agricultural practices. These include credit for plantings on unproductive and degraded soils, credit for forest planting, and credit to modernise production systems and preserve natural resources. Such programmes are designed for both the commercial and family farm segments.

Domestic policy developments in 2017-18

The Agricultural and Livestock plan 2017/18 was announced by the Ministry of Agriculture on the 6th of June. The plan defines the maximum budgetary resources for rural credit (BRL 188.4 billion or USD 59.1 billion), marketing programmes including market interventions and deficiency payments (BRL 1.4 billion or USD 439 million), and insurance (BRL 550 million or USD 172 million).

Inflation slowed down from 8.7% in 2016 to 3.4% in 2017 and, under the 2017/18 plan, several regional minimum guaranteed prices remained constant or were reduced in nominal terms compared to 2016/17. The guaranteed price of sorghum remained constant in most of the regions, as did the price or long rice. The list of crops for which minimum guaranteed price was reduced include: cotton by 6%, cottonseeds by 3%, wheat by 4%, some varieties of beans (preto by 19% and cores by 2%) and maize in most of the North regions by 3%. The guaranteed price of maize remained unchanged in the North East regions and increased by 1% in the South and South East Regions, and in the States of Matto Grosso and Rondonia. Other minimum guaranteed prices that were increased in 2017/18 are: arabica coffee by 1%, the long-thin variety of rice by 3%, milk by 4% and cocoa by 7 or 12% depending on the region.

The National Food Supply Agency (CONAB) was authorised to intervene during 2017 with sales from public stocks and purchases of different commodities, in particular maize. The Ministries of Agriculture and Finance negotiated the implementation of an option contract for up to 3 million tonnes of maize, to be carried out by CONAB, allowing rural farmers and their cooperatives to sell maize to the government for a future date at a fixed price (AMIS, March 2017). A first auction in May covered a total of 200 000 tonnes (AMIS, June 2017). In March and April, the Ministry of Agriculture concluded freight contracts to remove, respectively, 34 000 and 250 000 tonnes of maize from public stocks to meet the demand from meat producers (AMIS, April and May 2017).

PEP and Pepro contracts offer deficiency payments up to a guaranteed minimum producer price of BRL 275 (USD 86.2) per tonne (AMIS, June 2017). Contracts were auctioned for a total of 300 000 tonnes and 500 000 tonnes of maize, respectively. Auctions for a total of 170 000 tonnes of rice were launched in Rio Grande do Sul and Santa Catarina in 2017.

The resources for rural credit in the 2017/18 plan are 2.5% above the level in 2016/17. Most of the increase is intended for investment credit, which is to be 12% higher than last year. This, however, represents only 20% of all resources for rural credit while the balance is directed for marketing loans and working capital. The interest rates within government programmes for investment credit were reduced from 8.5% to 7.5% for medium-sized producers (PRONAMP), and from 9.5% to 8.5% for larger producers. The interest rates for marketing and working capital for producers and cooperatives were fixed at 8.5% and 9% respectively. The reference market interest rate (SELIC) has progressively fallen from 14% in 2016 to 7% in December 2017. The preferential interest rates remain slightly below the reference rate, but the differential between the two rates has narrowed. The compulsory resources to be reserved by the banks from their deposits for the subsidised credit have been increased from 13% to 15% for medium producers (PRONAMP), and from 10% to 20% for small producers (PRONAF). By August 2017, the volume of credit provided to farmers increased by 29% compared to the same period in the previous year.

According to a study by the Ministry of Agriculture on the execution of the insurance programmes, producers received a total of almost BRL 3 billion (USD 1.3 billion) in indemnities associated with climatic events in 2006-15.1 The amount of premium subsides effectively delivered was BRL 399 million (USD 125.1 million) in 2016, almost a third higher than in 2015, but well below the record of BRL 693 million (USD 294.4 million) in 2014. Additionally, the Ministry implemented initiatives to improve the tools available for risk management. This includes, for instance, an online tool to assess the level of climatic risks according to the different locations and agro climatic zones.² This tool is designed to be user friendly and the information easy to interpret.

As a participant to the 21st Conference of the Parties (COP21) of the United Nations Framework Convention on Climate Change, Brazil submitted its Intended Nationally Determined Contribution (INDC) on 21 September 2016. These include a reduction by 2025 of greenhouse gas emissions by 37% compared to their level in 2005. On 27 December 2017, Brazil passed a national biofuel policy (No. 13.576/2017) called RenovaBio, to foster the implementation of the commitments under the ParisAgreement on Climate Change. The policy is designed to increase biofuel production and make energy markets more predictable by establishing mandates related to biofuel certification and tradable decarbonisation credits (AMIS, February 2018). The programme aims at encouraging energy efficiency gains in biofuels production and use, recognising that different biofuels have different capacities to contribute to the mitigation goals set at COP21. In August 2017, the first Brazilian plant to process ethanol from maize was inaugurated in the State of Mato Grosso. The number of ABC credit contracts for agricultural technologies with low carbon emissions increased by 225% in July-August 2017 compared to the same period in 2016.3 The ABC Plan is an initiative that provides low-interest loans to farmers who want to implement sustainable agriculture practices, including no-till agriculture, the restoration of degraded pasture, the planting of commercial forests, biological nitrogen fixation, treatment of animal wastes and the integration of crops, livestock and forest.

Following an audit of 600 slaughtering plants out of the 5 000 authorised by the Government,⁴ the Ministry of Agriculture began the modernisation of the whole Veterinary Inspection system. Tested practices in the United States and the European Union are being implemented, which will require contracting of 600 new sanitary and phytosanitary inspection professionals, including 300 veterinarians. The Service of Inspection of Animal Products (SIPOA) was also re-organised in March 2018, with the consolidation and increased autonomy of the services previously functioning as parts of the State Ministries of Agriculture.⁵

A public consultation to simplify the system of minimum requirements for quality control for fruits and vegetables started in August 2017, and in December Brazil joined the OECD Fruits and Vegetables Scheme. An action plan aims to fully align the system in Brazil to the recommendations of the Scheme within the next three years.

The research agency of the Ministry of Agriculture (Embrapa) expanded partnerships with private and public sectors in 2017. An agreement between Embrapa and the Association of Cotton Producers (Abrapa) provides BRL 18 million (USD 5.6 million) to accelerate research into cotton resistant to the bicudo, one of the most important cotton pests in Brazil.⁶ Embrapa and the private fund Cedro Capital created a fund to invest in adoption of technological innovations of Embrapa. Private companies and start-ups can receive up to BRL 5 million (USD 1.6 million) of capital from this fund.⁷ A partnership between the Ministry of Agriculture and the Institute of Technological Research (IPT) of Sao Paulo aims at bringing new agricultural technologies to the adoption phase.⁸

Trade policy developments in 2017-18

Brazil’s applied MFN customs tariffs for agricultural products were entirely ad valorem, with rates ranging from zero to 50% in 2016. The simple average MFN tariff applied in 2016 was 10% compared to 14.1 % for non-agricultural products. The trade-weighted average MFN tariff for agricultural products was 12.3% compared to 10.3% for non-agricultural products. More than half of agricultural imports entered with applied tariffs below 10%, corresponding to close to 57% of agricultural tariff lines (WTO, 2018).

Negotiations continued on the EU-Mercosur Free Trade Agreement (FTA) between the four Mercosur countries (Argentina, Brazil, Paraguay, and Uruguay) and the European Union. They began in 1999, but were suspended in 2004 and in May 2010. In May 2016, both blocs exchanged offers that are being negotiated. In December 2017, the Government of Brazil initiated an open consultation with Brazilian enterprises and institutions about the list of Geographical Indicators of the European Union to provide an input for the ongoing negotiations.

There have been positive developments in the animal disease status of Brazil in 2017. In May, the World Organization for Animal Health (OIE) declared Brazil free of contagious bovine pleuroneumonia (CBPP). In December, the last two Brazilian states, Amazonas and Amapá, were recognised by the government free from FMD with vaccination, though no decision by the OIE has been taken yet to recognise Brazil as a country free from FMD with vaccination. The strategic plan for eradication and prevention of the FMD approved by the Government in October foresees the end of vaccination by 2023.

In August 2017, the Brazilian Government and the Chamber of Trade (CAMEX) created a tariff rate quota for ethanol imports, allowing the entry of 600 million litres duty free, with any volume above paying a 20% tariff. The United States remains the top supplier of ethanol to Brazil. The Brazilian ethanol blending mandate remains unchanged at 27% (E27), whereas the biodiesel blending mandate increased to 8% (B8) in March 2017 (GAIN, 2017b) and then to 10% in March 2018.

A new protocol to facilitate imports of agricultural inputs was approved in October 2017.9 The new system is intended to reduce bureaucratic burden and operational costs for farmers and traders and will be implemented immediately in the port terminals of Paranaguá and Rio de Janeiro.

References

AMIS (2017 and 2018), AMIS Market Monitor, various issues, www.amis-outlook.org/amis-monitoring.

GAIN (2017a), Global Agriculture Information Network GAIN Report 2-ago-2017, USDA Foreign Agriculture Service.

GAIN (2017b), Global Agriculture Information Network GAIN Report 15-Sept 2017, USDA Foreign Agriculture Service.

Ministry of Agriculture, Livestock and Food Supply (MAPA) (2017, 2018), various news, http://www.agricultura.gov.br/noticias/.

WTO (2018), Brazil Tarif Profile, http://stat.wto.org/TariffProfile/WSDBTariffPFView.aspx?Language=E&Country=BR.

Notes

 1.  http://www.agricultura.gov.br/noticias/produtores-receberam-quase-r-3-bilhoes-em-indenizacoes-do-seguro-rural-em-10-anos.

 2.  http://www.agricultura.gov.br/noticias/mapa-disponibiliza-ferramenta-de-risco-climatico.

 3.  http://www.agricultura.gov.br/noticias/numero-de-contratos-do-plano-abc-cresce-1-318-no-bimestre-julho-agosto

 4.  http://www.agricultura.gov.br/noticias/mapa-amplia-e-moderniza-sistema-de-inspecao-veterinaria

 5.  http://www.agricultura.gov.br/noticias/dez-areas-vao-concentrar-o-servico-de-fiscalizacao-de-produtos-de-origem-animal

 6.  http://www.agricultura.gov.br/noticias/acordo-de-r-18-milhoes-permite-acelerar-pesquisa-de-algodao-resistente-ao-bicudo

 7.  https://www.embrapa.br/busca-de-noticias/-/noticia/28457239/fundo-de-investimento-aporta-ate-r-5-milhoes-para-empresas-com-tecnologia-embrapa-expandirem-atuacao

 8.  http://www.agricultura.gov.br/noticias/ipt-podera-ser-parceiro-do-ministerio-da-agricultura

 9.  http://www.agricultura.gov.br/noticias/maggi-assina-protocolo-para-agilizar-importacao-de-insumos-agropecuarios

Chapter 5.

Canada

Support to agriculture

Canada has significantly reduced its agricultural support since the late 1980s. Producer support as a share of gross farm 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 measures for dairy, poultry, and eggs. Lower levels of disaster payments in recent years and a shift of budgetary expenditures towards general service 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 9% in 2015-17, 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 69% in 2015-17, 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 12% higher in 2015-17 than those observed in world markets. The share of the General Services Support Estimate (GSSE) in the Total Support Estimate to agriculture (TSE) has almost doubled since 1986-88 and reached 28% in 2015-17.

Main policy changes

The agricultural policy framework in Canada, Growing Forward 2 (GF2), expired in March 2018. In 2017, the core elements of the next framework agreement, the Canadian Agricultural Partnership (CAP) were agreed between the Federal, Provincial, and Territorial (FPT) ministers of agriculture. CAP prioritises investment in six areas: 1) science, research and innovation; 2) markets and trade; 3) environmental sustainability and climate change; 4) value-added agriculture and agri-food processing; 5) risk management; and, 6) public trust. It will also feature new programmes that facilitate regional collaboration among Canadian provinces and territories and strengthen the participation of women, youth and Indigenous Peoples in the agriculture and agri-food sector. Similar to GF2, CAP has three elements: 1) federally-delivered CAP activities; 2) FPT cost-shared programming delivered by Provinces and Territories; and 3) FPT cost-shared business risk management (BMR) programmes.

In September 2017, provisional application began for the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). Under the CETA, Canada established annual duty-free Tariff-Rate Quotas (TRQs) for cheese from the European Union. To help dairy farmers and processors to adapt to the anticipated impacts from increased cheese imports from the European Union, Canada has established two different programmes.

The Dairy Farm Investment Program (DFIP) supports Canadian milk producers to improve productivity through upgrades of their equipment. The programme will begin as a five-year CAD 250 million matching contribution programme with the dairy producers. The programme will encourage producers to make productivity enhancement investments, to improve equipment and herd management.

The Dairy Processing Investment Fund (DPIF) provides funding to dairy processors for investments that will improve productivity and competitiveness in the dairy sector. The programme provides non-repayable contributions to support projects through capital investment in equipment and infrastructure and access to expertise to engage private sector technical, managerial, and business expertise. The overall budget of the DPIF is CAD 100 million (USD 77 million).

Assessment and recommendations

Over time, there has been an increasing emphasis on general service 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.

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.

As a step towards phasing out the supply management, the available quotas should be increased in size 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.

Stricter protocols and disciplines should be in place for programmes that provide budgetary support to mitigate farm income fluctuations. This would reduce potential pressure for additional support in situations where existing programmes suffice, and encourage farmers to find better ways to manage risk at farm level.

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

Figure 5.1. Canada: 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.

StatLink  http://dx.doi.org/10.1787/888933755735

Support to farmers (%PSE) has declined gradually over the long term. In the most recent period support has been around 10% of gross farm receipts, below the OECD average. The potentially most distorting support remains to be the largest share of producer support, due to market price support (MPS) to the dairy, poultry and egg sectors (Figure 5.1). The level of support in the most recent year remained almost unchanged, as a lower level of MPS was offsetting the increase in higher budgetary payments. The decrease in MPS results from a smaller price gap as domestic prices increased less than world prices (Figure 5.2). Prices received by farmers, on average, were slightly higher than world prices; large differences between commodities persist with the domestic price for milk being more than 80% above world prices. MPS is the main component of Single Commodity Transfers (SCT): milk has the highest share of SCT in commodity gross farm receipts (Figure 5.3). Overall, SCT represent 79% of the total PSE. The expenditures for general services (GSSE) measured relative to agriculture value added were above the OECD average. Total support to agriculture as a share of GDP has declined significantly over time. More than 70% of the total support is provided to individual farmers (PSE).

Figure 5.2. Canada: 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.

StatLink  http://dx.doi.org/10.1787/888933755754

Figure 5.3. Canada: Transfer to specific commodities (SCT), 2015-2017

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

StatLink  http://dx.doi.org/10.1787/888933755773

Table 5.1. Canada: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758395

Contextual information

Canada is a large, wealthy country with a small population relative to its area. Primary agriculture accounts for l.5% of GDP, but is important in some of its regions. Canada is a large net exporter of agricultural products, which account for 12% of total exports, and access to export markets is a significant issue for the sector. More than half of Canada’s agriculture exports are destined to the United States. Crop production is concentrated in the western prairies, where the typical farm is twice as large as the national average, highly productive and produces largely for export. Most milk production is located in Eastern Canada, which has relatively smaller farms and a larger variety of crops. Red meat industries (hogs and beef cattle) are present across Canada, especially in Western Canada.

Table 5.2. Canada: Contextual indicators
| Canada | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 686 | 1 625 | 2.5% | 1.9%
Population (million) | 29 | 36 | 1.0% | 1.1%
Land area (thousand km2) | 9 094 | 9 094 | 12.2% | 12.0%
Agricultural area (AA) (thousand ha) | 67 994 | 65 256 | 2.5% | 2.4%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 3 | 4 | 38 | 45
GDP per capita (USD in PPPs) | 23 395 | 44 793 | 9 650 | 24 866
Trade as % of GDP | 29 | 25 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 2.9 | 1.5 | 3.0 | 3.1
Agriculture share in employment (%) | 4.1 | 1.9 | - | -
Agro-food exports (% of total exports) | 6.8 | 12.0 | 7.7 | 7.3
Agro-food imports (% of total imports) | 5.5 | 8.5 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) | 50 | 58  | - | -
Livestock in total agricultural production (%) |  50 | 42  | - | -
Share of arable land in AA (%) | 67 | 71 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933758851

Canada enjoys a stable macroeconomic environment, with rapid recovery from the 2007-08 economic crisis and steady GDP growth since. Inflation rates have been below 2% since 2012. Recent changes in agro-food trade values mainly reflect commodity price fluctuations. Most of Canada’s agro-food exports are primary products for processing (around 37%), forming part of other country’s production system. On the other hand, agro-food imports are largely final products for consumption.

Figure 5.4. Canada: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933755792

Figure 5.5. Canada: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933755811

Total factor productivity (TFP) growth is driving agricultural output growth in Canada. TFP growth averaged 0.8% per year between 2005 and 2014, below the world average. Annual output growth at 1.0% was also below the world average, achieved with less use of primary production factors, but higher use of intermediate inputs.

Canadian agriculture benefits from relatively abundant resources (e.g. land and water), and agricultural output growth has been achieved with minimal increased pressure on natural resources. Nutrient surplus intensities at the national level are close to the average for OECD countries, as are GHG emissions.

Figure 5.6. Canada: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933755830

Table 5.3. Canada: Productivity and environmental indicators
| Canada | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 2.75% | 0.81% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | 18 | 28 | 33 | 30
Phosphorus balance, kg/ha | 2.0 | 1.3 | 3.7 | 2.4
Agriculture share of total energy use (%) | 2.2 | 3.3 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 8 | 8 | 8.5 | 8.5
Share of irrigated land in AA (%) | 1.2 | 1.2 | - | -
Share of agriculture in water abstractions (%) | 9 | 6 | 45 | 43
Water stress indicator | 1.3 | 1.0 | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759307

Description of policy developments

Main policy instruments

Canada’s agricultural policy framework prioritises risk management and investments to enhance the sector’s competitiveness, marketing and trade, food safety, and research capacity. Since 2003, the main programmes and services have been delivered through joint five-year Federal, Provincial, and Territorial (FPT) agreements. The current FPT multilateral policy framework, called Growing Forward 2 (GF2), covers the period from 2013 to 2018.

Under the Canadian Constitution, federal and provincial governments share the responsibility for agriculture. The GF2 framework provides flexibility for provinces and territories to design and deliver programmes that respond to their regional priorities. In addition, provinces and territories can develop and fund their own agriculture programmes outside of this framework.

The GF2 framework has two main sets of programmes: a suite of Business Risk Management (BRM) programmes, which help farmers manage risks related to severe market volatility and disaster situations; and non-BRM Strategic Initiatives, which provide indirect support to the sector through investments in research and innovation, food safety measures, and market promotion.

There are five BRM programmes, cost-shared between the federal and provincial governments: AgriStability (a whole-farm margin programme providing support in years of significant income declines); AgriInvest (a government-matched producer savings account for moderate income declines or for making investments in farming operations to mitigate risk); AgriInsurance (providing coverage for production losses due to natural perils); and AgriRecovery (the FPT co-ordinated disaster relief framework). These four programmes provide protection against different types of losses, as well as cash flow options. The fifth programme introduced in GF2, AgriRisk Initiatives, supports the industry to investigate risk, develop and implement new tools as well as to engage the support and participation of the private sector.

GF2 also introduces three new federal Strategic Initiatives: the AgriInnovation programme (which supports investments in developing and commercialising new products and technologies); the AgriMarketing programme (which supports investments to increase industry adoption of food safety and traceability systems, and investments to create and maintain access to new markets); and the AgriCompetitiveness programme (which supports investments in increasing profitability in domestic and global markets). These programmes support investment in industry-led research and development, adoption of innovation in food and agriculture, and marketing initiatives.

Canada’s agricultural support policies differentiate between the supply-managed sectors, which are protected by high custom tariffs and oriented towards the domestic market, and other commodity sectors, which operate within an open market environment and are export oriented. A supply management system provides market price support to the dairy, poultry and eggs sectors through tariffs and production quotas that are tradable only within provinces, combined with a system of domestic price-setting according to production costs. The GF2 framework recognizes supply management as a BRM programme.

Most farm-level environmental programmes are designed and administered by provincial governments. Two programmes (cost-shared between federal and provincial governments) aim to advance environmentally sustainable agriculture: the Environmental Farm Plans (EFP) programmes and the Environmental Stewardship Incentive programmes. The EFP consists of an assessment of on-farm environmental risks, and the development of an action plan to mitigate those risks. The Environmental Stewardship Incentive programmes provide cost-shared financial assistance to farms with an EFP to adopt specific beneficial management practices, such as nutrient management, manure storage and soil erosion controls.

Canada ratified the Paris Agreement on 5 October 2016. Its Nationally-Determined Contribution (NDC) includes a commitment to reduce greenhouse gas emissions by 30 percent below 2005 levels by 2030. The Pan-Canadian Framework on Clean Growth and Climate Change (PCF) adopted in December 2016 is a comprehensive plan to reduce emissions across all sectors of the economy, accelerate clean economic growth, and build resilience to the impacts of climate change. There are three agriculture-related actions identified under the PCF: increasing stored carbon in agricultural soils to partially offset emissions from the sector; generating bioenergy and bioproducts to displace emissions in other economic sectors; and, advancing innovative GHG-efficient management practices to reduce agricultural emissions and emission intensity. Other measures include the Agricultural Greenhouse Gases Program which supports research to enhance the understanding and accessibility of agricultural technologies, beneficial management practices and processes that can be adopted by farmers to mitigate GHG emissions, and the Agricultural Clean Technology Program which targets bioeconomy innovation and adoption of precision agriculture technologies. A number of federal and provincial initiatives also support the development of bio-based industrial products, such as the Federal Eco-Energy for Biofuels initiative.

Prior to the expiration of the GF2 framework in 2018, Canadian federal and FPT ministers of agriculture reached an agreement on the core elements of the next framework agreement, the Canadian Agricultural Partnership (CAP). CAP will prioritise investment in six areas: 1) science, research and innovation; 2) markets and trade; 3) environmental sustainability and climate change; 4) value-added agriculture and agri-food processing; 5) risk management; and 6) public trust. It will also feature new programmes that facilitate regional collaboration among Canadian provinces and territories, and strengthen the participation of women, youth and Indigenous Peoples in the agriculture and agri-food sector. Similar to GF2, CAP has three elements: 1) federally-delivered CAP activities; 2) FPT cost-shared programming delivered by Provinces and Territories; and 3) FPT cost-shared business risk management programmes. The CAP launched on April 1, 2018.

Domestic policy developments in 2017-18

Federal level

Regarding grain transportation, the Government of Canada passed the Transportation Modernization Act in 2017 to advance the long-term agenda for a more transparent, balanced, and efficient rail system, which comes into force in 2018. The Act makes a number of changes to the “Canada Transportation Act” that should impact the movement of agricultural products, including Western Canadian grain. These include the ability to establish reciprocal penalties between railway companies and their customers. The Act also introduces a new provision called “Long-Haul Interswitching” (one railway company carries traffic for the other railway company) to increase competition. It also extends the Maximum Revenue Entitlement, a limit on the average revenue per tonne that can be earned by prescribed railways for shipping regulated grain to designated export positions, to encourage railway investment in infrastructure.

Within business risk management programmes, two new initiatives were established under the AgriRecovery framework:

The Canada-British Columbia Wildfires Initiative provided financial assistance to British Columbia’s producers whose operations were affected by the 2017 wildfires. The programme provides assistance for the extraordinary costs related to livestock feed, health and safety, and assists producers with the costs to resume crop and livestock production and the re-establishment of related infrastructure. The programme provided approximately CAD 0.73 million (USD 561 000) in 2017.

The Canada-Quebec Hail Assistance Initiative assists producers with the extraordinary costs associated with recovering from and mitigating the impacts of the 2017 hail events. The financial assistance contributes to land cleanup and repairs, planting a cover crop, and disease/nutrient management. No payments were made in 2017, payments are expected to begin in early 2018.

Two programmes were introduced to support investment in the dairy sector, following the implementation of CETA:

The Dairy Farm Investment Program (DFIP) supports Canadian milk producers improve productivity through upgrades of their equipment. The DFIP began in the 2017-18 fiscal year as a five-year CAD 250 million (USD 192 million) matching contribution programme. The programme will encourage producers to make either small scale (less than CAD 60 000 - USD 46 153), or large scale (up to CAD 250 000 - USD 192 308) productivity enhancement investments, to improve equipment and herd management.

The Dairy Processing Investment Fund (DPIF) provides funding to dairy processors for investments that will improve productivity and competitiveness to improve the dairy sector. The programme provides non-repayable contributions to support projects through capital investment in equipment and infrastructure and access to expertise to engage private sector technical, managerial, and business expertise. The overall budget for the DPIF is CAD 100 million (USD 77 million). The maximum funding available per Capital Investment project is CAD 10 million (USD 7.7 million) and CAD 250 000 (USD 192 308) per Access to Expertise project. The maximum amount an applicant can receive is CAD 10 million in total per year.

In 2017, a new partnership based Plant and Animal Health Strategy (PAHS) for Canada was created by partners from industry, FPT governments, academia, and other stakeholders as a comprehensive, effective and integrated system that prevents and proactively addresses plant and animal health risks. PAHS increases the focus on preventive risk management and more collaborative way of working among partners. For example, the PAHS will enable the Canadian Food Inspection Agency (CFIA) to facilitate the further development and implementation of national biosecurity standards in collaboration with producer organisations, provincial/territorial governments, and academia.

Provincial level

As part of risk management, British Columbia launched the 2017 AgriStability Enhancement programme to help producers who recorded income declines during the year. This enhancement programme allows agricultural producers to enroll late and without penalty into the existing AgriStability programme. For 2017, it also includes an increase of the compensation rate from 70% to 80% and the elimination of the maximum reference margin limit. British Columbia also made some changes to the AgriInsurance programme to better reflect the value of quality loss claims made by tree fruit growers. Cherry production coverage for 2018 is added to production insurance.

Manitoba is promoting the use of price risk management tools by livestock producers by making them eligible for a one-time interest rebate of 0.25% of the loan amount when they take out a loan through the Manitoba Agricultural Services Corporation and purchase a Western Livestock Price insurance policy.

Ontario is supporting the growth of small scale agri-food businesses on farms by giving more flexibility to municipalities to tax some activities at a lower rate than the commercial or industrial tax rate. The Ontario Edible Horticulture Support programme is being planned as a two-year initiative that will take effect in 2018. Eligible producers will receive payments based on their eligible net sales to help them to reduce financial risks and to improve their ability to better market and promote their products.

With regard to Environment and resource management, British Columbia updated its water regulations, following the Water Sustainability Act (2015) implemented in 2016. The Act includes the licencing of groundwater users. Existing users have until 1 March 2019 to receive a priority date based on first use. A new streamlined application process is in place. The province developed an agricultural water calculator that helps users estimate their annual irrigation or livestock water demand for a farm.

Through the Environmental Farm Plan, Manitoba introduced the Beneficial Practices for Species at Risk Initiative which supports the conservation of wildlife species at risk.

Ontario introduced a Soil Health programme that helps producers shift their focus from near-term yield increases to long-term stewardship of the soil and agricultural system such as reduced tillage, cover cropping and crop rotation. Ontario also introduced the Ontario Biogas Based Fuelling programme to show how agri-food materials and food waste can be diverted from landfill to generate additional revenue by producing renewable natural gas. Ontario proposed to amend its Ethanol in Gasoline regulation to increase ethanol blending requirements in gasoline from the current 5% requirement to 10%.

In the areas of food safety, quality and animal welfare, British Columbia updated its organics certification regulation to require all domestically produced and processed foods and beverages marketed in the province as organic to be certified through a federal or provincial programme from 2018 onwards. The province continued to support local producers by launching the Eat Drink Local campaign that connects local producers with restaurateurs and chefs who are developing menus that highlight locally grown and produced foods.

British Columbia updated and amalgamated two existing regulations related to poultry into a single regulation called Poultry Health and Buying Regulation. This regulation ensures breeder flock health continues to be monitored to ensure broiler chicks entering the system are appropriately healthy. Requirements are included for buyers of live poultry who process and sell poultry that operators are using appropriate preventive measures to prevent the presence, transmission or spread of notifiable and reportable diseases among breeding flocks.

In Alberta, the Goat RFID Technology Adoption Program encourages the use of Radio Frequency Identification (RFID) technologies in the goat industry to improve animal identification and herd management to enhance the integrity of Alberta’s traceability system for animal health, public health and food safety purposes.

Following the adoption of the new animal welfare law in Quebec, the provincial government is providing assistance to producers so that they can make their buildings and production facilities compliant with the new codes of practice and adjust to changing consumer preferences.

Trade policy developments in 2017-18

In September 2017, provisional application began for the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). CETA provides for improved agricultural market access through tariff elimination for most agricultural exports, and through the establishment of tariff rate quotas for others. CETA provides for the establishment by Canada of tariff-rate quotas for cheese from the European Union. It also provides for the elimination of Canada’s milk protein substances tariff. There is no additional access provided for any other Canadian supply managed product (other dairy, poultry and eggs). Canada has established two different programmes to help dairy farmers and processors to adapt to the anticipated impacts from CETA, which are described under domestic policy changes.

Also in 2017, the Canada-Ukraine Free Trade Agreement came into force; Canada and ten other countries reached agreement on the core elements of a new agreement called the Comprehensive and Progressive Agreement for a Trans-Pacific Partnership (CPTPP). Canada, the United States and Mexico began negotiations toward modernising the North American Free Trade Agreement (NAFTA). In addition, Canada launched negotiations toward a free trade agreement with the Pacific Alliance (Chile, Colombia, Mexico and Peru); agreed to launch exploratory discussions on a potential ASEAN-Canada FTA; and continued its efforts in engaging in exploratory discussions on whether to launch free trade negotiations with China.

Chapter 6.

Chile

Support to agriculture

Chile’s agricultural support creates limited distortions to agricultural markets, with almost no market price support provided to farmers. The support to farmers is one of the lowest amongst OECD countries at 2.6% of gross farm incomes (%PSE). Domestic prices are aligned with international prices. Support to farmers is mostly targeted to small-scale farmers and mainly based on input use, in particular support to fixed capital formation and the provision of services. Total public spending on agriculture increased by 1.4% from 2016 to 2017.

Main policy changes

The fundamental orientation of agricultural policy remained unchanged with a twin focus on productivity and the inclusion and development of smallholders and indigenous farmers. Policy measures continue to target at a number of areas: the expansion and more efficient irrigation systems; maintaining Chile’s strong sanitary and phyto-sanitary conditions; enhancing policy instruments that promote the development of smallholders and indigenous farmers and, in particular, young farmers; promoting innovation; and improving the sustainability of resources, in particular degraded soils.

In 2017, the National Institute for Agricultural Development (INDAP) started implementing the programme called “Yo Joven & Rural” (Me, Young and Rural); this programme supports rural youth (18-35 year-olds) involved in agricultural activities, by providing subsidies, financing, capacity building, training and the development of networks.

Several policy initiatives on agricultural sustainability and climate change were developed in 2017. The Minister of Agriculture through its Office of Agricultural Policies and Studies (ODEPA) together with other public institutions, and in consultation with key stakeholders, created the Protocol of Sustainable Agriculture, which has been implemented since its creation in 2015. The protocol is a voluntary scheme that identifies ten principles of sustainable agriculture and serves as the basis for the development of Sustainable Production Agreements (APL-S) in the agricultural subsectors. In 2017, the APL-S for the walnuts sector was developed and discussed with the private sector. Additionally, an APL-S proposal for the rice sector was drafted. Furthermore, in order to ensure the inclusion of family farming in the APL-S, a capacity building plan was created and started to be implemented in 2018.

A National Committee for the Prevention and Reduction of Food Losses and Waste was created with the participation of public institutions, civil society, the private sector and academia. The Agenda for Sustainable Development of the Chilean dairy sector was prepared through public-private coordination. This agenda provides a roadmap for the next four years, which contains strategic objectives, actions and indicators to improve the sustainability of the sector, aligned with the UN Sustainable Development Goals (SDGs) and with the Dairy Sustainability Framework (DSF) of the International Dairy Federation (IDF).

In order to plan investments in irrigation considering sustainable water use, the National Irrigation Committee (CNR), with the participation of public and private stakeholders, completed 23 irrigation management plans in the 15 regions of the country. In 2017, the Ministerial Technical Committee on Climate Change (CTICC) was created through Decree 360, 2017. This committee aims to address the challenges facing Chilean agriculture due to high vulnerability from weather variability.

Chile signed a Free Trade Agreement with Indonesia in 2017. The country has also deepened the existing agreements and is currently negotiating the modernisation agreement with the European Union, with an agenda that goes beyond the liberalisation of tariffs, with issues like intellectual property rights and environmental provisions. In March 2018 the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP) was signed in Santiago, Chile by 11 countries including Chile.

Assessment and recommendations

Agricultural policies in Chile involve few market distortions. PSE averaged 2.6% of gross farm receipts in 2015-17 and general services (GSSE) accounted for 51% of total support to the sector.

Total budgetary outlays to the sector increased by 1.4% between 2016 and 2017. Direct payments are mostly targeted at small-scale agriculture and aim to improve productivity, competiveness, recovery of degraded soils, and on-farm irrigation systems. Most of the expenditures on general services are allocated on irrigation infrastructure inspection and control, and agricultural knowledge and innovation systems.

Approaches for the sector continue to support small-scale agriculture and indigenous people development as well as to protect and improve natural resources, sustainable productivity, infrastructure, access to markets and competitiveness. Around 70% of direct payments go to small-scale agriculture and half of the spending on the sector is on general services, a share that is four times the OECD average.

While 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 related to agriculture have been created that are not within the auspices of the Ministry of Agriculture, the need for co-ordination across ministries and agencies becomes progressively more important, as well as strong systems of programme evaluation.

While Chile’s agricultural sector remains responsible for a substantial share of the country’s overall GHG emissions, no sector-specific target or plan has been set that could help achieving its emission reduction commitment under the Paris Agreement on Climate Change.

Figure 6.1. Chile: 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.

StatLink  http://dx.doi.org/10.1787/888933755849

Support to farmers as measured by the %PSE declined from 7.6% in 1995-97 to 2.6% in 2015-17. This support is amongst the lowest in the OECD area and it is mostly delivered through direct payment, mainly to smallholders. Over time Chile has reduced the potentially most distorting support (based on output and variable input use – without input constraints). Most of the support to farmers has been linked to input subsidies, in particular to fixed capital formation input use. Producer prices are practically aligned with world prices (Figure 6.1), and border price changes are directly transmitted to domestic producer prices (Figure 6.2). Expenditures for general services were equivalent to 4% of the agricultural value added in 2015-17, a higher figure than the 1.5% observed in the 1995-97 period. Total agricultural support was 0.3% of GDP in 2015-17. Support to General services (GSSE) accounted for about half of the total support (TSE) in 2015-17. Transfers to single commodities are limited to sugar and maize and represented 2.4% of commodity gross farm receipts in 2015-17 (Figure 6.3).

Figure 6.2. Chile: 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.

StatLink  http://dx.doi.org/10.1787/888933755868

Figure 6.3. Chile: 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.

StatLink  http://dx.doi.org/10.1787/888933755887

Table 6.1. Chile: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758414

Contextual information

Chile is an upper middle-income country with a GDP per capita of USD 22 727. The country had a low unemployment rate of 6.6% in 2017 (OECD, 2018). Chile is also a relatively open economy, with trade representing 24% of its GDP. Agriculture contributed with 4.3% to GDP, but accounted for 9.4% of employment, reflecting the duality of its structure, where small-scale labour intensive farms coexist alongside a large-scale commercial farm sector.

Table 6.2. Chile: Contextual indicators
| Chile | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 106 | 415 | 0.4% | 0.5%
Population (million) | 14 | 18 | 0.5% | 0.5%
Land area (thousand km2) | 744 | 744 | 1.0% | 1.0%
Agricultural area (AA) (thousand ha) | 15 330 | 15 761 | 0.6% | 0.6%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 19 | 25 | 38 | 45
GDP per capita (USD in PPPs) | 7 393 | 22 727 | 9 650 | 24 866
Trade as % of GDP | 21 | 24 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 6.0 | 4.3 | 3.0 | 3.1
Agriculture share in employment (%) | 15.7 | 9.4 | - | -
Agro-food exports (% of total exports) | 18.0 | 19.2 | 7.7 | 7.3
Agro-food imports (% of total imports) | 7.2 | 9.5 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) | 63 | 68  | - | -
Livestock in total agricultural production (%) |  37 | 33  | - | -
Share of arable land in AA (%) | 14 | 8 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933758870

With a GDP per capita that has tripled over the past 20 years the well-being of its people has improved and overall poverty was reduced. Chile is a net exporter of agro-food products (excluding fish and forestry) with a surplus of USD 6 billion in 2016. Chile’s agricultural and agro-food sector has been successful in adding value to the production of primary commodities, and processed products such as wine and fruits. In 2016, 35% of exports were in processed products for final consumption and 9% were processed products for further industrial processing in other countries. Agro-food imports are mostly processed products, where 54% are for consumption and 27% for further processing in industry.

Figure 6.4. Chile: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933755906

Figure 6.5. Chile: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933755925

The agricultural sector, in conjunction with related downstream activities, has played a key role in Chile’s economic success, both benefiting from stability and reforms, and making an important contribution via rapid output and exports growth. Productivity growth has been central to Chile’s agriculture. With a relatively stable use of primary and intermediate inputs into production, growth in output has been achieved by significant improvements in total factor productivity (TFP). TFP growth was about the same as the World average at 2.2% per year over the period 2005 to 2014.

Figure 6.6. Chile: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933755944

Table 6.3. Chile: Productivity and environmental indicators
| Chile | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 1.66% | 2.20% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | .. | .. | 33 | 30
Phosphorus balance, kg/ha | .. | .. | 3.7 | 2.4
Agriculture share of total energy use (%) | .. | .. | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 22 | 12 | 8.5 | 8.5
Share of irrigated land in AA (%) | 7.0 | 7.0 | - | -
Share of agriculture in water abstractions (%) | .. | .. | 45 | 43
Water stress indicator | .. | .. | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759326

Description of policy developments

Main policy instruments

The fundamental orientation of agricultural policy remained unchanged with a twin focus on productivity and the inclusion and development of smallholders and indigenous farmers. Policy measures continue to target at a number of areas: the expansion and more efficient irrigation systems; maintaining Chile’s strong sanitary and phyto-sanitary conditions; enhancing policy instruments that promote the development of smallholders and indigenous farmers and, in particular, young farmers; promoting innovation; and improving the sustainability of resources, in particular degraded soils.

Chile’s commitments on emissions related to agriculture and forestry under COP21 (nationally determined contribution-NDCs) that relate to the forestry and agricultural sectors are under the auspices of the National Forestry Corporation (CONAF). Two commitments are related to forests: first, the sustainable management and recovery of 100 000 hectares of forest, mainly native, which will absorb the equivalent to 600 000 tonnes of CO2 per year, starting in 2030. Second, reforesting 100 000 hectares, mostly with native species, which will represent removals equivalent to 900 000-1 200 000 tonnes of CO2 per year, starting in 2030. Those commitments are conditional on legislative approval. While no specific commitment is made related to agricultural emissions, the sector’s emissions are included in the overall pledge to reduce the emission intensity per unit of GDP by 30% below their 2007 levels by 2030.

Domestic policy developments in 2017-18

The National Institute for Agricultural Development (INDAP), started implementing a nationwide program called Yo Joven & Rural (Me, Young and Rural). This programme, born under the request expressed by young farmers (18-35 years-old) from all across the country, aims to foster youth entrepreneurship in the agricultural sector by providing them with subsidies for fixed capital formation, training, financing and capacity building. It has also sought the development of networks such as La red Nacional de Jóvenes Rurales (The Rural Youth National Network) currently composed of more than 2 100 members, and the establishment of the National and Regional Rural Youth Boards, a Public-Private Dialogue Commission that seeks to promote dialogue and participation between young farmers and INDAP. In 2017, INDAP as a whole worked with 13 000 young recipients, while the special components of the “Yo Joven & Rural” programme, worked with around 2 000”.

Several policy initiatives on agricultural sustainability and climate change were developed in 2017. The Minister of Agriculture through its Office of Agricultural Policies and Studies (ODEPA) together with other public institutions, and in consultation with key stakeholders, created the Protocol of Sustainable Agriculture, which has been implemented since its creation in 2015.

The protocol is a voluntary scheme that identifies ten principles of sustainable agriculture and serves as the basis for the development of Sustainable Production Agreements (APL-S) in the agricultural subsectors. The ten principles are: 1) better monitoring and use of water resources; 2) respect for human rights and working conditions; 3) more efficient waste management; 4) better management and application of agrochemicals; 5) improved management of food safety and traceability; 6) better relationship with local communities; 7) better management of biodiversity and ecosystem services; 8) improved energy management; 9) better soil management and conservation, and 10) better animal health and welfare. In 2017, the APL-S for the walnuts sector was developed and discussed with the private sector. Additionally, an APL-S proposal for the rice sector was drafted. Furthermore, in order to ensure the inclusion of family farming in the APL-S, a capacity building plan was created and started to be implemented in 2018.

A National Committee for the Prevention and Reduction of Food Losses and Waste was created with the participation of public institutions, civil society, the private sector and academia. During the first meeting of this committee, the roadmap for 2018-19 was defined, which focuses on three main areas: 1) research, technologies and knowledge; 2) awareness and communication; and 3) governance.

The Agenda for Sustainable Development of the Chilean dairy sector was prepared through public-private coordination. This agenda provides a roadmap for the next four years, which contains strategic objectives, actions and indicators to improve the sustainability of the sector, aligned with the UN Sustainable Development Goals (SDGs) and with the Dairy Sustainability Framework (DSF) of the International Dairy Federation (IDF).

In 2017, the Ministerial Technical Committee on Climate Change (CTICC) was created through Decree 360, 2017. This committee aims to address the challenges facing Chilean agriculture due to high vulnerability from weather variability.

In order to plan investments in irrigation considering sustainable water use, the National Irrigation Committee (CNR) with the participation of public and private stakeholders, completed 23 irrigation management plans in the 15 regions of the country. Based on these plans, the needs in each territory were identified and served as a guide to focus CNR investments on studies, programmes and projects, nationwide.

Trade policy developments in 2017-18

Chile has signed 21 FTAs, the latest with Indonesia in 2017. Chile has not only increased the global coverage of agreements, but has also has deepened the existing agreements. For example, Chile is currently negotiating the modernisation of the agreement with the European Union, with an agenda that goes beyond the liberalisation of tariffs, with issues like intellectual property rights and environmental provisions. In March 2018 the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP) was signed in Santiago, Chile by 11 countries, including Chile.

References

OECD (2018), OECD Statistics (database), http://stats.oecd.org/.

WDI (2018), World Development Indicators, World Bank Group, http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators.

MINAGRI (2018), “Annual country report on agricultural policies of Chile”, Government report prepared for the OECD, Santiago, Chile.

Chapter 7.

China

Support to agriculture

After two decades of gradual growth, the level of support to agricultural producers in the People’s Republic of China (hereafter “China”) has stabilised in recent years with the share of support in gross farm receipts (%PSE) fluctuating in a range of 14-16% in 2015-17. This partly reflects recent policy reforms undertaken with respect to the market intervention systems for soybeans, rapeseed, cotton, and maize, as well as to the minimum support price system for wheat and rice. Another factor is the nominal depreciation of the CNY vis-à-vis USD since 2013 after a long period of gradual appreciation.

The Total Support Estimate (TSE) was 2.3% of GDP in 2015-17, thus about two times higher than the OECD average. Market Price Support (MPS) remains the dominant part of total support, but payments based on area planted have been consistently increasing since 2014. Within the General Services Support Estimate (GSSE), three categories attract the largest financial support: public stockholding, development and maintenance of infrastructure, and agricultural knowledge and innovation system.

Main policy changes

A major institutional reform was announced in early 2018, including a restructuring of both current Ministries of Agriculture and of Environmental Protection. In addition, a draft of the revised Rural Land Contracting Law issued in November 2017 plans to extend existing rural land contracts by 30 years upon expiration.

In 2017 and early 2018, China continued policy reforms to diminish the negative consequences of high domestic prices compared to those on international markets. In this sense, the minimum support prices were lowered for both 2017/18 wheat and rice crops. Following the completion of the three-year soybeans target price trial in 2017, this was replaced by “market-oriented soybeans price plus a direct subsidy to soybean farmers” based on area planted.

In order to address environmental concerns in congested areas and waterways across the South, East and Centre regions of China, additional “environmental control zones” – where livestock farming activities are prohibited – were delineated by provincial governments in 2017.

Assessment and recommendations

Recent reforms to replace intervention prices for key crops by direct payments based on area planted are a step in the right direction of rebalancing the portfolio of agricultural support and reflect China’s policy orientation towards long-term productivity growth and sustainability. The most recent reform of the maize purchasing and storage system has had a direct impact on diminishing both feed costs for livestock producers and storage costs. Such reforms could be extended to gradually include rice and wheat. In the future, the link between direct payments and production decisions should also be loosened by providing them on a historical area basis, for instance, and ‘greened’ by making them conditional on environmentally friendly production practices.

Public expenditure on general services has been increasing, but at a slower pace than support to individual producers. The cost of public stockholding still has the largest expenditure share in general services support, accounting for more than one-third in recent years. Further efforts are thus needed to restructure agricultural support from direct payments to farms towards public investment in R&D and infrastructure, thus ensuring that support through direct payments only has a transitory role in backing farmers’ adjustment to a new market environment.

Recent reforms in land transfer rules have contributed to the emergence of “new-style” farms, including co-operative farms and farms run by agribusiness companies. The sector remains however dominated by small farms, thus further reducing the cost of transferring operational rights through transparent exchange platforms at the local level is key. For the reforms in land regulations to continue delivering expected outcomes, these need to be complemented by further investments in elements of the broader enabling environment for agriculture and rural development, such as education and training and financial services.

Land and water are very scarce in China and environmental pressures linked to farming are looming large. To establish a solid framework for agri-environmental policies, China should further clarify reference levels for environmental quality as well as define environmental targets well adapted to local ecological conditions. In addition, the announced water price reform could be accelerated to cover water provision costs, in order to enhance the efficiency of water use.

Several broad work plans have recently been put forward across institutions in view of strengthening policies addressing agricultural GHG emissions and supporting the sector’s adaptation to climate change. In this sense, the restructured Ministry of Ecological Environment could help mainstream adaptation policy objectives across current and planned programmes – including on better targeting extension services for farmers – as well as to provide a platform for institutional coordination.

Figure 7.1. China: 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.

StatLink  http://dx.doi.org/10.1787/888933755963

Support to farmers (%PSE) has steadily increased since 1995-97. In 2015-17 support represented around 15.5% of gross farm receipts, slightly below the OECD average. The share of potentially most distorting support has increased over time due to government-led temporary purchase and storage policy for various key crops together with border protection (Figure 7.1). The level of support declined in 2017, mostly due to a fall of domestic prices vis-à-vis those on international markets; this fall is driven by reforms of the Chinese market intervention system and by the continued depreciation of the CNY vis-à-vis USD. Prices received by farmers were on average 13% higher than world prices in 2015-17 (Figure 7.2). MPS remains the dominant part of total support and is the main component of Single Commodity Transfers (SCT), but the role of payments based on output has been consistently growing since 2014, particularly for cotton, soybeans and maize. With the exception of eggs, producers are benefiting from high transfers accounting for between 12% and 52% of commodity receipts (Figure 7.3). Overall, SCT represent 76% of the total PSE. At 4.3% in 2015-17, expenditure for general services (GSSE) relative to agriculture value added was close to the OECD average. Total support to agriculture as a share of GDP has also increased over time and at 2.3% in 2015-17 is one of the highest among the countries covered.

Figure 7.2. China: 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.

StatLink  http://dx.doi.org/10.1787/888933755982

Figure 7.3. China: 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.

StatLink  http://dx.doi.org/10.1787/888933756001

Table 7.1. China: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758433

Contextual information

China has the world’s largest population (1.4 billion) and the second largest land area (9.4 million km2). It became the largest economy in the world since 2009, measured by the size of GDP, adjusted by PPP. However, China is a resource scarce country: while feeding almost 20% of the world’s population, it has only 7% of the world’s potable water and 10% of the world’s agricultural land. Arable land per capita is only 0.08 ha which is less than one-third of the OECD average. Similarly, freshwater resources per capita (at 2 061 m3) are less than one-tenth of the OECD average, resulting in severe competition between agriculture and other users of water resources.

China ranks first in worldwide farm production, producing in value terms almost one-third more than all OECD member countries combined. Agriculture still accounts for 28% of employment, but its 9% share in GDP indicates that labour productivity is significantly lower than the rest of the economy. Even if rural incomes are growing at high rates, they remain at around one-third of those in urban areas.

Crop production represents 65% of total agricultural output and its composition has changed significantly over the last decades, driven by the shift towards higher value-added agricultural products such as fruit and vegetables. It is mainly based on small and marginal family farms of less than one hectare on average, but large-scale production has been developing rapidly, in particular in north-eastern provinces. Livestock production originates mostly from larger-scale commercial units.

Table 7.2. China: Contextual indicators
| China | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 2 252 | 19 710 | 8.2% | 23.2%
Population (million) | 1 211 | 1 382 | 42.3% | 40.4%
Land area (thousand km2) | 9 425 | 9 425 | 12.7% | 12.5%
Agricultural area (AA) (thousand ha) | 523 714 | 515 358 | 19.4% | 19.2%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 132 | 149 | 38 | 45
GDP per capita (USD in PPPs) | 1 860 | 14 338 | 9 650 | 24 866
Trade as % of GDP | 19 | 16 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 19.8 | 8.9 | 3.0 | 3.1
Agriculture share in employment (%) | 52.2 | 27.8 | - | -
Agro-food exports (% of total exports) | 7.7 | 2.5 | 7.7 | 7.3
Agro-food imports (% of total imports) | 8.7 | 6.6 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) | 64 | 65 | - | -
Livestock in total agricultural production (%) |  36 | 35 | - | -
Share of arable land in AA (%) | 23 | 21 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933758889

With real GDP growth averaging 6.8% in 2015-17, China entered into a lower, but likely more sustainable growth trajectory. Its overall macroeconomic environment remains stable, with an inflation rate of 1.7% and unemployment of 4.6% over the same period (Figure 7.4).

China has consistently been a net agro-food importer since 2003, but agro-food exports have picked up since 2011. China’s agro-food imports are dominated by primary and processed products for further processing by domestic industry; these represented 67% of total agro-food imports in 2016. In turn, processed and primary products for consumption are key export categories, accounting for 72% of total agro-food exports (Figure 7.5).

Figure 7.4. China: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933756020

Figure 7.5. China: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933756039

Agricultural output growth in China averaged 3.3% in 2005-14, about one-third above the world average (Figure 7.6). This has been driven by an important increase in total factor productivity at 3.5% per year, more than twice the global average. TFP trends can be largely attributed to farm consolidation and increased mechanisation of production.

However, the rapid and sustained growth in agricultural output has been exerting mounting pressures on natural resources, including land and water. Agriculture remains the key user of water, accounting for 62% of total water consumption, well above the OECD average (Table 7.3). Water stress is twice as high as the OECD average.

Figure 7.6. China: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933756058

Table 7.3. China: Productivity and environmental indicators
| China | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 4.25% | 3.48% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | .. | .. | 33 | 30
Phosphorus balance, kg/ha | .. | .. | 3.7 | 2.4
Agriculture share of total energy use (%) | 4.4 | 2.2 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 15 | .. | 8.5 | 8.5
Share of irrigated land in AA (%) | 9.4 | 12.8 | - | -
Share of agriculture in water abstractions (%) | 70 | 62 | 45 | 43
Water stress indicator | 19.4 | 21.3 | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759345

Description of policy developments

Main policy instruments

The 2018 “Policy Document No. 1” consolidates several recent policy announcements aiming to address the “revitalisation of rural areas” – with the development of a competitive and sustainable agricultural sector playing a major role – while reiterating the importance of China’s self-reliance in staple grains (namely wheat and rice). Self-sufficiency for key grains has been an important driver behind China’s agricultural policies over the past two decades. However, the scope of grains covered has evolved since the mid-1990s.

Market price support is the main channel for providing support to Chinese farmers. It is provided through tariffs, tariff rate quotas (TRQ) and state trading, combined with minimum guaranteed prices for rice and wheat.

The minimum prices for wheat and rice are set every year by the National Development and Reform Commission (NDRC) in consultation with the Ministry of Agriculture (MOA) and other government institutions. Their application is limited geographically to major wheat and rice producing provinces. They differ for each type of grain, are announced before sowing season, and only apply for a fixed period limited to several months after the harvest. The central government obliges the state-owned China Grain Reserves Corporation (Sinograin) and other state-owned companies to undertake intervention purchases in case market price dips below the minimum price.

The government-led temporary purchase and storage policy at pre-determined prices – mostly intended to stabilise market prices and to ensure adequate supplies – was discontinued in 2014-15 for cotton, soybeans, and rapeseeds, and in 2016 for maize. It was replaced in 2014-15 by compensation payments covering the difference between pre-determined target prices and actual market prices, and with direct payments based on area planted for soybeans and maize since 2016-17.

Budgetary transfers to producers have increased consistently since the end of the 1990s. Most of them are provided through four key programmes: the “agricultural support and protection subsidy” - combining direct payments for grain producers, subsidy on agricultural inputs, and improved seed variety subsidy, all paid on per unit of land basis – as well as subsidies for purchases of agricultural machinery, land consolidation, and farmland irrigation construction. Subsidised agricultural insurance schemes have also grown in importance in recent years. The geographic coverage of payments destined to return farmland to forests and to exclude degraded grassland from grazing has been gradually extended, reflecting increasing environmental concerns.

Public stockholding of grains and programmes supporting the development of agricultural infrastructure – including irrigation and drainage facilities – represent the most important categories of general services. They are followed by programmes supporting agricultural knowledge and innovation.

In the Adjusted Scenario of the Outline of the National Overall Planning on Land Use 2006-20, issued in 2016, a “red line” on arable land was set at no less than 124.3 million hectares. The conversion of farmland for non-agricultural use is strictly controlled. With about 40% of land suffering from various forms of degradation, the Outline calls for the prevention of land degradation and for the treatment of affected land.

China ratified the Paris Agreement on Climate Change on 3 September 2016. Its Nationally-Determined Contribution (NDC) includes a commitment to peak CO2 emissions by 2030 at the latest, lower the carbon intensity of GDP by 60–65% below 2005 levels by 2030, increase the share of non-fossil energy carriers of the total primary energy supply to around 20% by that time, and increase its forest stock volume by 4.5 billion m3, compared to 2005 levels. While the NDC explicitly mentions agriculture, land-use change and forestry, among other sectors, no specific net-emission target has yet been set for the agricultural sector. The only specific quantitative target set for agriculture relates to achieving zero growth in fertiliser and pesticide utilisation by 2020. Other broad objectives concern controlling methane emissions from rice fields and nitrous oxide emissions from farmland, promoting comprehensive utilisation of straw or reutilisation of agricultural waste (UNFCCC, 2015; Climate Action Tracker, 2017).

The State Council released its 13th Five-Year Work Plan to Control GHG Emissions in October 2016, looking to strengthen policies controlling for GHG emissions beyond CO2, such as methane and hydrofluorocarbons (HFCs). The plan includes mentions of reducing methane emissions in the agricultural sector and in municipal waste and sewage treatment (NDRC, 2017a).

Domestic policy developments in 2017-18

The 2018 Policy Document No. 1 calls for the continuation of supply-side structural reforms and on focusing domestic support for improving productivity and product quality, while deepening rural land reform, expanding access to rural financial products, and addressing environmental concerns. The timetable set for achieving the “revitalisation of rural areas” foresees eliminating rural poverty and substantially improving productivity and agricultural supply by 2020, providing equal access to basic public services in rural areas by 2035, and achieving a “full modernisation” of the agricultural sector by 2050. Local governments are specifically mandated to draw tailored implementation plans covering 2018-22 (State Council, 2018).

The 13th National People’s Congress (NPC) pushed forward in March 2018 a major institutional restructuring, including in the areas of agriculture and environment.¹ A new Ministry of Agriculture and Rural Affairs will combine the oversight of agriculture with rural development issues, taking on most of the responsibilities of the current MOA, which is to be dismantled. Additionally, it will be responsible for various issues formerly held by the NDRC, the Ministry of Finance, the Ministry of Land and Resources, and the Ministry of Water Resources. In addition, a new Ministry of Ecological Environment would replace the previous Ministry of Environmental Protection while also assuming responsibilities previously assigned to the NDRC, the Ministry of Water Resources, the MOA, and the Ministry of Land and Resources (Xinhuanet, 2018a).

As outlined in the 13th Five-Year Plan for Agriculture 2016-20 and reinforced by NDRC, the “improvement” of the minimum support price system for wheat and rice continues to be a priority, while “effectively protecting the interests of farmers”. In October 2017, the NDRC announced that the minimum price for wheat would be lowered from CNY 2 360 (USD 355) to CNY 2 300 (USD 340) per tonne. This is the first revision for wheat since the minimum support price system was introduced in 2004 (NRDC, 2017a, 2018; SAG, 2017; GAIN-CH18003, 2018).

Following the 17 February 2017 reductions announced by NDRC in the minimum purchase prices for rice from the 2017/18 crop, on 9 February 2018 minimum purchase prices were further cut by 7-13%: from CNY 2 600 (USD 391) to CNY 2 400 (USD 381) per tonne for early season indica rice; from CNY 2 720 (USD 409) to CNY 2 520 (USD 399) per tonne for mid-to-late season rice; and from CNY 3 000 (USD 452) to CNY 2 600 (USD 412) per tonne for japonica rice (NDRC, 2017b; AMIS Market Monitor, 2018).

The end of the minimum price support policy for maize in 2016 was followed by the implementation of direct payments to farmers in the major maize producing Northeast provinces (Heilongjiang, Jilin, Liaoning) and Inner Mongolia. Funds were disbursed in two batches to each of the four provinces where the programme operates, with the amount of subsidy per mu (1 mu = 1/15 ha) being calculated by each local government. The provinces then allocated funds to municipalities and counties based on the data submitted by farmers on areas planted. Preliminary information suggests that payments ranged in 2017 from CNY 134/mu (USD 317/ha) in Heilongjiang, CNY 150/mu (USD 355/ha) in Liaoning, CNY 160/mu (USD 379/ha) in Jilin to CNY 202/mu (USD 478/ha) in Inner Mongolia. In Heilongjiang, the payments for maize were reduced from CNY 154/mu (USD 365/ha) in 2016/17, as payments for soybean were increased to encourage crop conversion (CNNCLM, 2017; Reuters, 2017).

The government has also facilitated the liquidation of maize temporary reserve stocks through various processor support programmes. In early 2017, Northeast provinces provided between CNY 100-300 (USD 15-45) per tonne to processors for purchasing maize from reserve stocks before April 30 and process it by 30 June 2017 for starch, ethanol, and other maize milling by-products. On 9 January 2018, Sinograin started auctioning its inventories (GAIN-CH18003, 2018).

With the same objective of reducing excessive maize stocks, the NDRC, the National Energy Administration, the Ministry of Finance (MOF) and 12 other ministries made a joint announcement on 13 September 2017 on the “Implementation Plan for the Expansion of Ethanol Production and Promotion for Transportation Fuel”. According to the plan, China targets a national blending mandate of 10% ethanol (E10) in transportation fuel by 2020; by 2025, the plan calls for an ambitious shift from conventional renewable fuel production to commercial-scale cellulosic fuel production. China’s major cities and provinces have started moving towards compliance with the mandate. For instance, China’s State Development & Investment Corporation (SDIC) has initiated the construction of seven ethanol plants that would start operating in 2018, with two in Liaoning province expected to consume between 14 million and 18 million tonnes of maize per year (State Council, 2017b; CH-GAIN17050, 2017).

While preliminary data suggest that costs of public stockholding of grains continued to decline in 2017, they still remain large and accounted for about 14% of total budgetary support for agriculture. The reduction in costs appears to be strongly linked to the decrease in maize stocks, as according to USDA estimates these are projected to drop by around 20% in 2016-18 (GAIN-CH18003, 2018).

The State Council issued a circular in September 2017 calling for a faster development of the grain industry, as part of the ongoing supply-side structural reform. The circular encourages grain companies to integrate supply and distribution channels throughout production, purchases, storage, and sales by 2020 (State Council, 2017). Northeast China provinces are expected to complete 22 additional maize processing facilities by that date, supporting these objectives (GAIN-CH18003, 2018).

In October 2017, the MOF and the State Administration of Grain announced a new programme focused on supporting the production of “high quality grains”, for which CNY 5 billion (USD 756 million) will be allocated across different components facilitating the development of post-harvest handling, distribution, and marketing networks (GAIN-CH18003, 2018).

In March 2017, the government announced that with the completion of the three-year soybeans target price trial, this would be replaced by “market-oriented soybeans price plus a direct subsidy to soybean farmers” starting with the 2017/18 crop. According to 2017 preliminary information, the payments are paid by area cultivated and ranged between CNY 166/mu (USD 376/ha) in Jilin, CNY 173/mu (USD 394/ha) in Heilongjiang, and CNY 207/mu (USD 470/ha) in Liaoning. In addition, pilot cropland rotation programmes are continued in Liaoning, Jilin, Heilongjiang and Inner Mongolia, with direct payments of CNY 150/mu (USD 346/ha) being provided to farmers for planting soybeans instead of grains. 670 000 ha are estimated to be covered by the programme in the four provinces (GAIN-CH17055, 2018; GAIN-CH18003, 2018).

As the initial three-year pilot programme for the cotton target price system was finalised in Xinjiang, on 17 March 2017 the NDRC confirmed it would “deepen” the reform by: maintaining the target price at CNY 18 600 (USD 2 799) per tonne until 2020; setting it once every three marketing years instead of annually; and setting an upper limit on the amount of subsidy a single recipient may receive (NDRC, 2017c). At the same time, the 85% limit of the average certified national cotton production from 2012-14 to be applied as volumes eligible for compensatory payments in Xinjiang appears to remain theoretical at this moment, since actual volumes produced in the province are much lower.

Another key goal of the 13th Five-Year Plan 2016-20 relates to addressing environmental concerns in congested areas and waterways across the South, East and Centre of China by relocating pig farms to the Northeast or West. In this sense, more than 20 provincial governments set up Development Control Areas (DCAs) in 2016-17 within their respective provinces, delineating the “environmental control zones” (or “forbidden zones”) where pig farming operations are prohibited. Preliminary information suggests that by July 2017, such operations conducted in DCAs across 10 provinces led to an overall 20 million heads of pig inventory reduction (GAIN-CH17005, 2017).

The relocation of pig farms to the Northeast is also supported by the MOA guidelines for “Accelerating the Development of Modern Animal Husbandry in the Main Grain Producing Areas of North-eastern China” issued in August 2017. The establishment of livestock farming in Northeast provinces has provided access to maize from reserve stocks and thus reduced feed costs (GAIN-CH17050, 2017).

The designation of “forbidden zones” is also impacting cattle and poultry farms, although to a lesser extent than pig farms. In all three sectors however, the enforcement of the environmental regulations and farm relocation are pushing towards a consolidation of small- and medium-farms into larger operations which have increased access to capital to invest in environmental control systems and compliance with new regulations (GAIN-CH17005, 2017; GAIN-CH17053, 2017; GAIN-CH17040, 2017).

The Environmental Protection Tax (EPT) Law took effect on 1 January 2018. The Law had been promulgated by the NPC in December 2016, replacing the previous Pollutant Discharge Fees (PDF). The EPT Law provides guidelines for levying taxes on entities that emit air and water pollutants, solid wastes, as well as noise pollution. Local governments decide the tax rates to be levied, within a range defined by the central government. The tax will apply to farms with more than 50 cows, 500 pigs or 5 000 birds, but it exempts small-scale farms and leaves margins for farmers to reduce their tax bill where pollutant concentration is kept below 50% of emission standards set by local governments (China Business Review, 2017).

The central government foresees to further relax land transfer rules to promote more efficient, larger-scale farms. In November 2017, a draft of the revised Rural Land Contracting Law was submitted to the Standing Committee of the NPC, planning to extend existing rural land contracts by 30 years upon expiration. The draft revision further separates the use right into “contract right” and “management right”, allowing farmers to retain contract right over their allowed land, and only transfer the management right if they choose to lease the land to others, mortgage it to banks or invest it in a co-operative in exchange for shares (MOA, 2017a; China Daily, 2017).

The State Council released on 10 April 2017 the “Guidance on Establishing Functional Regions for Grains and Protected Areas for Major Crops”, which designates 60 million ha of cultivated land as “functional regions” devoted to three grains (wheat, rice and maize) and 15.9 million ha as “protected regions” for five other key crops (soybeans, cotton, rapeseed, sugar, and natural rubber). Both “functional” and “protected” regions will be targeted for strict controls of land use, investments in infrastructure, subsidy programmes, and new types of farm operations. Provinces are expected to delineate the plots of land to be included in the “functional” and “protected” regions by 2020 (State Council, 2017c; MOA, 2017b).

Reflecting increasing environmental concerns, the General Office of the Communist Party of China Central Committee and the General Office of the State Council released on 30 September 2017 joint guidelines on “Green Development in Agriculture”, setting goals for resource conservation and environmental protection. The document reinforces the target of zero growth in the amount of chemical fertilisers and pesticides used in major crops by 2020, while excessive exploitation of groundwater is to be prevented and the efficiency of irrigation to be improved (MOA, 2017c).

With the objective of reducing GHG emissions from agriculture, the MOA continued advancing in 2016-17 plans for rural biogas transformation by releasing the “Circular on Announcing the Plan of Investment within the Central Budget for Large-scale Biogas Projects”. Several action plans have been initiated concerning adaptation, with clearer policy measures foreseen to unfold in 2018. For instance, the Ministry of Water Resources (MWR), in conjunction with NDRC and other relevant ministries, completed an assessment of water management systems and issued the “National Action Plan for Water Conservation”, covering water-saving in agricultural production. At the same time, the MOA supported pilot programmes for large-scale water-saving irrigation, dry farming techniques and integrated demonstration of conservation tillage (NDRC, 2017b).

In December 2017, China launched a national emission trading scheme (ETS) to meet its commitments as part of the Paris Agreement on Climate Change. The national cap-and-trade scheme will see high emitting companies buy and sell emissions credits below a defined, gradually declining limit. The initial phase exclusively applies to power generation, with around 1 700 companies included and covering a total of over 3 billion metric tonnes of carbon emissions (accounting for 37% of China’s total emissions). The programme is expected to be extended soon afterwards to other industries, including agricultural processors. However, there is no official timeline for the inclusion of other industries yet. At the local and provincial levels, depending on the air quality rating of the surrounding region, some industrial facilities, including feed millers, ethanol plants, and other processors, have already been compelled to lower capacity or shut down (Forbes, 2017; GAIN-CH18003, 2018).

Trade policy developments in 2017-18

On 12 December 2017, the State Council Duty Committee (SCDC) released the 2018 Tariff Adjustment Plan, listing changes in import tariff rates for selected commodities to be applied as of 1 January 2018. The 2018 Tariff Adjustment Plan also incorporates tariff revisions introduced in November 2017, which had already entered into force on 1 December 2017. Out of 187 tariff revisions, 33 refer to agro-food products. These include, among others, reductions for different tariff lines of processed cheese; infant formula and “special” infant milk powders; tree nuts; dried cranberries; or avocadoes.² In addition, the 12 December 2017 notification also introduced changes to the out-of-quota import duties for broken rice, indica-varieties and other broken rice, which will be lowered from 65% to 10%, starting with 1 July 2018. Other TRQ in-quota and out-of-quota duties remain unchanged in 2018 (MOF, 2017a, 2017b; GAIN-CH 17064, 2017).

The MOF introduced on 1 December 2017 Value-Added Tax (VAT) reductions from 13% to 11% for imported grains and fodders which have been minimally processed as principal products. Imports of animal feeds, chemical fertilisers, pesticides, agricultural machinery, and agricultural plastic sheeting are also subject to an 11% VAT. Moreover, in June 2017, the NDRC and China’s Ministry of Commerce (MOFCOM) released the 2017 Foreign Investment Industrial Guidance Catalogue, which removed restrictions on foreign investment in the processing of oilseeds, sugar, rice, flour, and deep processing of maize (SAT, 2017; GAIN-CH18003, 2018).

In its final ruling of 11 January 2017, the MOFCOM confirmed that anti-dumping duties on imported distillers grains (DDGS) from the United States will range between 42.2% and 53.7% and countervailing duties between 11.2% and 12%. These rates will be in force for five years. A 13% VAT on DDGS imports continued to be initially applied on top of the countervailing and anti-dumping duties, but on 14 November 2017 China confirmed its removal effective from 20 December 2017 (MOFCOM, 2017a; GAIN-CH18003, 2018).

The MOFCOM introduced a safeguard measure on sugar imports in May 2017. For sugar imports within-quota, the tariff remains unchanged at 15%. For out-of-quota imports, the tariff was raised from 50% to 95%, effective from 22 May 2017 to 21 May 2018; this will then be 90% from 22 May 2018 to 21 May 2019, and then further lowered to 85% from 22 May 2019 to 21 May 2020. The tariff applies to raw sugar and sugar products under seven HS tariff lines. In addition to the higher out-of-quota tariff, importers are required to obtain an “automatic import registration certificate” from MOFCOM. The safeguard measure impacts major supplying countries (such as Brazil, Thailand, Australia and South Korea), while sugar imports from developing countries are exempted from this measure as long as the market share of any of these suppliers remains below 3% (MOFCOM, 2017b; GAIN-CH176029, 2017).

In May 2017, China lifted the import ban on United States beef, allowing access for chilled, frozen, bone-in, and boneless beef products, plus a broad scope of offal products. United States beef had been banned from the Chinese market since the discovery in December 2003 of Bovine spongiform encephalopathy (BSE) cases. All beef products exported from the United States to China must be produced at facilities participating in the Agricultural Marketing Service Export Verification Program for Bovine to China (GAIN-CH17053).

Moreover, in July 2017, China and the United States signed the agreement that allows United States rice exports to China. In this sense, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) is to undertake an audit of U.S. export facilities, before exporting companies can register with it (GAIN-CH17050, 2017). In June 2017, China’s Certification and Accreditation Administration (CNCA) and the US Food and Drug Administration (FDA) also signed a Memorandum of Understanding, under which CNCA recognized the Agricultural Marketing Service of the US Department of Agriculture (USDA), and other entities, as approved third-party certification bodies for dairy and infant formula products (FDA, 2017).

The MOFCOM initiated an anti-dumping and countervailing investigation against sorghum imported from the United States (MOFCOM announcements No.12 and No.13 of 4 February 2018). The investigation on injury to the domestic industry will be carried out for the period from 1 January 2013 until 31 October 2017 and should be completed by 4 February 2019 (MOFCOM, 2018a, 2018b). In February 2018, the MOFCOM also reopened an anti-dumping investigation against potato starch imported from the European Union (EU), which was requested by the China Starch Industry Association and is expected to last until February 2019. During the investigation, the current anti-dumping duties will continue to be levied; these range from 12.6 to 56.7%, according to a 2013 MOFCOM ruling. In September 2017, the MOFCOM extended for five years the anti-subsidy duties on potato starch from the EU, which range from 7.5 to 12.4% (Xinhuanet, 2018b; MOFCOM, 2018c).

In January 2018, the State Council announced that foreign-owned investment entities will be able to directly market wheat, rice and maize in Free Trade Zones (FTZs) of grain-producing provinces including Guangdong, Fujian, Liaoning, Zhejiang, Henan, Hubei, Sichuan, and Shaanxi, as well as trading centres such as Shanghai, Tianjin Municipality, and Chongqing (GAIN-CH17050, 2018).

In September 2016, the United States initiated WTO dispute proceedings with China regarding its domestic support measures for agricultural producers of, among other crops, wheat, indica rice, japonica rice, and maize. The WTO Dispute Settlement Board (DSB) established a panel on 25 January 2017, which was composed on 24 June 2017. China confirmed to the DSB that it had accepted the requests of Australia, Canada, the European Union and Thailand to join the consultations. The panel has informed the DSB that it expects to issue a final report in the third quarter of 2018 (WTO, 2017). On 15 December 2016, the United States also requested consultations with China concerning the administration of its TRQs, including those for wheat, short- and medium- grain rice, long grain rice, and maize. In December 2016, Australia, the European Union, Canada and Thailand requested to join the consultations. The DSB established a panel on 22 September 2017, which was composed on 12 February 2018 (WTO, 2018).

Regional integration under the One Belt One Road (OBOR) initiative remained a priority for China in 2017. The “Vision and Action on Jointly Promoting Agricultural Co-operation on the Belt and Road”, issued by MOA in 2017, establishes agricultural trade and investment as key pillars of the OBOR (MOA, 2017d).

The China-Georgia Free Trade Agreement (FTA), signed on 13 May 2016, entered into force on 1 January 2018. The FTA eliminates tariffs on 93.9% of Chinese imports from Georgia, of which 90.9% will have zero tariffs applied immediately and the remaining 3% will gradually see tariffs lowered to zero within five years. This tariff schedule includes agro-food products such as wine, nuts, honey, beer, non-alcoholic beverages, jams, juices, vegetables, fruits, chocolate products, and tea exported from Georgia. Within the framework of the agreement, Georgia will also eliminate tariffs on 96.5% of China’s products immediately (MOFCOM, 2018c).

China and the Maldives signed a FTA on 7 November 2017, which will enter into force once domestic procedures for ratification are finalised; 96% of goods on both sides will benefit of zero tariffs. For instance, most of China’s industrial products and agricultural products such as flowers, plants and vegetables exported to Maldives will benefit from zero duties. China will eliminate tariffs on Maldives’ seafood exports (MOFCOM, 2017d).

References

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Notes

 1.  The timeline for this institutional restructuring has not yet been officially confirmed.

 2.  On 2 April 2018, additional tariffs of 15% or 25% were confirmed for 128 US products, including 105 agro-food products (covering, among others, fresh and dried fruit, tree nuts, pig meat and pig meat products), in response to the recent US 232 Trade Action on steel and aluminium (MOF, 2018).

Chapter 8.

Colombia

Support to agriculture

Colombia’s level of support to farms was 13% of gross farm receipts in 2015-17, which is slightly below the OECD average. Level of support has been decreasing due to a depreciation of the Colombian Peso, the declining of producer prices, particularly after the increase of production of main agricultural products under the Colombia Siembra initiative. Market price support (MPS) is the main component of the PSE – accounting for more than 82%, over the period 2015-17. MPS is mostly stemming from the use of border measures for several agricultural products including rice, maize, poultry, milk, sugar, and pig meat. Budgetary transfers to farmers accounted for 18% of the PSE, and were mostly payments based on variable input use. Budgetary payments to general services to the sector as a whole (GSSE), have been relatively small, accounting on average for only 14% of the total support estimate (TSE). Budgetary allocations on these items include: agricultural research and knowledge transfer, infrastructure, particularly in irrigation, and farm restructuring.

Main policy changes

In 2017, support to stockholding of around 400 000 tonnes of rice was given to wholesalers with the capacity to store the grain. An income compensation payment was also given to cotton producers. Relieving financial constraints continues to be a priority and, in July 2017, the Law 1847 was approved, which provides debt rescheduling and debt relief for farmers. The implementation of this Law will take place in 2018. Budgetary transfers increased by 11% in 2017, and 16 new programmes were created, in the context of the Colombia Siembra initiative. Some programmes are on GSSE others are payments to individual farmers. For example, 12 programmes were on general services, 10 of which were directed on extension services. The other four programmes were given as support for equipment acquisition and the provision of services.

Access to land continued to be a priority and in 2017 around 3 000 land plots were formalised or legally registered under the auspices of the new ANT Agency. Efforts were taken to strengthening animal and plant health. The Colombian agency in charge of animal and plant health (ICA) established a number of new regional surveillance networks. Furthermore, a number of phytosanitary requirements to export fresh agricultural products was implemented. In December 2017, Congress also approved a law that created the National Agricultural Innovation System (SNIA), which includes both research and development, and extension services to farmers. The implementation of SNIA will take place in the coming years. In 2017, import tariffs on used agricultural machinery and equipment were removed for a period of two years. Tariffs on cotton and peanuts where also removed. Negotiations are ongoing with Japan and Turkey for the establishment of new trade agreements.

Assessment and recommendations

Colombia’s agricultural sector faces a wide series of structural and institutional challenges that hinder productivity and 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 a long-running internal conflict closely linked to drug trafficking, have deeply affected the performance of the Colombian agricultural sector.

Comprehensive land access policy framework is necessary to stabilise the country and to promote rural development. Improved land rights contribute to long-term growth in the agriculture sector and contribute as well to promote rural development. Colombia faces the twin challenges of high concentration of land ownership and the under-exploitation of arable land. Upgrading of the cadastre system and accelerating the registration of land rights are crucial for the sector.

Critical areas such as infrastructure, agricultural research and development, and agricultural knowledge transfer and farm restructuring continue to receive limited support.

A systematic review and impact assessment of the wide array of policy instruments, and programmes to support agriculture would be important. The majority of current programmes cover very broad and different areas and are implemented through a bundle of policy instruments with unclear impact. The review should redefine and reorganise policy instruments based on evidence of costs and benefits.

Market price support (MPS) is the dominant form of support to producers. An assessment of the actual effects of the Price Band System should be undertaken to provide the basis for designing alternative policies that achieve the objectives set for the sub-sectors covered by the price band.

Improving strategic information collection on the agricultural sector is crucial for the good design of policies.

Figure 8.1. Colombia: 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.

StatLink  http://dx.doi.org/10.1787/888933756077

Support to farmers (%PSE). Since the 1990s, Colombia has provided significant levels of support to its farmers. The %PSE for 2015-17 was 13.1% of gross farm receipts, but has declined to 9% in 2017. The share of potentially most distorting support is around 80% of the PSE, being linked to commodity market price support during (Figure 8.1). Effective prices received by farmers, on average, are estimated to be 12% higher than those observed in the world markets. Expenditures for general services were equivalent to 2.9% of the agricultural value added in 2015-17, larger than the 1.8% seen in 1995-97. Total support to agriculture represents 1.3% of GDP for the period 2015-17, exceeding the OECD average. The share of GSSE in TSE was 14% for 2015-17. The level of support in 2017 has declined due to a reduction of producer prices, following increasing production (Figure 8.2). The most important Single Commodities Transfers (SCTs) were benefitting rice (59% of commodity gross farm receipt), maize (47%), sugar (20%) and pig meat (25%) (Figure 8.3).

Figure 8.2. Colombia: 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.

StatLink  http://dx.doi.org/10.1787/888933756096

Figure 8.3. Colombia: 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

StatLink  http://dx.doi.org/10.1787/888933756115

Table 8.1. Colombia: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758452

Contextual information

Colombia has abundant agricultural land and fresh water, is very biodiverse and is rich in natural minerals and fossil fuels. Colombia is the fifth largest and the third most populous country in Latin America, with a surface of 1.1 million km2 and a population of 49 million people. It is the only South American country that borders both the Atlantic and Pacific Oceans. Agriculture continues to be an important sector for the country – accounting for 16.1% of employment and 7.1% of GDP in 2016. Colombia has a dualistic distribution of land ownership where traditional subsistence smallholders co-exist with large-scale commercial farms. The sector makes a significant contribution to national exports, with agro-food exports accounting for 21.6% of all exports in 2016.

Table 8.2. Colombia: Contextual indicators
| Colombia | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 230 | 690 | 0.8% | 0.8%
Population (million) | 37 | 49 | 1.3% | 1.4%
Land area (thousand km2) | 1 110 | 1 110 | 1.5% | 1.5%
Agricultural area (AA) (thousand ha) | 44 513 | 44 913 | 1.6% | 1.7%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 34 | 43 | 38 | 45
GDP per capita (USD in PPPs) | 6 156 | 14 181 | 9 650 | 24 866
Trade as % of GDP | 11 | 13 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 15.3 | 7.1 | 3.0 | 3.1
Agriculture share in employment (%) | .. | 16.1 | - | -
Agro-food exports (% of total exports) | 33.8 | 21.6 | 7.7 | 7.3
Agro-food imports (% of total imports) | 9.9 | 12.9 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  58 |  65 | - | -
Livestock in total agricultural production (%) |  42 |  35 | - | -
Share of arable land in AA (%) | 5 | 4 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933758908

Colombia is a net exporter of agricultural and food products with a net surplus of USD 0.9 billion in 2016. Colombia’s exports of primary products are roughly equally split between those destined for final consumption (52%) and those that are sold as intermediate inputs (48%) for use in manufacturing sectors in foreign markets. Most of the exports (either final consumption goods or intermediates) are not processed prior to export. In contrast, the majority of agro-food imports (60%) are in the form of intermediates for further processing in the country.

Figure 8.4. Colombia: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933756134

Figure 8.5. Colombia: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933756153

Low productivity undermines the sector’s competitiveness, largely driven by infrastructure deficiencies, unequal access to land and land use conflicts, as well as weak supply chains. The growth rate of the Total Factor Productivity (TFP) was only 0.7% over the period 2005-14, far below the world average. In terms of resource use, agriculture is also the main water user with a share of 60% total water use, above the OECD average. Furthermore, agriculture contributed in 2016 with 45% of GHG emissions.

Figure 8.6. Colombia: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933756172

Table 8.3. Colombia: Productivity and environmental indicators
| Colombia | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 1.53% | 0.70% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | .. | .. | 33 | 30
Phosphorus balance, kg/ha | .. | .. | 3.7 | 2.4
Agriculture share of total energy use (%) | 6.6 | 6.9 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 44 | 45 | 8.5 | 8.5
Share of irrigated land in AA (%) | .. | 0.9 | - | -
Share of agriculture in water abstractions (%) | .. | 60 | 45 | 43
Water stress indicator | .. | .. | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759364

Description of policy developments

Main policy instruments

Agricultural policy in Colombia is shaped by both the National Development Plan (PND) 2014-18 and Colombia Siembra initiative (2015). This initiative aims at raising agricultural production through an increase in the planted area (from idle land) and yields of several crops. To achieve this, resources have been redirected to key priorities such as financing, risk management, improvements on extension and technical assistance services, investments in general services, land acquisition and registration.

Market price support (MPS) continues to be the dominant form of support in the sector. MPS is provided through border protection with the use of the Andean Price Band System (SAFP). The SAFP applies to 13 commodities and their related first-stage processed products: rice, barley, yellow maize, white maize, soya beans, wheat, unrefined soya bean oil, unrefined palm oil, unrefined sugar, sugar, milk, chicken cuts and pig meat.

Furthermore, producer associations finance and administer the commodity Price Stabilisation Funds (FEP). Six commodities are covered by a fund: cotton, cocoa, palm oil, sugar, beef and milk. FEPs are funded through producer levies, but function as price-setting mechanisms that make, domestic producer prices higher than international prices. FEPs make payments to producers when the selling price of a product falls below a minimum (floor) price. When the sales price of a product is higher than an established maximum (ceiling) price, producers contribute to the FEPs. The ceiling and floor prices are established by a Council formed by stakeholders and the government, based on selected international prices for each product.

Input subsidies are another important policy measure, and dominate the budgetary transfers to producers. Several programmes provide different types of input support. For example, the Rural Development and Equity programme (DRE) has four components: 1) the Rural Capital Incentive (ICR); 2) the Special Credit Line (LEC); 3) the technical assistance support; and 4) the subsidies for land investments in drainage and irrigation. These components provide subsidies ranging from variable inputs like purchases of seed or renovation of crop plantations, to fixed capital formation such as subsidies for farm irrigation and drainage infrastructure, and on-farm services like subsidies for individual technical assistance as well as credit.

Colombia also makes use of a number of specific credit subsidies. Financing instruments relate to the access to credit (including subsidised credit interest rates), debt rescheduling and insurance programmes. The Financing Fund for the Agricultural Sector (FINAGRO) is a second-tier bank. Specific credit lines are available for: i) working capital and marketing; ii) investment; and iii) the normalisation of portfolios from which farmers have benefited from debt rescheduling and sporadic write-offs. FINAGRO also manages the Agricultural Guarantee Fund (FAG) that provides collateral to farmers, particularly smallholders. In terms of insurance, the government subsidises up to 80% of the premium, depending on the size of the farm, and whether the area to be insured has been financed with credit resources of FINAGRO.

Expenditures on general services include investments in agricultural research and transfer, inspection and control, animal and plant health, infrastructure (including farm restructuring), marketing and promotion.

Colombia has made the following commitments in the Paris Agreement on Climate Change: 1) Reduce the Greenhouse Gas Emissions (GHG) of the country, by 20% in relation to the projected emissions to the year 2030, with the year 2010 set as the baseline; 2) To foster adaptation in ten agricultural subsectors; 3) Six priority sectors of the economy will be implementing innovative adaptation actions; 4) Fifteen departments of the country will be participating in the agro-climatic technical tables and 1 million producers will receive agro-climatic information; 5) 100% of the national territory will have climate change plans; 6) Delimitation and protection of the 36 national areas; 7) The creation of the national system of adaptation indicators; 8) Priority basins will have management instruments with considerations of weather variability and climate change; 9) Inclusion of climate change considerations in projects of national and strategic interest; 10) Strengthening the public education strategy on climate change.

Domestic policy developments in 2017-18

Colombia Siembra continues to be the most important policy framework of the country. Around 176 000 new hectares were planted with agricultural crops in 2017. These hectares were coming mostly from idle land. The main crops planted were rice, palm oil, maize, fruit trees and beans.

In 2017, support to stockholding of around 400 000 tonnes of rice was given to wholesalers with the capacity to store the grain. The incentive responded to an overproduction in the country given the new idle land that is being used as a consequence of the Colombia Siembra framework and the Peace Agreement signed in 2016, as it provides the intrinsic security to investment on the land. An income compensation payment was also given to cotton producers. Relieving financial constraints continues to be a priority and, in 2017, more than 288 000 agricultural producers (of all scales of production) were granted loans through the FINAGRO agency. In July 2017, the Law 1847 was approved, which provides debt rescheduling and debt relief for farmers. The implementation of this Law will take place in 2018 for farmers with debts as of 2016, and the criteria of this implementation will be determined by the Ministry of Agriculture and Rural Development (MADR).

Budgetary transfers increased by 11% in 2017, and 16 new programmes were created in 2017, in the context of the Colombia Siembra initiative. Twelve programmes were on general services, ten of which were on extension services. The other four programmes target individual farmers as different type of support for equipment acquisition and the provision of services.

Access to land continued to be a priority and, in 2017, more than 15 000 farmers were able to get access to land through subsidies for purchasing land and allocation of idle land by the National Land Agency (ANT), etc. Furthermore, around 3 000 land plots were formalised or legally registered under the auspices of the new ANT Agency. In 2017, the Access to Land Law was drafted and is currently being discussed in Congress; it aims at providing land to landless people that were affected by the internal conflict.

Efforts were taken to strengthening animal and plant health. In 2017 the Colombian Institute of Agriculture (ICA) agency in charge of animal and plant health, created 11 surveillance networks in 25 departments of the country. These networks monitor plague or disease outbreaks. Furthermore, 22 regulatory measures were issued on phytosanitary requirements to export fresh agricultural products.

In December 2017, Congress also approved a law that created the National Agricultural Innovation System (SNIA), including both research and development, and extension services to farmers. The implementation of SNIA will take place in the coming years.

Trade policy developments in 2017-18

On April 2017, the Superior Council of Fiscal Policy (CONFIS) removed tariffs on used (1- to 7-year old) agricultural machinery and equipment for a period of two years with the option to renew the measure for two more years. The targeted farming machinery includes ploughs, seeding and planting machines, manure spreaders, scrapers, and coffee sorting machines among others. CONFIS also reduced the cotton tariff to 0% for imports of 15 000 tonnes, classified under tariff subheading 5201003000 originated in countries with which Colombia has no current trade agreements (this until 31 December 2017). On 24 October 2016, tariff subheading 1202.42.00.00 (peanuts without roasting or cooking in another way, without peel, even broken) was removed from the soybean band.

Negotiations are ongoing with Japan and Turkey for the establishment of new trade agreements. In order to deepen the current conditions under the framework of the Pacific Alliance, the governments of Mexico, Chile, Peru and Colombia began negotiations in October 2017 as a block, with Singapore, Canada, New Zealand and Australia. The negotiations comprise deeper provisions on terms of market access, sanitary and phytosanitary measures, and trade facilitation, among others.

Chapter 9.

Costa Rica

Support to agriculture

Costa Rica’s support to farmers was 8% of gross farm receipts (%PSE) in 2015-17. While this is less than a half of the OECD average, the support is almost entirely (96%) based on Market Price Support (MPS), one of the most production and trade distorting forms of support. Products with the highest MPS include rice, poultry, pig meat and sugar. The remaining 4% of support is provided mainly through input subsidies for fixed capital formation and payments for environmental services. Support to farmers (PSE) was the largest component of the Total Support Estimate (TSE) to agriculture in 2015-17 accounting for 82% of the total; the remaining 18% was based financing general services to the sector (GSSE). However, expenditures on GSSE accounted for 85% of budgetary expenditure to agricultures in 2015-17.

Main policy changes

The fundamental parameters of agricultural policy remained unchanged, the policy objectives continue to emphasise agricultural productivity and inclusiveness by focusing in the development of small-scale agriculture. Besides the price support policies, agricultural policy is mainly focused on general services to the sector such as: agricultural knowledge and innovation system, particularly on extension services; on inspection and control; and on the development and maintenance of infrastructure, particularly on irrigation. Some minor budgetary payments are provided directly to farmers as fixed capital formation subsidies and payments for environmental services.

In 2016/2017, the government began to reform the extension services (under the auspices of the Ministry of Agriculture and Livestock-MAG), with the ambition to better link these services with the Innovation and Transfer of Agricultural Technology (INTA), the agricultural R&D institution. The National Irrigation and Drainage Service institution (SENARA) revised and changed the water pricing system and now applies a variable rate based on water availability and costs of maintaining the irrigation system.

An executive Decree 40059-MAG-MINAE-S was implemented in 2017, on Technical Regulation (RTCR) No. 484:2016. This document establishes the regulations, principles and procedures for the registration, use and control of synthetic pesticides in agriculture, and of other agricultural inputs (SEPSA, 2018).

In February 2017, the government ended an anti-dumping investigation on imports of unrefined crystal white sugar from Brazil, and decided to impose an anti-dumping measure of 6.82%, which was adjusted to 3.67%. The government also authorized the duty-free import of 6 294 metric tonnes of black beans and red beans, valid for 9 months running from September 2017 to June 2018. Another authorization was for duty-free imports of 2 602 metric tonnes of white corn. A safeguard for imports of brown rice was established in 2017. During 2017, the negotiation of the Free Trade Agreement (FTA) between the Central American Republics and Korea was finalised. The FTA was signed in February 2018. In 2015, Costa Rica has decided to ban imports of fresh avocados from Mexico, with the aim to protect itself against the sunblotch disease (G/SPS/N/CRI/160 and G/SPS/N/CRI/162) (COMEX, 2018). The two parties continue their consultations under the WTO Dispute Settlement Mechanism.

Assessment and recommendations

Costa Rica’s producer support is still predominantly provided through border protection namely for rice, poultry, pig meat, milk and sugar. This support continues to distort both domestic markets and trade, constrains competition and, hence, productivity and competitiveness. The government should develop and communicate a strategy on how to phase out market price support to ensure a smooth transition.

As more than 80% of the government budgetary allocations are directed to general services, ensuring and improving efficiency of these services is fundamental. Extension services are a core function for the agricultural sector, but capacity constraints and misallocated resources reduce their effectiveness.

Major investments are required to improve the sector’s infrastructure, both to enhance productivity (e.g. through irrigation and drainage) and to facilitate the access to markets (e.g. through transportation, distribution, cold-chain facilities etc.).

Complex responsibilities and weak co-ordination among the institutions challenge the implementation of public measures and impede effective service provision to the agricultural sector. Reducing bureaucracy and improving institutional co-ordination is therefore important to ensure that support programmes are implemented in a more efficient manner.

Small-scale producers suffer from poor access to credit and financial tools. In addition, stringent requirements impede small-scale farms from taking advantage of available credit sources, and private commercial banks lack incentives to provide loans to small-scale farmers. While care needs to be taken to avoid moral hazard, existing credit programmes provided by the development banking system and agricultural organisations could be expanded as a first step to improve the financial infrastructure for smallholders in particular.

Under the framework of the Paris Agreement on Climate Change, the country commits to a maximum of emissions of 9 374 000 net tonnes of CO2 equivalent by 2030. The commitment implies a reduction of GHG emissions of 44%, compared to a Business as Usual (BAU) scenario. Costa Rica also has developed some agricultural sector-specific targets to help achieve the country commitments on emissions.

Figure 9.1. Costa Rica: 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.

StatLink  http://dx.doi.org/10.1787/888933756191

Support to farmers, as measured by the %PSE has increased from 4% in 1995-97 to 8% in 2015-17, remaining well below the OECD average. Potentially most production and trade distorting support, in the form of market price support (MPS), continues to dominate and represented 96% of the PSE in 2015-17, little below its 1995-97 level. Border protection and price interventions resulted in producer prices that were 8% higher than international prices in 2015-17, on average. Around 85% of budgetary spending is on general services to the sector (GSSE). This support was equivalent to 3.1% of agricultural value added in 2015-17, a significant increase relative to 1995-97. Total support (TSE) has been increasing over time and reached 1.1% of GDP in 2015-17 (Figure 9.1). Around 87% of the total support was provided in the form of support directly to farms, while support to general services represented the remaining 13%. The level of farm support decreased by 3% in 2017, mainly due to the decrease in MPS. This decrease was due to a combination of slightly higher world prices in USD for some products and a weaker local currency (Figure 9.2). Single Commodity Transfers (SCT) represented, on average, 97% of the total PSE and are particularly important for rice (61% of gross farm receipts), poultry (35%), sugar (30%) and pig meat (31%) (Figure 9.3).

Figure 9.2. Costa Rica: 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.

StatLink  http://dx.doi.org/10.1787/888933756210

Figure 9.3. Costa Rica: 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.

StatLink  http://dx.doi.org/10.1787/888933756229

Table 9.1. Costa Rica: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758471

Contextual information

Costa Rica is a small country with a population of 5 million in 2016. The country’s long democratic tradition and political stability have underpinned its important economic progress – including the development of its agricultural sector. Agriculture still plays a relatively strong role in the economy, contributing 5.4% to the country’s GDP and employing 12.2% of its work force. Costa Rica has a dualism in its agricultural sector where export oriented farms coexist with smallholders producing mostly for own consumption. Costa Rica has achieved higher standards of living and lower poverty rates than other countries in the region, with a per capita income of USD 16 642 (PPP). However, inequality, as measured by the Gini coefficient, has increased to reach 0.48 in 2015 (WDI, 2018).

Table 9.2. Costa Rica: Contextual indicators
| Costa Rica | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 23 | 76 | 0.08% | 0.09%
Population (million) | 3 | 5 | 0.12% | 0.14%
Land area (thousand km2) | 51 | 51 | 0.07% | 0.07%
Agricultural area (AA) (thousand ha) | 2 048 | 1 811 | 0.08% | 0.07%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 69 | 94 | 38 | 45
GDP per capita (USD in PPPs) | 6 533 | 16 642 | 9 650 | 24 866
Trade as % of GDP | 26 | 22 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 14.0 | 5.4 | 3.0 | 3.1
Agriculture share in employment (%) | 21.6 | 12.2 | - | -
Agro-food exports (% of total exports) | 64.3 | 45.1 | 7.7 | 7.3
Agro-food imports (% of total imports) | 10.5 | 12.8 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  88 | 76 | - | -
Livestock in total agricultural production (%) |  12 | 24 | - | -
Share of arable land in AA (%) | 11 | 13 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933758927

The economy has grown by around 4.2% per year since 1995, exceeding the average growth of a number of other economies in the region. Inflation has significantly declined, from 23% in 1995 to 1.6% in 2017. Unemployment, on the contrary has increased form 5% in 1995 to 8.5% in 2017. Costa Rica has developed a successful and dynamic agricultural export sector in recent decades. The country is a net exporter agro-food, with a share of agro-food exports in total exports of 45% in 2016. Almost half of Costa Rica’s agricultural exports are primary crops for final consumption, such as bananas, coffee and pineapples. The country is also an important exporter of processed products for final consumption such as pineapple juice. Almost a half of agro-food imports are processed products for final consumption.

Figure 9.4. Costa Rica: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933756248

Figure 9.5. Costa Rica: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933756267

During the 1980s and 1990s, structural change in the agricultural sector induced rapid growth in Total Factor Productivity (TFP). However, TFP growth has decreased over the last decade and was lower than the world average. Area expansion into less productive land, ongoing farm fragmentation and limited financial and physical infrastructure were among the key contributing factors to this decline. However, thanks to increased use of primary factors and intermediate inputs, output growth has been about the global average during 2005-14. Agriculture is the main user of water resources with a share of 73% of water abstractions. Chile has a relatively high share of GHG emissions from agriculture. Environmental regulations have led to the reforestation of large parts of the country, and 25% of Costa Rican territory is now under some form of environmental protection.

Figure 9.6. Costa Rica: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933756286

Table 9.3. Costa Rica: Productivity and environmental indicators
| Costa Rica | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 3.09% | 1.36% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | .. | .. | 33 | 30
Phosphorus balance, kg/ha | .. | .. | 3.7 | 2.4
Agriculture share of total energy use (%) | 3.9 | 2.0 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 48 | 38 | 8.5 | 8.5
Share of irrigated land in AA (%) | .. | 8.8 | - | -
Share of agriculture in water abstractions (%) | .. | 73 | 45 | 43
Water stress indicator | 0.3 | 1.5 | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759383

Description of policy developments

Main policy instruments

Costa Rica’s agricultural policy priorities are articulated in three main strategic plans: i) a long-term strategy for the agricultural sector (2010-21); ii) a short-term strategy for the agricultural sector (2015-18); and iii) the corresponding National Development Plan 2015-2018 (NDP). Costa Rica’s current strategies define two overarching objectives for the agricultural sector: to reduce poverty and to increase productivity growth. To achieve these objectives, the short-term strategy prioritises five policy guidelines (or “pillars”): i) food security and sovereignty; ii) the creation of opportunities for rural youth; iii) rural territorial development; iv) adaptation to and mitigation of climate change; and v) the strengthening of the export-oriented sector. Several specific goals for increasing productivity through yield-targets have been set for some staple crops, such as rice, beans, potatoes, and milk (OECD, 2017).

The agricultural sector benefits from a government commitment to poverty reduction, agriculture and rural development, and from the provision of a range of general services for agriculture, including extension services, research and development (R&D), and plant and animal health services, with emphasis on environmental protection. For example, around 85% of total expenditures allocated to agriculture are provided through general services. However, Costa Rica maintains important border measures, in particular tariffs to several agricultural products (rice, poultry, pig meat, milk, sugar, etc.), and maintains a minimum reference price for rice. This protection generates market price support, which is by far the largest component of support to farms in Costa Rica. The country also provides minor subsidies through credit to famers at preferential interest rates, payments for environmental protection, and subsidies for fixed capital formation mostly directed to smallholders.

Under the framework of the COP21, the country commits to maximum emissions of 9 374 000 net tonnes of CO2 equivalent by 2030, with a proposed trajectory of emissions of 1.73 net tonnes per capita by the same year. The commitment implies a reduction of GHG emissions of 44%, compared to a Business as Usual (BAU) scenario, and represents a reduction of GHG emissions of 25% compared to the 2012 emissions.

To achieve these commitments under the COP21, Costa Rica has the following sector-specific targets: 1) create a low emissions agricultural sector by the identification, promotion and transfer of low emissions production technologies by 2030; 2) manage the Low Carbon Sinks (land use, reforestation, avoidance of deforestation) through the integration of rural development agenda with the Reduction of Emissions from Deforestation and Forest Degradation strategy (REDD Strategy) by 2030; 3) consolidate Carbon Price Systems (tax-market-compensation systems) consistent with country goals by 2030; 4) by 2030, consolidate the Payment for Ecosystem Services Programme PPSA with mechanisms of compensation for results, with the recognition of ecosystem services, and with the recognition of the agricultural sector as a provider of environmental benefits in cases of mitigation measures in the farm; 5) support the commercialization of agricultural products with low carbon footprint; 6) promotion of the increase in the use of wood in construction processes; 7) develop the National Adaptation Plan by 2018; 8) by 2026, improve the adaptation capacity of agricultural producers; 9) by 2026, to improve Community-based Adaptation through the Green and Inclusive Development Program, with the application of sustainable production systems in rural territories with lower human development indexes, and vulnerable to climate change; 10) by 2030 to consolidate adaptation based on ecosystems; 11) by 2030, to increase forest coverage to 60% of the national territory; 12) by 2030, to consolidate the Biological Corridor System; 13) by 2030, to consolidate the National System of Conservation Areas of Costa Rica (SINAC).

Domestic policy developments in 2017-18

The fundamental parameters of agricultural policy remained unchanged, the policy objectives continue to emphasise agricultural productivity and inclusiveness by focusing in the development of small-scale agriculture.

An executive Decree 40059-MAG-MINAE-S was implemented in 2017, on Technical Regulation (RTCR) No. 484:2016. This document establishes the regulations, principles and procedures for the registration, use and control of synthetic pesticides in agriculture, and of other agricultural inputs (SEPSA, 2018).

In 2016/2017, the government began to reform the extension services (under the auspices of the Ministry of Agriculture and Livestock-MAG), with the ambition to better link these services with the Innovation and Transfer of Agricultural Technology (INTA), the agricultural R&D’s institution.

The National Irrigation and Drainage Service institution (SENARA) revised and changed the water pricing system from a fixed-rate fee per hectare and year to a variable rate based on water availability and costs of maintaining the irrigation system. The application of the new tariff aims at increasing the efficiency in the use of water (SEPSA, 2018).

Trade policy developments in 2017-18

In February 2017, the government ended an anti-dumping investigation on imports of sugar from Brazil, and decided to impose an anti-dumping measure of 6.82%. In view of the appeals filed before the resolution, the government adjusted the measure to 3.67%. The government also authorized duty-free imports of beans, at a volume of up to 6 294 metric tonnes of black beans in bulk and red beans. The import authorization is valid for 9 months running from September 2017 to June 2018. In addition, it authorized duty-free imports of 2 602 metric tonnes of white corn.

A special safeguard (SAS) for imports of brown rice was established in 2017 that ended in December of the same year. The safeguard was activated by volume and is imposed on imports of brown rice, with an additional 11.67% duty to the import tariff. This measure will not apply to imports from United States, Central America (except Panama), Chile and Mexico. During 2017, the negotiation of the Free Trade Agreement between the Central American Republics and Korea was finalised. The FTA was signed in February 2018 (COMEX, 2018).

In 2015, Costa Rica has decided to ban imports of fresh avocados from Mexico, with the aim to protect itself against the sunblotch disease (G/SPS/N/CRI/160 and G/SPS/N/CRI/162) (COMEX, 2018). The two parties continue their consultations under the WTO Dispute Settlement Mechanism.

References

COMEX (2018), Estadísticas COMEX, http://sistemas.procomer.go.cr/estadisticas/inicio.aspx.

OECD (2017), Agricultural Policies in Costa Rica, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264269125-en.

SEPSA (2018), “Annual report on agricultural policies”, Government report prepared for the OECD, San José, Costa Rica.

WDI (2018), World Development Indicators, World Bank Group, http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators.

Chapter 10.

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 and price distortions have been significantly reduced. At the same time, more payments are submitted to environmental compliance. Around 50% of support to producers is conditional on mandatory environmental constraints. An additional 8% of support to producers goes to voluntary environmental schemes that go beyond the mandatory requirements.

Support to producers as a share of gross farm receipts (%PSE) has stabilised at around 20% since 2010. Payments not requiring production account for about 45% of support. The production-linked support has decreased in 2017, mainly driven by decrease in market price support due to higher world prices for agricultural products, rather than a change in policy setting. Production-linked budget payments have decreased only slightly.

The greatest share of overall support to the agricultural sector (TSE) goes to producers (about 88%). Investments in knowledge and infrastructures are the main components of general services to the sector at large (GSSE) which represent the remaining 12% of TSE.

Main policy changes

In 2017, the main policy developments were linked to the full implementation of the CAP 2014-20, including the CAP simplification within the Omnibus regulation that introduced changes to the four CAP regulations on direct payments, rural development,¹ common market organisation and horizontal regulation. The Omnibus regulation (EU Regulation 2017/2393), endorsed on 16 October 2017, amends the financial regulation governing the implementation of the EU budget and 15 sectorial legislative acts, including agriculture.

The end of the sugar production quota in 2017 is an important further step away from production and trade distorting measures.

A number of exceptional measures continued in response to market conditions in the dairy, fruit and vegetables, and pig sectors. In the dairy sector these included public intervention, support to private storage and voluntary supply management and public distribution. Additional packages were targeted to dairy and livestock producers to implement measures such as support to small scale farming, extensive production, environmental and climate friendly production, cooperation between farmers, improvement of quality and added value, training in financial instruments and risk management tools. Exceptional measures targeted to the fruits and vegetables sectors included market withdrawal, subsidised “non-harvesting” and “green harvesting”. In addition to expenditure from European Union funds, Member States were allowed to match these amounts with national funds.

Assessment and recommendations

Over the past three decades, policy reforms have considerably reduced the level and improved the composition of support. The increased weight of payments that do not require production offers producers the flexibility to respond to market signals and to make their production choices independently from government intervention. In some sectors, however, prices paid to producers remain disconnected from world market prices, and potentially most distorting forms of support still represent a quarter of the PSE, suggesting that further improvements towards more market orientation are possible.

The share of support requiring production decreased in 2017, mainly due to lower market price support following higher world prices, while budgetary payments that encourage specific commodity production decreased only a little. This form of support influences production choices at the farm level and may distort competition.

Market access for agricultural products has improved through bilateral agreements and the reduction of applied tariffs. However, import and export licensing, Tariff Rate Quotas and special safeguards continue to apply to a number of products. These measures push support up when world prices decline.

The CAP 2014-20’s small farmers scheme and the flexibility to introduce additional payments for the first hectares have redistributive effects which, however, could have effect on structural adjustment.

Climate change adaptation and mitigation in agriculture are addressed via measures aiming at improving environmental performance: cross-compliance and greening under Pillar 1, and agri-environmental and climatic measures under Pillar 2. Around 50% of support to producers is conditional on mandatory environmental constraints. Payments also support farmers who engage in voluntary environmental schemes that go beyond the mandatory conditions. The growing share of these payments within the PSE highlights the European Union’s move towards more targeted support for overcoming market failures.The efficiency of these measures should be assessed against the environmental objectives.

The CAP 2014-20 partly reverses the downward trend of production and trade distorting support. Member States have used greater flexibility to implement coupled payments for specific sectors. Other less market and resource allocation distorting means could be used to support achieving long-term competitiveness and productivity gains. Short-term income variations can be addressed with risk management tools. Policies 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.

Figure 10.1. European Union: 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.

StatLink  http://dx.doi.org/10.1787/888933756305

Support to farmers (%PSE) has declined gradually over the long term. In 2015-17, support has been around 19% of gross farm receipts, slightly above the OECD average. The share of potentially most distorting support has decreased significantly over time due to decline in market price support (MPS) , falling well below the OECD average (Figure 10.1). 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 increased more than domestic prices (Figure 10.2). Effective prices received by farmers, on average, were slightly higher than world prices; large differences between commodities persist with domestic prices for beef and veal and poultry being more than 20% and for rice 47% above world prices. MPS is the main component of Single Commodity Transfers (SCT): rice, beef and veal, and poultry had the highest share of SCT in commodity gross farm receipts, but SCTs for sheep meat, sugar and potatoes were also substantial (Figure 10.3). Overall, SCT represent 26% of the total PSE. The expenditures for general services (GSSE), mainly on knowledge and infrastructure, relative to agriculture value added were in line with OECD average. Total support to agriculture as a share of GDP has declined significantly over time. About 88% of the total support is provided to individual farmers (PSE).

Figure 10.2. European Union: 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.

StatLink  http://dx.doi.org/10.1787/888933756324

Figure 10.3. European Union: 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.

StatLink  http://dx.doi.org/10.1787/888933756343

Table 10.1. European Union: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758490

Contextual information

The European Union is the largest economic region covered in this report. Its average GDP per capita is below the OECD average but well above the average of all countries covered in the report. The share of agriculture in the economy has declined over the past two decades, it accounts for 1.3% of GDP and 4.3% of employment. However, economic conditions, farm structures and production systems are very diverse across and within the 28 Member States. Across the European Union, agriculture occupies more than half of the total land area and nearly 60% of the agricultural area is arable. Crops, including cereals, oilseeds, fresh fruit and vegetables, and plants and flowers, account for about 57% of overall agricultural production. The remainder are livestock products, including dairy, beef and veal, pig meat, sheep meat, poultry and eggs.

Table 10.2. European Union: Contextual indicators
| European Union | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 7 849 | 20 256 | 28.4% | 23.8%
Population (million) | 371 | 510 | 13.0% | 14.9%
Land area (thousand km2) | 3 320 | 4 413 | 4.5% | 5.8%
Agricultural area (AA) (thousand ha) | 142 078 | 185 509 | 5.3% | 6.9%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 112 | 115 | 38 | 45
GDP per capita (USD in PPPs) | 21 058 | 39 615 | 9 650 | 24 866
Trade as % of GDP | 8 | 12 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 2.2 | 1.3 | 3.0 | 3.1
Agriculture share in employment (%) | 5.1 | 4.3 | - | -
Agro-food exports (% of total exports) | 7.6 | 7.3 | 7.7 | 7.3
Agro-food imports (% of total imports) | 9.1 | 6.6 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) | 53  | 57  | - | -
Livestock in total agricultural production (%) | 47  | 43  | - | -
Share of arable land in AA (%) | 53 | 58 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933758946

After having dipped into recession in 2009 and 2012, GDP growth in the area recovered in 2013. Unemployment is down to less than 9% from its record high of 11% in 2013, but with persisting large differences across Member States. Inflation has been relatively low reaching about 1.7% in 2017. The European Union is the world’s largest importer of agro-food products and, since 2013, also the largest exporter. Since that year, the European Union has been a net agro-food exporter. In 2016, agro-food products accounted for 7.3 % of all EU exports and 6.6% of all EU imports. Most of the region’s agro-food exports (61%) consisted of processed goods for final consumption, while only 16% were primary products for further processing. Agro-food imports include primary and processed goods for consumption and industry in almost equal proportions.

Figure 10.4. European Union: Main economic indicators, 1995 to 2017

Note: EU28.

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933756362

Figure 10.5. European Union: Agro-food trade

Note: Numbers may not add up to 100 due to rounding. Extra-EU trade. EU15 for 1995-2003; EU25 for 2004-06; EU27 for 2007-13 and EU28 from 2014

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933756381

Over the 2005-14 period, the annual agricultural output growth of the European Union averaged 0.4%, well below the world’s average of 2.4%. Total Factor Productivity (TFP) grew by 1.9% per year on average, to some extent driven by the reduction of intermediate inputs and primary factors. The slower output growth is a net effect of the TFP growth and reduction of production factors. The sector is using less nutrients and water than in the 1990s. Agriculture accounts for 2.6% of total energy use, slightly more than in the 1990s, and above the OECD average of 1.9%. The share of GHG emissions has increased by one percentage point and was equal to 10% in 2016, 1.5 percentage point above the OECD average.

Figure 10.6. European Union: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery. EU28.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933756400

Table 10.3. European Union: Productivity and environmental indicators
| European Union | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 1.12% | 1.93% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | 74 | 50 | 33 | 30
Phosphorus balance, kg/ha | 9.1 | 1.4 | 3.7 | 2.4
Agriculture share of total energy use (%) | 2.3 | 2.6 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 9 | 10 | 8.5 | 8.5
Share of irrigated land in AA (%) | .. | .. | - | -
Share of agriculture in water abstractions (%) | 34 | 23 | 45 | 43
Water stress indicator | .. | .. | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759402

Description of policy developments

Main policy instruments

The Common Agricultural Policy (CAP) is the main agricultural policy framework of the European Union. Outside the CAP framework, Member States may implement measures funded from national budgets that target specific sectors, including agriculture, or objectives, as long as they comply with the European Union’s state aid rules and do not distort competition within the common market (Box 10.1).

The CAP typically covers a seven-year period, currently 2014-20. It is composed of two pillars. The European Agricultural Guarantee Fund (EAGF) funds Pillar 1. Measures under Pillar 2 are based on Rural Development Programmes (RDP) co-financed by the European Agricultural Fund for Rural Development (EAFRD) and EU Member States. Member State RDPs are deployed over the seven year CAP programming period. The CAP 2014-20, while in many ways the continuation of the CAP 2007-13, offers a number of novel features (OECD, 2017).

Box 10.1. State aid in the EU agricultural and forestry sectors and in rural areas

State aid and its conditions apply in all sectors and are not specific to agriculture. Article 107 of the Treaty on the Functioning of the European Union (TFEU), defines state aid as “any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods […], in so far as it affects trade between Member States”.

Although state aid is, in principle, prohibited, State aid can be authorised by the European Commission (EC) if it is found to be compatible with the internal market. All measures financed exclusively from national budgets are subject to state aid control.

Rules for state aid in the agricultural sector follow the general principles of competition policy, they are consistent with the common agricultural and rural development policies and take into account the EU’s international commitments. State aid rules apply to agricultural products. Market measures, direct payments and rural development measures in the CAP are exempted from state aid control.

All state aid cases that have been the object of a Commission decision since 1 January 2000 are available in the Commission’s competition case database, including information on block exemption cases registered by the Commission.

Sources: EC competition case database:http://ec.europa.eu/competition/elojade/isef/index.cfm?clear=1&policy_area_id=3;

Statistics on state aid expenditures in the EU agricultural and forestry sectors and in rural areas: http://ec.europa.eu/eurostat/tgm_comp/table.do?tab=table&init=1&plugin=1&language=en&pcode=comp_ag_01;

General information on EU state aid: http://ec.europa.eu/competition/state_aid/scoreboard/index_en.html; Further information on state aid policy in agriculture, forestry and in rural areas: https://ec.europa.eu/agriculture/stateaid_en.

The implementation of the CAP 2014-20 was progressive, starting in 2014 and completed in 2016 with the implementation of the 118 national Rural Development Programmes (RDP) under Pillar 2 by EU Member States.

The overall budget for the CAP over the 2014-20 period is set to EUR 408 billion (USD 453 billion); of which initially 76% were allocated to Pillar 1, covering market related expenditure and direct payments, and the remaining 24% to Pillar 2. The new CAP allows Member States to transfer up to 15% of each envelope² between the two pillars. Initially, 11 Member States transferred funds from Pillar 1 to Pillar 2, while 5 Member States chose to transfer funds from Pillar 2 to Pillar 1, with a net result of EUR 500 million per year of transfers from Pillar 1 to Pillar 2. The distribution between Pillars was re-examined in 2017. As a result, two Member States have increased their transfers from Pillar 1 to Pillar 2 and one Member State introduced it for the first time.³

Pillar 1 defines and funds market measures under the common market organisation, as well as direct payments, mostly per hectare payments that do not require production. To this purpose, entitlements to direct payments were assessed and allocated for the entire period of the CAP 2014-20 to those deemed to be active farmers. In 2017, the distinction between active farmers and non-active farmers became optional.

The Basic Payment Scheme (BPS) and the Single Area Payment Scheme (SAPS) — its equivalent that offers a uniform per hectare payment rate in all but three Member States which joined the European Union after 2000⁴ — make up about half of the EU direct payments envelope on average in 2017 (Table 10.4). Wide variations across Member States are observed that reflect Member States’ spending choices on optional measures under Pillar 1 (Figure 10.7). Both the BPS and the SAPS are conditional to cross-compliance requirements, although exceptions apply. Additional conditions are attached to the per-hectare Greening payment that accounts for 29% of pillar 1 direct payments budget (Table 10.4). As of 2017, farmers who participate in the voluntary greening scheme, but do not comply with all the requirements may be subject to additional sanctions up to 20% of SAPS or BPS.

Table 10.4. Direct payments budget under Pillar 1, 2017
| 2017 appropriations (EUR million) | Share in direct payments | Share in decoupled direct payments
Direct payments; of which: | 39 662 |  |
Decoupled direct payments; of which: | 33 192 | 78% |
Basic Payment Scheme (BPS) | 15 296 | 39% | 46%
Single Area Payment Scheme (SAPS) | 4 101 | 10% | 12%
Greening | 11 696 | 29% | 35%
Note: Other decoupled payments represent about 6% of direct payments under Pillar 1.
Source: OECD calculations based on EUR-Lex budget 2018.
StatLink  http://dx.doi.org/10.1787/888933758262

In the ten Member States that apply the SAPS, commodity-specific payments funded from national budgets may be added to the SAPS to accompany transition from market measures within limited envelopes. The transitional national aid (TNA) is paid from national funds to specific commodities. TNA payments can be disbursed as decoupled payments while a fixed share may be spent on current production. They may apply on a per area basis to arable land, hop and starch potatoes, on a volume basis to milk and on a headage basis to other livestock. Member States may review TNA budgets and supported commodities on an annual basis. The maximum TNA payments allowed falls gradually from 75% of the 2013-level of SAPS aid in 2015 to 50% in 2020.

As the CAP 2014-20 unfolds, the gap in per-hectare payment rates of the BPS and the SAPS is to be narrowed between countries (external convergence) and between regions within countries (internal convergence). Internal convergence only applies to the BPS as, under the SAPS, a uniform payment rate at national level already applies to each hectare.

In the CAP 2014-20, part of the direct payments envelope is allocated to commodity specific payments at the EU level within defined ceilings. The new voluntary coupled support (VCS) expands the previous coupled support scheme under Article 68 and offers Member States the choice to allocate a larger envelope to more sectors or regions and under a wider set of specific conditions. Such support may be granted to the extent necessary to create an incentive to maintain current levels of production in the sectors or regions concerned. Choices of Member States on the take-up of the VCS are very variable, both considering the level of support and commodities supported (Figure 10.7). All Member States, except Germany, have chosen to offer VCS, using 10% of EU direct payments budget on average. This compares to 3% that was spent previously under Article 68 coupled support as reported in European Union’s general budgets.

Figure 10.7. The Basic Payment Scheme, the Single Area Payment Scheme and the Voluntary Coupled Support as a share of direct payments (Pillar 1), 2017

Note: BPS: Basic Payment Scheme (BPS); SAPS: Single Area Payment Scheme; VCS: Voluntary Coupled Support.

Source: European Commission, budget.

StatLink  http://dx.doi.org/10.1787/888933756419

A top-up payment to young farmers, in addition to the BPS and SAPS, applies in all Member States. In 2017, the payment uses 1.1% of the European Union’s direct payments envelope, as reported in the general budget. Member States have chosen to implement this measure in different ways. Some offer recipients a flat payment rate on a limited number of hectares and others apply a payment proportional to the BPS or SAPS received. In addition to this compulsory scheme, 25 Member States have chosen to attribute a portion of their rural development expenditure, 4% on average, to support young farmers. The bulk of the latter goes to business development and investments.

Fifteen Member States have chosen to offer small farms a simplified payment setup – the small farmers scheme - that waives the compliance to greening and cross-compliance requirements. The payment cannot exceed EUR 1 250 (USD 1 382) per farm and, depending on the method chosen by the member state, the overall envelope may be limited to 10% of national direct payments.

The Areas with Natural Constraints (ANC) measure of the RDP is implemented by all Member States, except Denmark, Estonia and the Netherlands, using 27% of Pillar 2 public expenditure funds (including Member States contributions from national budgets) in 2017. Until now, Member States have used up to 140 different criteria for assessing ANC status. These will be replaced by a common set of eight biophysical criteria. Initially scheduled for 2018, the deadline for reassessment of eligible areas by Member States was pushed back to 2019. Denmark implements an additional direct payment to ANC from Pillar 1 funds. Under this payment, the ANC are defined based on eight biophysical criteria, using 0.3% of its national direct payments envelope.

Nine Member States or regions have chosen to grant higher payments to the first hectares, under the so-called redistributive payment, using 4.1% of the European Union’s direct payments envelope as reported in European Union’s general budget.

Member States that implement the redistributive payment may choose to opt-out from so-called degressivity. Degressivity imposes a minimum 5% reduction to the BPS amounts above EUR 150 000 (USD 165 880) per recipient. Six Member States and regions have chosen to opt-out.⁵5 Nine Member States have used the possibility to increase the amount that is exempt from the 5% reduction by the value of salaries paid. Nine Member States have chosen to apply a full cap on the BPS at levels varying from EUR 150 000 (USD 165 880) to EUR 600 000 (USD 663 510). Funds that are deducted as a result of degressivity are transferred to Pillar 2 and used to fund the member state’s RDPs.

A Crisis reserve is earmarked to be used in case of emergency situations. It is funded from the Pillar 1 direct payments budget. If it is not used in the current year, the envelope is reverted for distribution as Pillar 1 direct payments in the same year. The crisis reserve is renewed each year and has not been used up to now as an emergency fund.

The POSEI scheme (Programmes dʼOptions Spécifiques à lʼEloignement et à lʼInsularité) supports farming in the European Union’s outermost regions by using production-related payments. The scheme supports access to food, feed and inputs for local communities, and also the development of local agricultural production with a little more than 1% of the direct payments envelope in 2017.

Pillar 1 also funds Market Price Support measures, with 5.2% of the overall agriculture and rural development budget in 2017. While the possibility exists for public intervention for cereals, namely common and durum wheat, barley and maize, it has not been applied in recent years. Purchase at the cereal intervention price is limited to 3 million tonnes of common wheat, beyond which purchase is by tender. Public intervention for durum wheat, barley and maize can be opened under special circumstances by means of tendering. Public intervention also applies to paddy rice. Until 30 September 2017, sugar has been supported through production quotas. The minimum price for quota beet has been set to EUR 26.29 (USD 29.07) per tonne. After the end of the sugar quota regime, existing provisions for agreements between sugar factories and growers have been maintained, and white sugar remained eligible for private storage aid. The support regime for cereals and sugar also comprises trade protection through tariffs, tariff rate quotas (TRQs). Export subsidies were abolished following the 2015 WTO Ministerial conference in Nairobi. No export refunds have been granted since July 2013.

Fruits and vegetables are eligible for voluntary coupled support and commodity specific payments; they are also supported through various market measures. These include crisis intervention measures that may be managed by producer organisations, an entry price system (minimum import price) for some products, ad valorem duties, but no export subsidies. Support co-financed by Member States also applies to the fruit and vegetables sector as well as the olive oil and table olives sector. These support a wide range of actions from production planning, quality measures, market withdrawal and harvest insurance to training, promotion and communication. Some of these measures apply at farm level while others are provided to producer organisations or to the sector at large. Also directed to the fruit and vegetables sector, until mid-2017, a consumer support system targeted to school children covered the consumption of fresh fruits and vegetables, processed fruits and vegetables, and banana products. The scheme’s budget has grown rapidly from EUR 29 million (USD 32 million) when it was first implemented in 2010 to the EUR 150 million (USD 166 million) in 2016; in 2017 EUR 10 million (USD 11.2 million) was destined to that scheme. The scheme covered the supply and costs related to logistics and distribution. Member States contributed 25% from national budgets while this share was lowered to 10% in less developed and outermost regions. Private storage may also be activated as an optional scheme for olive oil and flax fibre. In the CAP 2014-20 the rules on recognition of producer organisations and inter-branch organisations are expanded beyond fruits and vegetables. Compensation may be greater when producers claim support via producer groups as was the case with compensation payments related to the Russian Federation’s embargo on imports.

In the dairy sector, intervention prices are used for butter and skimmed milk powder together with import protection. Intervention purchase cannot exceed 50 000 tonnes for butter, and 109 000 tonnes for skimmed milk powder (SMP). Above those limits, purchase is made by tender. Until mid-2017, the consumption of milk and milk products by school children was supported through the school milk scheme with an overall budget of EUR 75 million (USD 83 million) in 2017. The support rate was set to EUR 18.15 per 100 kg (USD 20.07) and limited to 0.25 litre of milk per child and per school day. Member States could top-up the school milk payment with national subsidies.

In August 2017, a single school scheme was introduced to eventually replace the milk and fruit and vegetables school programmes with a budget of EUR 188 million (USD 211 million) foreseen for 2018. The programme is initiated and financed by the European Union and may be co-financed by Member States.

The beef market is supported by floor prices, tariffs and TRQs. Support for pig meat is provided by import protection. For sheep meat, the market support regime comprises tariffs and TRQs, with most country-specific TRQs subject to a zero customs duty. For poultry and eggs, there are TRQs. Since the WTO Ministerial conference in Nairobi in December 2015, the European Union is committed not to resort to export subsidies. Private storage may be activated as an optional scheme for butter, SMP, certain cheeses, beef, pig meat, sheep meat and goat meat. Furthermore, specific provisions are made for milk and milk products.

The wine sector is supported through a system of authorisations for new vine planting. Since January 2016, new vine planting is authorised while limited to 1% of the planted vine areas per year. Authorisations would be automatically granted to producers to replace grubbing of an existing vine area. Member States have up to 31 December 2020 to transition to the new system. The sector is also supported through promotion measures, both in the European Union and in third countries, restructuring and conversion of vineyards, compensation for green harvesting, setting up mutual funds, investment in tangible and intangible capital, income insurance, development of new products, processes and technologies, and distillation of by-products.

As a result of these measures, prices paid to domestic producers were 5% above world market prices in 2015-17, and the support they generated (Market Price Support) represented 20% of the estimated support to agricultural producers.

Pillar 2 funds are implemented through national (or regional) Rural Development Programmes (RDP). RDPs also support projects that use the “LEADER approach” (Liaison Entre Actions de Développement de l’Économie Rurale) — i.e. relying on a multi-sectoral approach and local partnerships to address specific local problems; and technical assistance for the implementation of Pillar 2 measures. Rural Development is part of the EU-level Common Strategic Framework covering all support from European Structural and Investment (ESI) funds (the EAFRD, ERDF, Cohesion Fund, ESF and EMFF) in Member States through partnership agreements.

Member States participate in the funding of Pillar 2 payments (also called co-financing) in accordance with the RDPs that cover the entire duration of the CAP cycle. In their plans, Member States can choose from a menu of 19 measures to meet the six priority areas of Pillar 2. Two conditions apply: a minimum 30% of rural development funding from the EU budget is spent on measures related to the environment and climate change adaptation, including forestry and investments in physical assets; and another 5% is spent on the LEADER approach. The six priority areas of Pillar 2 of the CAP 2014 20 are as follows: 1) fostering knowledge transfer and innovation; 2) enhancing competitiveness of all types of agriculture and the sustainable management of forests; 3) promoting food chain organisation, including processing and marketing, and risk management; 4) restoring, preserving and enhancing ecosystems; 5) promoting resource efficiency and the transition to a low-carbon economy; and 6) promoting social inclusion, poverty reduction and economic development in rural areas (Table 10.5).

On average and at EU28 level, the greatest share of the new RDP budget is allocated to three measures: Investments, Agri-environment and Climate and Areas with Natural Constraints. While Member States’ choices may vary, Investment is part of the top three measures in all but two Member States (Austria and Sweden).

Table 10.5. Rural Development funding of Priorities as a share of total expenditure (estimated 2017)
| Share of measure in CAP total public expenditure (calculated as the sum of EU and national co-funding excluding top-ups)
Administrative expenditure | 0.2%
Interventions in agricultural markets CMO | 4.6%
Direct Payments | 66.6%
Rural Development EU funding | 17.5%
Rural Development national funding | 10.5%
Rural Development total public expenditure, of which: | 28.0%
Priority 1: knowledge | allocated through other priorities
Priority 2: competitiveness | 5.0%
Priority 3: food chain organisations | 2.0%
Priority 4: ecosystems | 16.6%
Priority 5: resource efficiency | 1.3%
Priority 6: social inclusion | 2.5%
Research and innovation - Horizon 2020 | 0.2%
CAP EU budget | 89.5%
CAP total public expenditure (including national co-financing) | 100.0%

Source: OECD calculations based on EUR-Lex budget 2018 (administrative expenditures and all Pillar 1 items) and EAFRD financial execution (Rural Development and allocation to priorities). CAP EU budget corresponds to the sum of administrative expenditures, Pillar 1 and EU-funded Rural Development. CAP total expenditure comprises CAP EU budget and nationally co-financed Rural Development.

StatLink  http://dx.doi.org/10.1787/888933758281

The launch of the European Innovation Partnership for Agricultural productivity and Sustainability (EIP-AGRI) in 2012 was followed by integrating the Horizon 2020 programmes specific to research and innovation in agriculture into the CAP 2014-20. The focus of the Horizon 2020 programmes relevant to agriculture is on securing sufficient supplies of safe and high quality food and other bio-based products. Its budget under the agriculture and rural development title has increased since it was initiated in 2013 from EUR 1 million (USD 1.11 million) to EUR 108 million (USD 121 million) in 2017.

Box 10.2. Measures addressing climate change mitigation and adaptation

The European Union and its Member States are committed to a binding target of at least 40% reduction in greenhouse gas emissions by 2030 compared to 1990, to be fulfilled jointly, as set out in the conclusions by the European Council of October 2014. The target represents an economy-wide absolute reduction from base year emissions. The European Union has already started to prepare for the implementation of Paris Agreement commitments from 2021 onwards. Currently, the internal legislation governing the reporting and accounting of emissions and removals in the agriculture and land use, land-use change and forestry (LULUCF) sector has been agreed politically and should be adopted in spring 2018.

Agricultural sector specific measures consist of CAP elements that aim at improving environmental performance: cross-compliance and greening under Pillar 1, and agri-environmental and climatic measures under Pillar 2.

Aside the EU-wide measures, Member States have been developing their national policies to tackle climate change using a variety of means, some of which are targeted to the agricultural sector. National climate protection plans have been developed and national targets for emissions have been set.

Sector specific policy instruments are identified in consultation with stakeholders to respond to extreme climatic events such as droughts, extreme precipitations (rain and hail) and floods (Belgium, the Netherlands). Climate risk related insurance funds are created (Belgium, the Netherlands). Research and advisory services offer farmers information and training on climate change adaptation (Austria, Belgium, Estonia, France, Germany, the Netherlands, and Sweden) and climate change mitigation (Ireland). The implementation of new species and varieties is promoted (Belgium, Estonia), multi-trait animal breeding strategies (Ireland) and close monitoring and control of pests, plant and animal diseases are implemented (Estonia).

Mitigation measures include sustainable management of land, water and other natural resources (Austria, Estonia, France, Germany, Greece, Hungary, Ireland, Portugal, the Netherlands, and Sweden). Support is provided to technologies reducing emissions of greenhouse gases and ammonia coming from handling and storage of manure (Germany, France, Hungary, Ireland, and Sweden). Links between agriculture and forestry sectors are reinforced to increase carbon sequestration (France, Germany, Ireland, and Portugal).

Domestic policy developments in 2017-18⁶

Between 2016 and 2017 the EU budget on agriculture and rural development (title 05) decreased by about 7% to EUR 53 billion (USD 60 billion), of which about 5% was disbursed as market intervention measures, 74% as direct payments under Pillar 1 and 20% as rural development measures under Pillar 2.7 The main policy developments in the past years are linked to the full implementation of the CAP 2014-2020, including the CAP simplification - Omnibus regulation.

The Omnibus regulation (EU Regulation 2017/2393), endorsed on 16 October 2017, amends the financial regulation governing the implementation of the EU budget and 15 sectorial legislative acts, including agriculture. The agreement is aimed at simplifying the CAP through a number of changes to the four CAP regulations on direct payments, rural development, common market organisation and horizontal regulation (Box 10.3).

Box 10.3. Omnibus regulation: changes to the CAP regulations.

The regulation governing direct payments was amended with a new definition of the term active farmer, where the distinction between active and non-active farmers becomes optional, allowing those Member States where it created excessive administrative burden to discontinue it. Current rules on permanent grassland have been modified to provide greater flexibility in implementing the requirement. Greening payments have been amended to include also areas farmed with plant varieties such as silvergrass (miscanthus) and silphion (silphium perfoliotum), as well as land left fallow for melliferous plants as ecological focus areas. Payments for young farmers are to be granted for five years from the submission date, as long as the submission is made within five years from the setting up of the farm and, in addition, Member States may increase young farmers’ payments in the first pillar up to 50% within the existing ceilings. Finally, Member States are able to review their decision on voluntary coupled support on annual basis.

Common market organisation rules have been revised to extend the possibility to collectively negotiate value sharing terms in contracts to sectors other than sugar and will have a voluntary nature (value sharing). Some of the producer organisations prerogatives such as planning production, optimising production costs, placing on the market and negotiating contracts for the supply of agricultural products on behalf of members, already existing in sectors such as olive oil, beef and arable crops, will be extended to all sectors with a view to improving the position of farmers in the supply chain. In light of such extension, additional safeguard mechanisms were added to guarantee that competition is not excluded. Rules governing fruit and vegetables’ operational programmes, wine and import quotas have been simplified and technically improved.

Rural development’s income stabilisation tool was amended to include new sector-specific measure that allows triggering support if average annual income in the sector drops by more than 20%. Further, support for insurance contracts becomes available when more than 20% of the average annual production of the farmer is destroyed. Rules governing financial instruments have been revised to promote their use and harmonise them with other EU Structural and Investment Funds.

Horizontal regulation has been amended to increase financial discipline by simplifying existing procedure ensuring that CAP expenditures do not exceed the limits specified in the EU budget. The procedure is now managed by the European Commission alone. The Commission is also called to review the operation of the crisis reserve in the context of the preparations for the next multiannual financial framework to ensure efficient and timely interventions in times of market crisis.

As part of the implementation of the CAP 2014-20, the Transitional National Assistance (TNA) applies as a complementary payment to the SAPS and the maximum payments allowed gradually falls from 75% of the 2013-level of SAPS aid in 2015 to 50% in 2020. For example, in the Czech Republic the TNA payment rates were further reduced in 2017 compared to 2016 and mostly provided in the form of area or livestock unit payments for arable land and cattle. In the Slovak Republic TNA payments in 2017 were only provided for cattle. Estonia re-introduced TNA as of 2017. The total envelope of EUR 19.3 million (USD 21.7 million) was attributed to seven schemes including arable crops, seeds, suckler cows, ewes, milk and cattle. In 2018, the envelope will decrease to EUR 18.4 million (USD 20.7 million). In Poland, the soft fruit scheme was replaced by the strawberry scheme and the sugar beet scheme has been applied to the whole area of sugar beet cultivation covered by the contract.

Estonia has also revised its Voluntary Coupled Support (VCS) scheme and in 2017-20 only two measures will be implemented: support for dairy cows and fruit and vegetables with the total budget of EUR 6.1 million (USD 6.9 million) per year. In Hungary, in 2017 the VCS was extended to potatoes and payments to fruits and vegetables were diversified for those produced extensively or intensively, on top of existing VCS paid to suckler cows, milking cows, male bovine animals, sheep, rice, sugar beet, field vegetables and vegetables for processing, fruits, protein fodder, soybean and other protein crops. Lithuania introduced VCS for sugar and certified seeds. In Poland, payments to protein crops were replaced by payments to leguminous crops for production of grain and to fodder crops. Poland also provided support to cattle and cows up to 20 animals which meet eligibility criteria and to female sheep which also meet specific eligibility criteria.

A number of exceptional measures continued, deployed since August 2014 to address the effects of an import ban imposed on EU dairy and fruit and vegetables by the Russian Federation and those of coinciding “severe market disturbance” as qualified by the European Commission.

A voluntary supply management scheme to reduce milk production was attributed EUR 150 million (USD 166 million) in the 2017 budget year. All Member States, except Greece, took part in the scheme that offered EUR 0.14 (USD 0.15) for every kilogramme of reduced production. Each Member State could decide to top up that amount with EU funds distributed as national envelopes for extra support to the dairy sector. Member States were authorised to increase state aid to a maximum of EUR 15 000 (USD 16 590) per farmer per year, with no national ceiling (Box 2.11.1).

The two broader EU packages for the dairy and livestock sectors were attributed EUR 350 million (USD 387 million) in 2017, of which EUR 250 million (USD 276 million) in 2017 were paid to dairy producers. The packages support dairy and livestock producers to implement measures such as small scale farming, extensive production, environmental and climate friendly production, co-operation between farmers, improvement of quality and added value, training in financial instruments and risk management tools. In addition, Member States can match these amounts with national funds. Further to these, adjustments are proposed to the payment of the Voluntary Coupled Support to dairy cow herd owners, as a lump sum rather than per head of animal (EC, 2016).

In addition to European funds, many Member States continued implementing compensatory measures. In Belgium (Wallonia), EUR 6.5 million was allocated to pasture and in Belgium (Flanders), EUR 9.8 million were attributed to area payments, quality schemes for dairy and pig, and innovation. Estonia doubled EU funds allocated to the exceptional adjustment aid to milk producers (total of EUR 12.5 million or USD 14 million ) and pig farmers (total of EUR 3.4 million or USD 3.8 million) in 2017. In France, a fixed payment of EUR 150 (USD 168) per head applied to young male bovine animals of meat or mixed breeds weighing less than 360 kg, sold on the market in January and February 2017. Lithuania provided national aid to reduce milk production and to promote cooperation. Luxembourg offered interest subsidies to milk and pig producers, starting from March 2017, and doubled EU funding attributed to farmers who take up extensification. In Poland, additional financial support of EUR 22.5 million (USD 25.3 million) was provided to milk producers and farmers in other livestock sectors. In Slovenia EU funds of EUR 1.15 million (USD 1.3 million) were doubled with national expenditure to support dairy farmers who did not increase production in the first three months of 2017 compared to the same period in 2016.

Exceptional measures were also maintained for the fruits and vegetables sectors. They included withdrawals for free distribution and other purposes such as animal feed, composting or distillation. Other measures, such as “non-harvesting” and “green harvesting”, were also implemented. In Poland, support was extended until April 2018 including withdrawal of fruit and vegetables for free distribution or for use as feedstuffs and production of biogas. Apples accounted for about 90% of the total volume withdrawn. In 2017, Slovenia compensated producers for withdrawal for free delivery of 3 000 tonnes of fruit and vegetables. In January 2018, Italy approved an emergency aid programme for citrus. The EUR 10 million (USD 11.2 million) scheme includes the withdrawal of 4 500 tonnes of oranges from the market, of which 500 tonnes were immediately removed from the market, while the reminder was purchased by the government for distribution under feeding programmes.

Measures to compensate farmers affected by animal diseases in the poultry sector in France continued. In October 2017, a fund of EUR 20 million (USD 22.5 million) was secured to compensate farmers for their losses incurred in 2016 due to the Avian flu and negotiations with the European Commission of a similar fund for losses incurred in 2017 are on-going. France has also provided support to downstream industry and reinforced its protection strategy against Avian influenza by setting new biosecurity requirements in systematic screening of breeding farms, management of vehicle traffic within farms and conditions for protecting farm-bird feed from wild birds. In Latvia, poultry farmers affected by salmonellosis received compensation funds. In Estonia, compensation was paid to those pig farm owners whose herds were culled and feed and equipment were destroyed due to African swine fever (ASF; EUR 0.57 million or USD 0.64 million in 2017). In Latvia, pig producers affected by the ASF were compensated for taking up biosecurity measures and eliminating pigs from 1 December 2015 until 31 July 2017. Lithuania continued to address the ASF by information campaigns and biosafety measures. In Poland, compensation was paid to pig farmers whose herds were affected by the ASF and where animals were culled, and feed and equipment were destroyed. Additional aid was granted to small pig farms (below 50 pigs) that were ordered to suspend pork production due to increased sanitary restrictions to combat the spread of AFS. In Slovenia, payments were made in 2016 and 2017 to support breeders of cattle affected by anthrax in 2015.

In August 2017, Belgium has identified an unauthorised pesticide use (fipronil) in some of the egg farms. As a result, contaminated eggs were destroyed and some of the farms suspended their activity. To compensate farmers for the associated income losses, federal and regional (Wallonia) governments have provided support. Additionally, Flanders and Wallonia provided support to compensate for costs of destruction of manure coming from the contaminated farms.

In April 2017, Estonia adopted a new action plan for reducing resistance to antibiotics in the veterinary field for 2017-2021. The plan includes three fields: drugs and medicated feed for veterinary use; awareness of the use of antibiotics (training, advisory, extension); monitoring of antimicrobial resistance, scientific and applied research.

Some Member States developed sectoral plans. In April 2017, Estonia approved the 2018-2020 food sector export development plan aimed at increasing the share of value added products in Estonian exports, with five main fields of intervention: strengthening the market power, improving the availability of market information, supporting R&D activities, developing the image of Estonia and Estonian food abroad, supporting sales related support activities. In Italy, a law was implemented to regulate the wine sector by simplification of marketing, designation of origin, geographical indication, labelling and presentation, management, controls and sanction systems. Italy has also introduced measures aimed at promoting the supply chains for hemps and established a new regulation aimed at restoring, recovering and safeguarding the typical citrus plantations with a budget of EUR 3 million (USD 3.4 million) for 2017. In Romania, beginning in 2017, EUR 40 million (USD 44 million) are allocated annually, for a period of eight years, to support the tomato sector. Measures concerning the wine sector are underway. In 2017, Spain has been preparing the Global Strategic Plan for the agro-food sector horizon 2030, which is to be released in 2018.

Organic farming increased in 2017 in many Member States. For example, in Austria, the new entries into the national organic farming programme, part of the larger Agri-environmental Programme (ÖPUL), increased the number of organic farms to more than 22 000 in 2017. The overall programme attracted more than 80% of farmers in 2017 who in addition to the legal requirements admitted to an environmentally friendly management of their agricultural land. Organic farming was also very attractive in Bulgaria, where subsidies authorized in June 2017 totalled EUR 49.8 million (USD 56 million). In early 2018, the Ministry of Agriculture and Foods reported faster-than-anticipated subsidy usage, which prompted the ministry to restrict new organic subsidy applications in 2018. As a result of the implementation of the Organic Farming Development Plan 2014–2020 in Estonia, in 2017, the area of organic land increased to approximately 209 000 hectares, with 1 888 organic farms registered. In France, 3 000 farms have been converted to organic farming during 2017.

In Spain, the investments in irrigation continue via the new National Irrigation Strategy 2018-2025.

In Greece, a new legislative framework was adopted regarding handling and marketing of fresh and perishable agricultural products. The law imposes also mandatory origin labelling of milk and meat at retail outlets. France has also introduced labelling of origin of milk and meat in processed food from January 2017 for duration of two years as an experimental programme.

Some Member States have set up disaster compensation schemes related to climatic events. In Austria, EUR 23.3 million (USD 26.2 million) will be paid to compensate the effects of frost damage to wine growers. Italy has introduced measures for relaunching agriculture and the supply-chains of the areas affected by the 2016 earthquake in the centre of Italy, including a EUR 11 million (USD 12.4 million) compensation fund for breeding farms. In Slovenia, temporary support of EUR 3.5 million (USD 3.9 million) was provided to fruit and grape producers to compensate for the loss of revenue due to severe spring frost in 2016 and additional support is set to be provided in 2018 to compensate for effects of another severe frost that occurred in spring 2017. Temporary support was also granted to beekeepers to compensate the loss due to unfavourable weather conditions.

As part of risk management tools, Austria introduced drought index insurance for corn, winter wheat and grassland in 2017. The Austrian agricultural insurance system is a public-private partnership, where federal and state governments provide premium subsidies of 50% for insurances covering certain risks. In Estonia, the process to include risk management measures (crop, animal and plant insurance) into RDP was launched, to replace the current national scheme. In France, from 2018, subsidy rates for crop insurance apply independently of the number of subscriptions. Three risk layers are foreseen, with subsidy rates at 65%, 45% and zero subsidy. In Hungary, insurance premiums for loans are no longer subsidised by national programmes, but within the EU RDP risk management programme. The co-financing from the national budget was close to the amount paid in 2016 (EUR 5 million or USD 5.6 million). With the financing from the European Union, the insurance premium subsidy amounted to EUR 21 million (USD 23.6 million) in 2017 and is expected to be further extended in the coming years. In Slovenia, the rates of the insurance premium subsidy were changed for some commodities. The subsidy rate for fruits (including olives) was increased to 40% in 2017 (up from 30% in 2016) and to 50% in 2018; the rate for hops and grapes was increased to 30% in 2017 (up from 20% in 2016) and up to 50% in 2018. Further, the insurance subsidy rates for other crops were increased to 40% in 2018 (up from 20% in 2017), whereas the subsidy rates in livestock remained the same (20%). In Portugal, the continental rural development programme was extended to create a new risk management measure on mutual funds.

Slovenia has increased the support for young farmers for investments to eliminate the effects of drought, frost and climate change.

Several Member States, including Estonia, Poland and Slovenia, engaged in a new EU co-financed programme in the support of apiculture for the period 2017-19. This programme extends the measures already implemented in the 2014-2016 apiculture programme, and focuses primarily on: technical assistance to beekeepers and beekeepers’ organisations; combating beehive invaders and diseases, particularly varroosis; and support for the analysis of apiculture products to increase marketing and the value added of apiculture products. In 2017, France introduced new advisory services measures under its Development Plan for Sustainable Apiculture implemented in 2016.

The European Union renewed the current approval of herbicide glyphosate in December 2017 for a five-year period. The authorisation of glyphosate-based products by Member States must fulfil a long list of conditions to minimise the potential effects on environment and human health. In Denmark a new nitrates regulation replaced the existing system of reduced fertilisation standards in 2018.

Several countries developed strategies to combat food waste. France has signed an agreement on food waste covering 2017 to 2020, with the objective of halving food waste by 2025. Public and private partners agreed on priority actions including favouring the management of unsold food and food donations, strengthening innovation and partnerships between actors, deploying new communication tools and quantifying waste. Portugal elaborated the National Strategy to Combat Food Waste (ENCDA) and an Action Plan to Combat Food waste (PACDA).

Tax and social security rebates apply to farming in some Member States. In Hungary, VAT was reduced from 27% to 5% for pork in 2016 and, in 2017, for fresh milk, poultry and eggs. In January 2018, the 5% VAT was also applied to pork edible offal. Further, since 1 January 2017, the corporate tax formerly having two rates (19% and 10%) was unified and set at 9%. Since January 2018, initial investments resulting in product diversification and in new procedural innovations, including in agriculture, have also been included among investments eligible for tax advantage for developments. In Italy, the Stability Law 2017 envisages the exemption from the income tax paid by farmers on the cadastral values related to land for the period 2017-2019 and three-year exemption of social security contributions for farmers and professional agricultural entrepreneurs, aged less than 40, including those who have companies located on mountainous or disadvantaged land, and who enrolled for the first time in the agricultural social security in the period between 1 January and 31 December 2017. The Stability Law 2017 has re-introduced tax breaks related to the transfer of ownership between agricultural producers and their family members in mountainous areas. The goal of this measure is to ensure continuation of farming activities in these areas. Additionally, a tax credit of 65% is granted for farms that undertake modernisation of their agricultural holdings in 2017 and 2018.

The fuel tax concession has significantly increased in Czech Republic from EUR 45 million (USD 50.6 million) in 2016 to EUR 87 million (USD 97.8 million) in 2017 due to the extension of the right of the fuel tax relief to fuel used in livestock production.

Latvia has introduced support to producer organisations in the fruits and vegetables sectors. Slovenia has abolished support for information and promotion activities carried out by producer groups in the internal market.

Under the sub-measure “support for new participation in quality schemes”, Slovenia introduced a new quality scheme for fruit and processed fruit products.

In addition to the CAP simplification within the Omnibus regulation mentioned above, several Institutional changes occurred in 2017. In France, the Parliament voted measures to protect land and limit land accumulation with an objective of maintaining diversified agricultural sector as much by the size of the farms as the modes of production, while allowing the renewal of the generations. In Hungary, the Agricultural and Rural Development Agency (ARDA), which functioned as the paying agency of agricultural support, was terminated on 1 January 2017. The paying agency activities were transferred to the Hungarian State Treasury. Tasks related to the EARDF were transferred to the minister responsible for agricultural and rural development, while the EAGF related tasks were transferred to the minister responsible for the agricultural policy. In Poland, a new institutional framework for supporting the agriculture and rural development came into force on 1 September 2017. As a result, the Agricultural Market Agency (ARR) and the Agricultural Property Agency (ANR) were closed down. Instead, a National Support Centre for Agriculture (KOWR) was set up and responsibilities of the Agency for Restructuring and Modernisation of Agriculture (ARMA) were revised. KOWR is now responsible for tasks in the area of programming development of rural areas in Poland and management of agricultural real property, while ARMA took over all responsibilities for disbursements of EU funds.

Trade policy developments in 2017-18

The European Union is committed not to resort to export subsidies since the WTO Ministerial conference in Nairobi in December 2015. No export refunds were provided for agricultural products since July 2013. Only residual amounts for outstanding licences have been paid since.

The European Union’s simple average MFN applied tariff rate for agricultural products was 11.1% in 2016 (WTO, 2018a), slightly up from its 2015 level. These levels compare with 4.2% for non-agricultural products. Import duties on high quality wheat have been suspended since 2012.

A range of import tariff rate quotas (TRQs) were filled at 80-100% during the 2017 calendar year, including those for chicken and poultry cuts, potatoes, tomatoes, carrots, sweet peppers, almonds, grapes, pears and most cereals. Most of the remaining TRQs had a fill rate of less than 5% (WTO, 2018b).

The price-based special safeguard system has been made operational for some frozen poultry and dried eggs in marketing year 2015/16. During the same period, the volume-based special safeguard action has not been invoked. However, the system has been made operational at the level of calculation of figures for the trigger volumes for some fruit and vegetable products (EU notification to the WTO, March 2017).

The European Union ban on imports of birds originating from countries affected by avian influenza was still in place in 2017.

In December 2017, the European Union implemented a revision in the trade legislation introducing a new methodology to calculate dumping on imports, including for agricultural products.

The EU-Canada Comprehensive Economic and Trade Agreement (CETA) entered into force provisionally on 21 September 2017, allowing application of about 90% provisions pending EU Member States ratification of the agreement by their national parliaments.

In September 2017, the European Parliament approved two EU-Iceland agreements, one on agricultural trade and one on mutual recognition of geographical indication. The agreement updated the 2007 European Economic Area Agreement that initially excluded agricultural and fisheries products from the free trade provisions.

In December 2017, the Economic Partnership Agreement between the European Union and Japan was finalised. Pending a final agreement on the investment protection chapter, the deal is expected to enter into force in 2019 (EC, 2018). The agreement will eliminate Japan’s duties for around 85% of EU agri-food products improving market access particularly for cheese, wine and meat and offer more than 200 Geographical Indications.

The trade negotiations between the European Union and the Mercosur countries have significantly advanced during 2017.Political agreement was reached with Mexico in April 2018.

Negotiation talks on the Transatlantic Trade and Investment Partnership (TTIP) that were initiated in July 2013 with the United States were put on hold in 2017.

Other free trade agreement negotiations have been initiated between the European Union and India (2007), Indonesia (2016), Malaysia (2010), Myanmar (2014), the Philippines (2016), Thailand (2013) and Viet Nam (2012). Other ongoing processes include negotiation with Morocco for a DCFTA. Negotiations were put on hold after the fourth round of negotiations in April 2014. In September 2017, the European Commission proposed negotiating directives to Australia and to New Zealand.⁸8

Five countries currently have candidate status to the European Union, including Turkey (since 1999); the former Yugoslav Republic of Macedonia (since 2009), Montenegro (since 2010), Serbia (since 2012) and Albania (since 2014).

References

EC (2016), Press release, http://europa.eu/rapid/press-release_IP-16-2563_en.htm

EC (2018), Press release, http://europa.eu/rapid/press-release_MEMO-18-3326_en.htm

OECD (2017), Evaluation of Agricultural Policy Reforms in the European Union: The Common Agricultural Policy 2014-20, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264278783-en.

WTO (2018a), European Union tariff profile, http://stat.wto.org/TariffProfiles/E28_e.htm

WTO (2018b), European Union notifications to the WTO, Table MA: 2, January 2018, G/AG/N/EU/41.

Notes

 1.  Within the rural development regulation, the income stabilisation tool was amended to include a new sector-specific measure that triggers support if average annual income in the sector drops by more than 20%. Further, support for insurance contracts becomes available when more than 20% of a farmer’s average annual production is destroyed.

 2.  Member States with average direct payment per ha below 90% of the EU average can transfer up to 25% of rural development fund to direct payments.

 3.  The following Member States have opted for transfers of funds from Pillar 1 to Pillar 2: Belgium, Czech Republic, Denmark, Estonia, France, Germany, Greece, Latvia, the Netherlands, Romania, the United Kingdom, and as of 2017 Lithuania. In 2017, France and the Netherlands have doubled the amount transferred between the pillars. Croatia, Malta, Hungary, Poland and Slovak Republic chose to transfer funds from Pillar 2 to Pillar 1.

 4.  The SAPS is applied in Cyprus*, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Bulgaria, Romania. The BPS is applied in Slovenia, Malta, and Croatia, in addition to the EU15.

*Note by Turkey: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

*Note by all the European Union Member States of the OECD and the European Union: The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

 5.  Belgium (Wallonia), Croatia, France, Germany, Lithuania and Romania.

 6.  This section describes policy developments resulting both from the European Union’s CAP and national member states’ decisions. Examples from member states, used to illustrate these developments, are based on information available and are not intended to be exhaustive.

 7.  Remaining funds are spent on Instruments of pre-accession, Administrative expenditure, Horizon 2020, Audit, Policy strategy and International aspects of the agriculture and rural development policy area.

 8.  An overview of FTA and other trade negotiations is kept up-to-date in the following document: http://trade.ec.europa.eu/doclib/docs/2006/december/tradoc_118238.pdf

Chapter 11.

Iceland

Support to agriculture

Iceland’s level of support remains among the highest within the OECD, although it has fallen due to higher world market prices and a strong devaluation of the Icelandic Króna. Reforms of agricultural policies 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.

At 58% of gross farm receipts the PSE was more than three times the OECD average in 2015-17. The total support to agriculture (TSE) has averaged 1.2% of the country’s GDP in recent years, with support to farmers (PSE) being the dominant component (96%). Support to general services (GSSE) accounts for just over 4% of TSE, with almost half related to expenditures for inspection and public stockholding.

Most agricultural support continues to be provided through market price support measures, principally through high tariffs that help to maintain high domestic prices relative to world prices, and therefore lead to a large transfer from consumers to agriculture producers. In addition, market price support is complemented with the payment entitlements system which is directly or indirectly coupled with production factors. Market price support accounts for 55% of the support to farmers in 2015-17. Output payments for milk producers and the more decoupled payments to sheep meat producers represent most of the remaining PSE. As a consequence, 80% of farm support is provided through some of the potentially most production and trade distorting forms.

Main policy changes

Following the expiration of the previous agreements between the Government and the Farmers’ Association, new agreements were concluded for the ten-year period (2017-26), with extensive reviews scheduled in 2019 and 2023. The key changes in the agreements relate to the dairy and sheep sectors: i) the possibility of a gradual abolition of the milk quota system and reduction in support entitlements in dairy production, subject to the revision process until 2019; ii) reduction in support entitlements in sheep production and increased in support related to quality control. In addition, there is more emphasis on support that is not linked to specific agricultural sectors.

Assessment and recommendations

Within the continued application of the multi-year agreements between the Government of Iceland and the Farmer’s Association, changes to the agricultural policy are limited. Despite the shift towards more decoupled payments in the sheep meat sector in the mid-1990s and the establishment of a market for dairy quotas helping to reduce efficiency losses, Iceland’s support to farmers remains well above that of most other OECD countries. Moreover, support to farmers continues to be provided in the form that is potentially the most distorting, thereby hindering agricultural producers 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

Despite some progress in reducing border protection of some agricultural products, tariffs on several agricultural product groups, particularly meat, dairy, plants and flowers remain high and are often complex non-ad valorem duties.

Programmes, such as the quality control programme for sheep farming, which is subject to environmental compliance requirements, could contribute to sustainable land management.

Progress is needed in supporting innovation, including by encouraging a well-functioning agricultural knowledge and information system, for which public expenditures have been declining over the past decade.

The new agreements between the Government and the Farmer’s Association which provide the policy framework for the 2017-26 period, are an opportunity for fostering the reform process to make Iceland’s agricultural sector more responsive to market forces, including through phasing out of support to the dairy and sheep sectors, and the 2019 review of the production quota system.

While the short-term effects of climate change could be favourable for agriculture, pests such as indigenous insects may become a greater threat, introducing new challenges to agriculture in Iceland.

Figure 11.1. Iceland: 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.

StatLink  http://dx.doi.org/10.1787/888933756438

Support to farmers (%PSE) has declined by 20 percentage points between 1986-88 and 2015-17. But at 56% of gross farm receipts, it remains high compared to most other OECD countries and the potentially most distorting support in total represents 80% of the total PSE (Figure 11.1). The level of support has decreased in 2017 due to the decrease in MPS. The decrease in MPS results from a smaller price gap brought about by lower average domestic prices and increased world prices in USD which more than offset the effects of the appreciation of ISK against the USD (Figure 11.2). Effective prices received by farmers, on average, have declined over time, but still remained twice as high as those in the world markets. The sectors with the largest divergence between domestic and world prices (NPC) in 2015-17 are poultry (4.36), eggs (3.58) and wool (3.3). MPS is also the main component of Single Commodity Transfers (SCT): poultry, eggs and wool had more than 70% of their gross farm receipts derived from SCT (Figure 11.3). Overall, SCT represent 98% of the total PSE. The expenditures for general services (GSSE), mainly on inspection and public stockholding, decreased relative to agriculture value added from 2.8% in 19986-88 to 0.9% in 2015-17. Total support to agriculture as a share of GDP has declined significantly over time. More than 95% of the total support is provided to individual farmers (PSE).

Figure 11.2. Iceland: 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.

StatLink  http://dx.doi.org/10.1787/888933756457

Figure 11.3. Iceland: 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.

StatLink  http://dx.doi.org/10.1787/888933756476

Table 11.1. Iceland: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758509

Contextual information

Iceland is a small, sparsely populated economy with a GDP per capita slightly above the OECD average. Agriculture (excluding fish) is a relatively small part of the economy, contributed 1.1% to GDP and 2.2% of employment in 2016, and it remains small compared to fishing and aquaculture (Table 11.2). Approximately one fifth of the total land area of Iceland is suitable for fodder production and the raising of livestock. Around 6% of this area is cultivated, with the remainder devoted to raising livestock or left undeveloped.

Livestock and livestock products are the main farm activities, with milk and sheep meat being the most important products. The main crops are hay, cereals for animal feed and vegetables, which are cultivated primarily in greenhouses heated with geothermal energy. The main exports are pure-bred breeding horses, sheep meat products and raw fur skins. Iceland is a net importer of agriculture products (excluding fishery), mainly for final consumption. Imports are more diversified than exports and steadily increased in recent years.

Table 11.2. Iceland: Contextual indicators
| Iceland | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 6 | 17 | 0.02% | 0.02%
Population (million) | 0.3 | 0.3 | 0.01% | 0.01%
Land area (thousand km2) | 100 | 100 | 0.13% | 0.13%
Agricultural area (AA) (thousand ha) | 1 899 | 1 872 | 0.07% | 0.07%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 3 | 3 | 38 | 45
GDP per capita (USD in PPPs) | 24 119 | 50 012 | 9 650 | 24 866
Trade as % of GDP | 25 | 25 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 11.6 | 6.3 | 3.0 | 3.1
Agriculture share in employment (%) | 9.5 | 3.9 | - | -
Agro-food exports (% of total exports) | 6.8 | 5.7 | 7.7 | 7.3
Agro-food imports (% of total imports) | 10.0 | 9.0 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  22 | 15 | - | -
Livestock in total agricultural production (%) |  78 |  86 | - | -
Share of arable land in AA (%) | 7 | 6 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933758965

Iceland has made a remarkable turnaround since the 2008 crisis – helped by booming tourism, prudent economic policies and a favourable external environment – and is currently the OECD’s fastest growing economy. Iceland has high living standards and inclusiveness, the lowest poverty rate in the OECD area and life expectancy is among the highest in the world. Historically, Iceland’s prosperity has been built on the sustainable management of its abundant natural resources – including the comprehensive fisheries management system based on individual transferable quotas – renewable energy (geothermal and hydro) and carbon sequestration opportunities (afforestation, revegetation). After appreciating for two years, the króna began to weaken and fluctuate in 2017. Inflation has remained below the target of 2.5% for the past three years.

Figure 11.4. Iceland: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933756495

Figure 11.5. Iceland: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933756514

While output growth in agriculture has been slightly below the global average over the past decade, according to the estimates, agricultural total factor productivity has been growing by 2.9%. Harsh climate, lack of suitable land, small size of farms and the narrow genetic base for breeds of cows, sheep and horses, however, present significant constraints to the sector. Due to the relatively low livestock densities, Iceland’s nutrient balances show a comparatively low surplus of both nitrogen and phosphorous. The sector’s relative energy use has fallen significantly over the past twenty years. Agriculture continues to represent a significant share in the country’s total GHG emissions well above that for the OECD average, mainly due to the importance of the livestock sector. With just over 40%, the sector’s share in water consumption is comparable to the OECD average.

Figure 11.6. Iceland: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933756533

Table 11.3. Iceland: Productivity and environmental indicators
| Iceland | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 0.37% | 2.93% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | 8 | 7 | 33 | 30
Phosphorus balance, kg/ha | 1.8 | 1.5 | 3.7 | 2.4
Agriculture share of total energy use (%) | 2.3 | 1.4 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 18 | 14 | 8.5 | 8.5
Share of irrigated land in AA (%) | .. | .. | - | -
Share of agriculture in water abstractions (%) | 42 | 42 | 45 | 43
Water stress indicator | 0.1 | 1.8 | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759421

Description of policy developments

Main policy instruments

The strategic objective of Iceland’s agricultural policy is to maintain and strengthen a diverse agricultural sector, as far as natural and marketing conditions allow. The key goals of policy are: to meet domestic demand to the extent that this goal is realistic; to maintain sustainable production of high quality and healthy products; to improve efficiency and competitiveness; to improve farmers’ incomes; to improve creativity and create job opportunities; and to sustain livelihoods in rural areas.

Agricultural policies in Iceland are based on two main legal acts: i) Act No. 99/1993 on the Production, Pricing and Sale of Agricultural Products (now the Act on Agricultural Produce), which lays down the policy framework as well as provisions for production control, provisions for slaughter and processing, market measures and producer support; and ii) Act No. 70/1998 on Agriculture, which provides the legal basis for development projects, extension services and livestock improvements.

Under these Acts, there are a number of renewable multi-year agreements between the Government and the Farmer’s Association, which provide the general framework for support and production control for farmers in the cattle, sheep and horticultural sectors. There is also an agreement on horizontal support, such as technical development and improved land cultivation, livestock improvement, extension services, organic farming and the Agricultural Productivity Fund.

Following the expiration of the previous agreements between the Government and the Farmers’ Association, new agreements were concluded for the ten-year period from 2017 to 2026, with extensive reviews scheduled in 2019 and 2023. The key changes in the agreements, which came into force on 1 January 2017, relate to the dairy and sheep sectors: i) the gradual abolition of the milk quota system and reduction in support entitlements in dairy production, subject to the revision process until 2019; ii) reduction in support entitlements in sheep production and increase in support related to quality control. In addition, there is more emphasis on support that is not linked to specific agricultural products.

Iceland’s agricultural support is provided through market price support, maintained by border measures, and through direct payments, which are based on payment entitlements – directly or indirectly coupled with production factors. Market price support is provided for all livestock products and some horticultural products. Direct payments are provided to cattle (mainly dairy) and sheep producers, and on a smaller scale, to certain greenhouse producers.

For dairy, direct payments are based on the size of a producer’s quota and the current number of animals. Headage payments are provided for up to 180 dairy cows and 260 beef cows, with full payment for each of the first 50 dairy cows and 200 beef cows, then at a reducing rate for each additional cow. There is a national production quota, which is set each year by the Ministry of Fisheries and Agriculture and is divided among producers based on their present quotas, which, at the same time, determine the entitlements for direct payments. Production in excess of quotas is permitted, provided all such production will be exported. Wholesale prices are managed for approximately half of the dairy products. A government-chaired committee, representing both the Farmers’ Association and – on behalf of the consumer side – the labour union, annually determines guaranteed minimum prices for milk delivered within production quotas. Trade in support entitlements (basic payments to all active dairy and cattle farmers) between entitlement holders is not allowed. In 2017, the government began to redeem the milk quota and to redistribute it. The redemption price is determined by the present value of future entitlement payments throughout the duration of the agreement. Dairy producers also benefit from support for breeding, land cultivation and development programmes.

For sheep, direct payments are linked to payment entitlements that were originally based on historical production. Keeping a minimum of winter-fed sheep on the farm, in relation to the entitlements is, however, required for being eligible to receive full payments. Additional payments to sheep farmers are related to a quality control scheme for lamb meat, based on animal welfare, product quality and traceability, and sustainability criteria. Consumer subsidies are provided at the wholesale level for purchasers of wool and to processors for marketing and storage costs of sheep meat.

Imports of meat, dairy products, and some vegetables that compete with domestic production are subject to tariffs which are often compound duties with an ad valorem component of 30% and a specific duty component that varies from ISK 5/kg (USD 0.04/kg) to ISK 1 462/kg (USD 2/kg). However, products originating in partner countries of the European Economic Area (EEA) or in one of the 41 countries with which Iceland has free trade agreements may carry lower tariffs. In the new agreement for the cattle sector, the Minister of Fisheries and Agriculture will take action to amend the Customs Act so as to revert specific tariffs on milk and skimmed-milk powder and cheeses back to the real-price levels of June 1995. Export subsidies for agricultural products have not been provided since early 1990s.

According to the legislation on protection against animal diseases, imports of uncooked animal products require the permission of the Food and Veterinary Authority. Imports of live animals are prohibited, with exceptions regarding pet animals and certain animals for breeding subject to strict quarantine measures.

Concerning Iceland’s climate change commitments under the Paris Agreement on Climate Change, according to its National Determined Contributions (NDCs) submitted to the UNFCCC, Iceland aims to be part of a collective delivery by European countries to reach a target of 40% reduction of GHG emissions by 2030 compared to 1990 levels. A precise commitment for Iceland within such collective delivery is yet to be determined and dependent on an agreement with the European Union and other countries, but the participation in the EU Emissions Trading System would be key in that regard, considering that almost half of Iceland’s emissions are regulated through this scheme.

Iceland is a member of the European Free Trade Association (EFTA) and of the European Economic Area. While the EEA Agreement does not apply to most trade in agricultural goods, it opens trade in a number of processed agricultural products and encourages bilateral agreements on primary commodities. Two bilateral agreements with the European Union are in force in parallel with the EAA Agreement: a bilateral free trade agreement from 1972 and an agreement on trade in basic agricultural products from 2007. In September 2015, Iceland and the European Union signed a new agreement on trade in agricultural products – which will replace earlier agreements – and agreed on an improved market access for both processed and unprocessed agricultural products under the EEA Agreement, as well as on agreement for the of geographical indications for agricultural products and foodstuffs. In addition to the Free Trade Agreements under EFTA, Iceland has a bilateral Free Trade Agreement with the Faroe Islands, Greenland and China.

Domestic policy developments in 2017-18

In the new Agreement, key elements of the regulation on horizontal support for agriculture, include support relating to advisory services, breeding, animal welfare, environmental protection, sustainable land management, organic production, land cultivation, goat farming, investment support for pig farming. Further, the Agricultural Productivity Fund is set to allocate funds for development projects in the horticultural, cattle and sheep sectors and for increasing employment in rural areas. Under this agreement there is a scheme intended to stimulate recruitment of newcomers into the different sectors.

The regulation also includes sector-specific programmes for the pig and goat sectors, and forestry. These programmes are relatively small-scale compared to those for the dairy and sheep sectors. Support for the goat sector is divided among headage payments (up to 60% of the total), slaughter premiums (up to 17% of the total), goat-milk subsidies (up to 8% of the total), and support for breeding (up to 15% of the total). Support for the pig sector includes subsidies to improve pig housing including investment support for new construction and the demolition of existing buildings.

The new Agreement on the operating environment for the cattle sector opens the possibility to abolish the production quotas which have been in place over 25 years, to phase out the system of “support entitlements” (basic payments to active dairy and cattle farmers), to de-link output payments for milk from the support entitlements and to change the milk pricing arrangements. These changes, together with a new system for supporting beef production, will be considered by the 2019 revision of the agreement and subject to agreement by producers.

According to the new Agreement, for the period 2017 to 2020, the overall support entitlement for milk production, as well as the support entitlements of each registered farm, will be determined using the same method as for 2016; the level of production required to receive full payments based on support entitlements is to be decided annually.

Mainly in response to the increasing domestic consumption of dairy products, the milk production quota was increased from 136 million litres in 2016 to 144 million litres in 2017. Production in excess of the quota must be exported. Payments to farmers are made in equal monthly payments of one-twelfth of annual quota. In 2017, the minimum price paid by dairies for milk delivered within the production quota has been set at ISK 87.4 (USD 0.8) per litre.

For the beef sector, headage payments are allocated to owners of cows which are registered under the breeding records programme and which produce a calf at least every two years. Under the new Agreement, total headage payments are divided between the categories “dairy cows” and “beef cows”. Initially, the total payment are divided between the two categories based on the headage counts of 25 000 dairy cows and 3 000 beef cows. This division is set to be revised annually by the Committee for the Implementation of National Agricultural Agreements. Support is also available for breeding, investment (up to 40% of the capital costs, but limited by a fixed total amount) and for helping to balance production and demand (improved marketing of cattle products, support for diversification, compensation for the slaughtering and temporary support). The measures to balance production and demand are discretionary and are to be allocated when there is a need to respond to changes in supply and demand. In 2017, the measures for beef production include a slaughter premium and ISK 100 million (USD 0.9 million) for a quarantine facility for imports of genetic material.

Similar to the dairy sector, the support entitlements for the sheep sector are to be abolished over the duration of the Agreement and replaced by quality assurance premiums for farmers subject to meeting requirements relating to quality, animal welfare and sustainable land use. These changes are also subject to the revision to take place in 2019.

Headage payments are to be introduced for winter-fed sheep from 1 January 2020, with higher payments for new entrants. In the context of the 2019 revision of the agreement, a decision should be made on whether to make headage payments conditional on participation in a quality-assurance programme for sheep production. Moreover, beginning in 2018, producers are receiving farm support payments, also based on the number of winter-fed sheep, which are paid to producers keeping over 100 winter-fed sheep. The payments range from ISK 20 000 (USD 187) for farms with 101-120 sheep up to a maximum of ISK 320 000 (USD 2 996) for farms with more than 800 sheep.

During the term of the agreement, special regional support is foreseen for producers in certain regions which are particularly dependent on sheep farming. A complementing Regulation sets out certain requirements that need to be met in order to receive this support, such as the number of sheep and distance to urban areas.

Support is paid for the production of wool during the term of the agreement. Payments should be based on the quantities produced, although part of the support may also be used to subsidise the cost of collecting the wool. Applying specific coefficients, different premiums may be paid for individual categories of wool.

Investment aid is also available to promote better living conditions for sheep and more cost-effective farming practices. To be eligible, each project must have a cost of at least ISK 1 million (USD 9 362). Contributions may cover up to 20% of the capital costs, but no individual producer may receive contributions exceeding 10% of the total annual funds available for investment aid.

The agreement concerning the framework of support to horticultural producers remains unchanged and provides production-based payments to producers of cucumbers, tomatoes and bell peppers. Electricity subsidies are also granted for greenhouses (which are heated by geothermal energy) to cover up to 95% of the cost of the transfer and distribution of electricity. Support payments to each individual producer are capped. No single entity can receive more than 10% of annual total direct payments or 15% of total funds to electricity subsidies annually.

As of 1 January 2017, the levy on agricultural revenues – which was distributed within and between various agricultural bodies – was abolished.

Trade policy developments in 2017-18

In 2017, Iceland has eliminated tariffs of all non-agricultural products. Tariffs on cheese and powdered milk were updated by Act No. 102/2016, which resulted in increased specific duties in 2017. However, the specific duty was reduced in 1 March 2018 due to appreciation of ISK relative to the Special Drawing Rights (SDR). The tariff will be updated in March each year by the development in the exchange rate (SDR/ISK). The distribution of import quotas for cheese which refers to designations of origin and geographical indication is to be determined by a lot.

Under the EEA agreement, which will enter into force 1 May 2018, Iceland grants the European Union substantially increased tariff quotas on meat, cheese and processed meat products. In return, the European Union grants duty-free access for a range of products and opens or expands tariff quotas, including an expansion of the existing quota for skyr (a traditional dairy product) from 380 tonnes to 4 000 tonnes over four years.

Chapter 12.

Israel

Support to agriculture

Despite efforts to introduce market-oriented reforms, the overall agriculture policy support has remained stable from 2015 to 2017, due to the persistence of regulations, price controls and border protection targeting specific commodities.

The share of producer support in gross farm receipts (%PSE), 17% in 2015-17, is approaching the OECD average. At the same time, the share of potentially most market-distorting forms of support in Israel is much higher (93%) than the OECD average. Poultry and milk producers benefit from the highest level of market price support, accounting for 48% of the total PSE in 2015-17, up from 41% in 1995-97. Input subsidies increased between 2015 and 2017, mainly due to changes in water policies. Total support for agriculture (TSE) has remained stable at 0.5% of GDP, just below the OECD average.

The share of General Services Support Estimates (GSSE) in total support in 2017 represents 12.5% of TSE, close to the OECD average; it includes more infrastructure investment, reinforced inspection and control, and some additional support for the Agricultural Knowledge and Innovation System.

Main policy changes

Several measures have been undertaken to improve market linkages and increase competition in the agro-food chain, aiming in particular to lower food prices. The government approved thirteen programmes to reduce the regulatory burden in the agro-food chain. Several initiatives were launched to encourage greater competition in marketing of and consumer access to local and fresh horticulture produce. The government gathered market data from large retailers and wholesalers in view of introducing possible margin controls on fruits and vegetables. While target prices for egg, milk and wheat increased, the government continued its programme to open the beef market in exchange for area-based support linked to pasture land, and the duty free quota for cheese was increased by 10%.

The Water Authority published the implementation rules for the new agricultural water pricing system. Freshwater rates for producers in areas with no alternative water source will amount to ILS 1.54 (USD 0.43)/m3, while other producers will pay the difference between a rate of ILS 1.81 (USD 0.5)/m3 and the calculated cost of pumping they face, both by June 2019. Meanwhile, the country’s Northern regions faced its fifth year of drought, which led the Water Authority to further restrict water allocations and to disconnect water supplies coming from the “Kinneret surrounding” region from the rest of the country, increasing the its reliance on desalinated water.

Assessment and recommendations

The level of support to agriculture in Israel continued to be stable in the period 2015-17, just as the OECD average declined. This evolution reflects the continued high border protection for selected agricultural commodities and various forms of support for farm inputs. Such a structure of support effectively taxes consumers.

While the tariff reform in the beef sector is a step in the right direction, its scope should be expanded to cover other commodities. Israel maintains very high tariffs for goods such as dairy products, eggs and certain fruits and vegetables that could also be gradually removed and replaced, if necessary and as a temporary measure, by direct payments. The tariff system on agriculture should also be simplified, avoiding non-ad-valorem tariffs.

Israel should continue and intensify its ongoing efforts to diminish the regulatory burden and improve the transparency and competition in the agro-food chain. Progress made in these areas would not only reduce trade costs and encourage trade flows, but would also diminish costs for the processing industry and final consumers of agro-food products.

Israel’s estimated annual growth rate of total factor productivity in agriculture is higher than world average, thanks to advances in technology due to research and development, high managerial skills of Israeli farmers and effective public extension service. Expenditures on agricultural knowledge and innovation system should continue to increase.

Israel’s comprehensive water management system has enabled the country to sustain a productive agriculture sector under very intense water stress. Still, the recent agriculture water price reform, aiming at equity, may reduce the degree of freedom of the government to manage future freshwater use in agriculture. By applying flat water rates, the system does not allow freshwater prices to reflect regional differences. It leaves water allocation restriction as the main remaining policy instrument adaptable to regional climatic conditions, making the water system less flexible in a context of increasing climatic volatility. Facilitating further trading in water allocations could help improve the system’s efficiency and flexibility.

The government has invested in agriculture’s resilience to natural and climate risks, but it should continue its efforts to reduce the sector’s negative environmental impacts. Improvements should be sought to converge to OECD-levels for nutrient balances. Regional agri-environmental programmes should be bolstered, and complemented by other targeted policies geared towards higher environmental performance.

Figure 12.1. Israel: Development of support to agriculture

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

StatLink  http://dx.doi.org/10.1787/888933756552

Support to farmers (%PSE) has declined moderately over the long term. In the most recent period, support has been around 17% of gross farm receipts, slightly under the OECD average. The share of potentially most distorting support has increased in the last two decades due to a higher level of market price support (MPS) and continued border protection (Figure 12.1). The level of support has slightly decreased (-1%) in 2017 due to a small reduction of MPS. This in turn results from a significantly reduced agricultural production, which is almost entirely offset by an increased average price gap (Figure 12.2). Effective prices received by farmers, on average, are still 16% higher than world prices; large differences between commodities persist with domestic prices for poultry and bananas being 65% and 101% above world prices, respectively. MPS is the main component of Single Commodity Transfers (SCT): bananas, milk and poultry have the highest share of SCT in commodity gross farm receipts (Figure 12.3). Overall, SCT represent 85% of the total PSE. The expenditures for general services (GSSE), mainly on knowledge and infrastructure, have declined relative to agriculture value added over twenty years. Total support to agriculture as a share of GDP declined significantly over time. 88% of the total support is provided directly to farmers (PSE).

Figure 12.2. Israel: Decomposition of change in PSE, 2016 to 2017

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

StatLink  http://dx.doi.org/10.1787/888933756571

Figure 12.3. Israel: Transfer to specific commodities (SCT), 2015-2017

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

StatLink  http://dx.doi.org/10.1787/888933756590

Table 12.1. Israel: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758528

Contextual information

Israel’s economy is relatively small but has been growing rapidly and its GDP per capita almost doubled over the last two decades, just as population increased by 50%. The share of agriculture in total employment and in GDP has fallen to around 1%. Israel is unique amongst developed countries in that land and water resources are nearly all state-owned. Jewish rural communities, principally the kibbutz and moshav, accounting for about 80% of agricultural output. Partly due to this structure, agricultural area has remained relatively stable over the past twenty years, despite the country’s continued development. While the agriculture production sector is relatively diversified, most of the value of production and exports is generated by high value fruits and vegetables.

Table 12.2. Israel: Contextual indicators
| Israel | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 109 | 318 | 0.4% | 0.4%
Population (million) | 6 | 9 | 0.2% | 0.2%
Land area (thousand km2) | 22 | 22 | 0.03% | 0.03%
Agricultural area (AA) (thousand ha) | 573 | 538 | 0.02% | 0.02%
|  |  | All countries analysed1
Population density (inhabitants/km2) | .. | 391 | 38 | 45
GDP per capita (USD in PPPs) | 19 744 | 37 270 | 9 650 | 24 866
Trade as % of GDP | 24 | 20 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 2.0 | 1.3 | 3.0 | 3.1
Agriculture share in employment (%) | 2.9 | 1.0 | - | -
Agro-food exports (% of total exports) | 7.0 | 3.5 | 7.7 | 7.3
Agro-food imports (% of total imports) | 6.6 | 7.9 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) | 57  | 59  | - | -
Livestock in total agricultural production (%) | 43  | 41  | - | -
Share of arable land in AA (%) | 60 | 56 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933758984

Israel maintains a highly performing economy among OECD countries, with robust GDP growth, exceeding 2% annually, and close to full employment in 2017. After two years of deflationary pressure, inflation started again in 2017 (Figure 12.4). The appreciation of the Israeli currency compared to the US Dollar and the Euro from 2015-17 has affected the overall competitiveness of the economy (OECD, 2018b).

Partly because of these monetary changes, the agriculture trade balance of Israel continued to decline in 2015-17 with the value of imports of mostly processed food products increasing and the value of exports of mainly primary commodities declining.

Figure 12.4. Israel: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933756609

Figure 12.5. Israel: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933756628

Israeli agriculture is highly productive. Despite a decline from the 1990s, the estimated 2.5% annual growth rate of total factor productivity (TFP) in agriculture over the period of 2005-14 remains much above the world average. The long-term increase in productivity at high rates results in part from advances in technology due to research and development and the high managerial skills of Israeli farmers.

The overall environmental performance of Israel’s agriculture has improved significantly in the past twenty years. In particular, nutrient balances and the agriculture share in freshwater abstraction have declined substantially, partly due to better agronomic practices and changes in water management. Still, nitrogen balance remains at four times the OECD average level, calling for additional efforts.

Figure 12.6. Israel: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933756647

Table 12.3. Israel: Productivity and environmental indicators
| Israel | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 2.76% | 2.49% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | 140 | 122 | 33 | 30
Phosphorus balance, kg/ha | 40.6 | 31.3 | 3.7 | 2.4
Agriculture share of total energy use (%) | 1.1 | 1.7 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 4 | 3 | 8.5 | 8.5
Share of irrigated land in AA (%) | 45.2 | .. | - | -
Share of agriculture in water abstractions (%)** | 64 | 39 | 45 | 43
Water stress indicator | 64.0 | 44.9 | 10 | 10
Notes: * or latest available year. EU treated as one; ** freshwater abstraction.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759440

Description of policy developments

Main policy instruments

Over the past thirty years, Israel has implemented a number of reforms related to the provision of subsidies, central planning of agricultural industries, and the allocation of production quotas, price controls and import protection. The government continues to be involved in the allocation of key factors of production such as land, water and foreign workers. Land and water resources are almost entirely state-owned. Land is allocated to farmers for a low, nominal fee and is not tradeable. Water is allocated to farmers through a quota system. The government also applies a yearly quota of foreign workers with permits to work in agriculture. Both the overall quota and the allocation of workers to individual farmers are strictly regulated.

Some commodities continue to benefit from guaranteed prices and production quotas. Guaranteed prices for milk are based on the average cost of production and while they are updated regularly, they diverge considerably from the level and evolution of prices on international markets. Minimum prices are also guaranteed for wheat, based on the Kansas market price, adjusted for quality and transportation costs. Egg production quotas and administrated prices, which serve as the basis for the inspected retail prices, together with border protection, are applied as an instrument to provide price support to producers. On the other hand, consumer price controls are applied for a range of basic food products, including bread, milk and dairy products, eggs and salt.

Egg and poultry producers in “peripheral areas” at the northern border receive direct payments, based on output levels for egg, and encompassing a mixture of payments decoupled from production and output payments for poultry producers (OECD, 2010).

Support to investments is provided by capital grants. Farmers who participate in the investment support scheme are also entitled to income tax exemptions and accelerated depreciation. Since 2009, an investment support programme has been implemented to partly replace foreign workers in the agricultural sector, but budgetary allocations for this programme declined strongly in recent years.

Insurance schemes provided by the Insurance Fund for Natural Risks in Agriculture (Kanat) are subsidised. The government intends to increase premium subsidy rates and to extend the coverage through the inclusion of new crops. The support part in the total assurance premium is at 80% in the case of the multi-risk insurance schemes and at 35% in the case of the insurance schemes against natural hazards. Since 2010, revenue insurance has been applied for rain-fed crops to protect against a loss of revenue caused by price decrease, low yields or a combination of both. In 2015, a credit fund was launched with 85% state guarantee.

Following the implementation of the Uruguay Round Agreement on Agriculture (URAA), Israel now maintains a more transparent and open trade regime. However, high border tariff protection on agri-food products, although much below bound rates, remains a key tool in supporting agricultural producers. Under the URAA, Israel established tariff rate quotas (TRQs) for wheat, fats and oils, walnuts, prunes, maize, orange juice and other citrus juices, beef and sheep meat and various dairy products. All of Israel’s preferential trade agreements (apart from that with the European Free Trade Association, EFTA) also include tariff-quota commitments for agricultural products. In total, Israel implements more than 100 Most Favoured Nation (MFN) and preferential TRQs (WTO, 2012).

Despite certain reforms that began in 2014, Israel’s tariff profile for agricultural products remains highly uneven, with very high – sometimes prohibitive – tariffs for goods such as dairy products, eggs and certain fruits and vegetables, and low, sometimes zero, tariffs for other commodities such as coarse grains, sugar, oilseed and frozen beef. The tariff system on agriculture remains complicated, involving a large number of non-ad-valorem tariffs. The simple average MFN tariff applied for agricultural products (WTO definition) was 11.9% in 2015 compared with an average for non-agricultural products of 3.3%. However, some 49% of agriculture imports entered Israel duty-free, mostly through MFN duty-free access and under preferential agreements (the most important ones are with the European Union and the United States) (WTO, 2016). With the exception of beef, poultry (including turkey), and mutton and products thereof, there is no legal requirement for imported food and agricultural products to be kosher, although imported, non-kosher agro-food products are rarely accepted by local marketing channels.

Budgetary allocations for Research and Development have regularly increased and have accounted for about 20% of the total agriculture-related budget in recent years. During 2015-2017, ILS 314 million (USD 87 million) were allocated to agriculture research and development, of which almost ILS 76 million (USD 21 million) were used for a competitive research fund. This, together with an effective transmission of innovations to the farm level through a public extension service, has allowed Israel to become a world leader in agricultural technology, particularly in farming in arid and desert conditions, and to build its comparative advantage in agriculture on knowledge and technological progress.

Israel has not developed policy measures for greenhouse gas mitigation in agriculture given that agriculture accounts for a limited and declining share of the country’s total greenhouse gas emissions (3% in 2016). Instead, the government has introduced and applied a number of programmes to support climate change adaptation. In addition to its forward-looking water resource management, the government supports programmes on climate data analysis and improving agronomic practices (see section below). It continues to support breeding efforts towards the development of crop varieties more resilient to climate change; the Israel Plant Gene Bank of the Agricultural Research Organization, which serves as a physical repository for more than 30 000 collected seeds, leads a programme to collect and conserve wild plants and landraces seeds from natural habitats all over Israel for current and future development. During the past decade, support measures have also been used to encourage soil conservation to decrease the potential for soil erosion of agricultural land and the soil’s production capacity that are projected to accelerate with climate change.

Domestic policy developments in 2017-18

Since the “Cottage Cheese” protest in 2011, Israel has been taking steps to reform some aspects of its agricultural policy with the aim to decrease consumer prices, while continuing to support its farming sector. In 2016, the Ministry of Agriculture and Rural Development (MARD) and Ministry of Finance (MoF) initiated a process to further reform agricultural support policies through the reduction of market price support and an introduction of direct payments to farmers, which was applied to beef production in pasture area and to the dairy sector (see trade section).

As part of the Government’s attempts to reduce regulatory burdens, in 2017, thirteen programmes were formulated and approved in areas that are under the responsibility of ten regulatory bodies, encompassing the Veterinary Services, the Planning Authority, the Dairy Board and Plant Protection Services. The government expect these programmes to result in direct savings of ILS 135 million (USD 37.5 million) per year and indirect saving of ILS 835 million (USD 232 million) per year.

On May 2016, the Joint Prices Committee of the MARD and MoF (henceforth “Committee”) discussed a proposal put forward by MARD to impose price control on the margins of fruit and vegetables to respond to the concern that large wholesalers and retail chains may use their market power to inflate prices. In 2017, as a first step, the Committee required the main retailers and wholesalers to supply MARD with their operational and marketing costs for the years 2015–17. As of 2017, the Committee had evaluated the profitability of the main sellers of fresh produce in 2015, finding a large variation in profitability but no indication of excessive profitability. Based on the analysis of 2016 data, the Committee may consider whether to require any intervention, such as imposing a price control or introducing other binding rules.

Several efforts have been undertaken to encourage greater competition in marketing of and consumer access to local and fresh horticulture produce. First, MARD allocated ILS 20 million (USD 5.5 million) for 2017-19 to support local authorities to enable and facilitate direct sales of agricultural produce (farmers’ markets) within their municipal boundaries. The programme also aims to encourage consumption of locally produced fruits and vegetables, and to strengthen and assist individual, independent farmers to co-operate under this umbrella, thereby increasing their income. Second, the government is conducting a regulatory impact analysis of unfair trading practices to improve commercial relations between farmers and sellers of fresh fruit and vegetables. Responses to a government-led 2017 consultation of farmers and farmers’ representatives suggest that legislation may be needed to establish rules for fair trade. Third, to enhance price transparency in the food chain, the government launched a smartphone application providing daily fruit and vegetable wholesale prices to users (USDA/FAS, 2017).

The government has renewed its interest to improve the animal welfare, sanitary, environmental and economic performance of the egg production sector. Following 2007 and 2010 decisions that were not applied, and recommendations of a professional committee in 2015, the government in 2017 decided to once again take steps to improve this sector whilst implementing changes with greater flexibility, including via poultry houses relocation. A budget of ILS 340 million (USD 94.5 million) has been allocated towards funding renovation of infrastructure and poultry houses with a planned reduction of the price of eggs by ILS 0.05 (USD 0.01) to also occur as a result of expected improvements in production efficiency from upgraded assets and economies of scale. The reform programme, still under discussion, would last from 2018 to 2022.

Price reducing measures were not applied consistently for all commodities in 2017. After four years of continued decline, the guaranteed prices of selected commodities increased in 2017, by an average of 6% for raw milk; 0.3% for eggs; and 1.7% for wheat. Changes in milk target prices depend on changes in cost of production and have resulted in the national producer price for milk being significantly higher than international prices. Milk accounts for 17% of the total market price support measured for the Israeli agriculture in 2017 and hence contributes significantly to relatively high level of Israel’ farm support.

Confronted with a five year drought that may continue, the Water Authority imposed further restrictions in water allocation, particularly in the North, thereby reducing water supplied to agriculture. In 2016, due to a lack of precipitation, the Upper Galilee and Golan Heights regions were disconnected from the national water system. In 2017, the situation worsened and in order to prevent damage to the Sea of Galilee’s water quality, the “Kinneret surrounding” was also disconnected. Withdrawals from users on any water course leading to the Sea of Galilee were restricted. The “Kinneret surrounding” area’s water allocation was cut by 8%; that of Upper Galilee and Golan Heights was cut by 25% in comparison with the previous year’s allocation. Further water cuts will be implemented in 2018, for the third year in the North, equivalent to a cut of 36% compared to 2015 allocations and of 19% in the Sea of Galilee region. A yet-to-be-determined water allocation cut will also be applied in the national water system fed by seawater desalination due to a sharp decline in stored groundwater. Farmers have already been advised to prepare for the expected water cut.

In parallel, the government clarified the implementation of its reform of the agricultural water pricing system. In 2017, in an effort towards equity, the government approved the amendment of the Water Law (called “the amendment to article 27”) introducing flat water rates and removing the extraction levy for fresh water supplied to agriculture, and the Water Authority published rules for its implementation. These rules specify the expected tariffs and the accepted method for calculating the “normative costs”—reflecting the real cost of pumping and distributing the water—for producers using independent water sources. These producers will have to pay a water fee corresponding to the difference between these calculated normative costs and a gradually reduced water tariff of ILS 1.81 per cubic meter to the national water company Mekorot by June 2019.1 Producers located in areas lacking alternative water sources—defined as the Upper Galilee, Golan, Jordan Rift Valley, Judea and Samaria, and the Jordan Valley—will pay ILS 1.54 (USD 0.43) per cubic meter to Mekorot in June 2019.

In 2017, the Investment Administration of MARD continued its effort to support and encourage the agricultural sector to treat agricultural waste, in order to mitigate the impacts of such waste on environment and human health. The programme supports the transformation of agriculture’s by-products into usable recycled products or raw material to be used for renewable energy production and it provides support for the reduction of waste transportation to landfills. It covers fixed capital formation and offers payments for co-operatives that want to build new waste treatment compounds on their common land. More specific efforts by the Investment Administration include the establishment of animal and plant waste treatment facilities (carcasses and excrement of poultry, fish, sheep and pigs) under a three-year, ILS 20 million (USD 5.6 million), plan, which ended in 2017 but will be renewed in 2018; a project on the treatment of tree branches (pruning) in order to prevent the damage resulting from charcoal production which is a severe environmental hazard, amounting to ILS 6 million (USD 1.7 million) over a three-year period beginning in 2017; and the construction of facilities for the treatment of effluents from dairy cow milking parlours, amounting to ILS 18 million (USD 5 million) over a three-year period beginning in 2017.

To support the sustainable use of natural resources and to respond to changing climate conditions, the Investment Administration launched a multi-year (2018-2020) ILS 45 million (USD 12.5 million) programme to support the adoption of new technologies in the field of precision agriculture, such as satellite-based information services, interpreted drone images or sensors which transmit data used for irrigation control, fertilization, spraying and growth. The programme provides grants for new technology and for the development of new information services.

A new budget of ILS 1.5 million (USD 0.4 million) has also been allocated for regional agri-environmental projects that promote agricultural practices decreasing the negative impact of intensive agriculture on natural resources or encouraging positive externalities, and promoting the adaptation to climate change. The budget will be allocated to four regional councils during five years (2017-2021). Selected projects shall be led by the regional council representatives in co-operation with farmers, extension services, residents, ecologists, economists, and experts from MARD and the Nature and Parks Authority.

In co-operation with the Israeli Meteorological Services, MARD is in the process of collecting and quantifying the relevant climatic data for agriculture in Israel, with the objective to provide tools for future risk assessment. The programme, to be completed in mid-2019, includes past climate assessment and 2030-2050 forecasts of more than 50 critical climatic indicators for the different production sectors in agriculture in 11 different agro-climatic zones in Israel.

In 2017, MARD’s Land Conservation and Drainage Division has assigned approximately ILS 10 million (USD 2.8 million) to its soil conservation programme to minimise runoff and erosion processes. For 2018, the provisional budget is set to increase by 20% in order to continue promoting the conservation of agricultural land and better management of water and land for flood control.

Trade policy developments in 2017-18

The September 2016 reform agreement on the beef sector continued to be applied. The agreement foresees partial conversion of farm support programmes for beef producers from indirect support, by means of tariff rate quotas and tariffs, to a system of direct payments. The quotas for duty free fresh beef imports is increasing gradually to reach 17 500 tonnes in 2020 and the MFN customs rates for out-of-quota beef imports are set to decrease gradually to 12% and zero ILS per tonne in 2020. This partial opening of the beef market is accompanied by compensation for cattle farmers, paid on top of the existing seven-year support programme agreed in 2014. This additional support amounting to ILS 12 million (USD 3.3 million) in 2017 will reach ILS 16 million (USD 4.4 million) in 2021 and then remain at this level until 2024. Payments are to be made per unit of pasture area.

During 2017, under the 2013 “Locker Deal”, which encouraged the opening of the dairy market and supported the exit of small dairy producers, duty free quota of cheese was increased from 5 400 to 6 000 tonnes. Imports of yellow hard cheese in retail packaging led to the introduction of new types of yellow cheese in stores, that are 20% to 40% cheaper, compared to the domestically produced hard cheese.

Several free trade agreements (FTA) are currently being discussed. The FTA with EFTA is under revision. A revised FTA with Canada and a new FTA with Panama are under legal review. A new FTA with Colombia has been ratified by Israel but not yet by Colombia. New FTAs with several other countries, including Ukraine, South Korea, People’s Republic of China, Viet Nam and the EACU, are at varying stages of progress.

References

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

OECD (2018b), OECD Economic Surveys: Israel 2018, OECD Publishing, Paris. http://dx.doi.org/10.1787/eco_surveys-isr-2018-en

OECD (2010), OECD Review of Agricultural Policies: Israel 2010, OECD Review of Agricultural Policies, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264079397-en

US Department of Agriculture Foreign Agriculture Services (USDA-FAS) (2017), “Israel: Tel Aviv Tidbits, May 2017”, Global Agriculture Information Network (GAIN), USDA, Washington DC.

WTO (2016), World Tariff Profiles 2016, published by WTO, ITC, UNCTAD, Geneva, https://www.wto.org/english/res_e/booksp_e/tariff_profiles16_e.pdf.

WTO (2012), Trade Policy Review, Report by the Secretariat: Israel, WTO, Geneva, 25 September.

Note

 1.  In June 2017, the price for Mekorot water users in these areas fell from ILS 2.5 (USD 0.7) per cubic meter to ILS 1.98 (USD 0.55) per cubic meter and in June 2019 it will be reduced to ILS 1.81 (USD 0.5) per cubic meter.

Chapter 13.

Japan

Support to agriculture

Japan has gradually reduced its support to agriculture but the change has been relatively moderate. Producer support as a percentage of gross farm receipts (%PSE) is about 46% in 2015-17, down from 63% in 1986-88 but still much higher than the OECD average. Market price support (MPS) remains the main element of PSE and is mainly sustained by trade barriers, especially for rice, pork and milk. Prices received by producers are on average 72% above world market prices.

While the share of potentially most distorting support (MPS, support based on output and variable input use – without input constraints) has declined, it still accounts for 85% of producer support. The share of direct payments in the PSE increased in recent years, particularly in the form of area and income based payments.

The total support estimate to agriculture (TSE) represents 1.0% of Japan’s GDP in 2015-2017. Support for producers (PSE) represents 82% of TSE in 2015-2017, while another 18% is the support for general services provided to agriculture (GSSE). Around 85% of the GSSE is directed to the development and maintenance of infrastructure such as irrigation facilities and disaster prevention, while 11% of the GSSE finances the agricultural knowledge and innovation system.

Main policy changes

Government administered rice production quota are abolished in 2018. The end of the quota system, which has been in place since the 1970s, will enable farmers to plan their production in response to market demand without relying on government quota allocation. To support farmers’ decision making and facilitate the transition towards more market orientation, the government provides detailed market information on rice such as demand forecasts. The income support payment for rice to those who meet the rice production target, is also abolished in 2018.

Japan finalised negotiations for the Economic Partnership Agreement with the European Union in December 2017. Under the agreement, access to the Japanese market for EU agricultural products, including dairy, pork, beef, and wheat are to be improved, while rice is excluded from any tariff commitment.

In March 2018, Japan and ten other Pacific Rim nations signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Under the agreement, market access of agricultural products, including sensitive products such as rice, pork, dairy products, beef, wheat, barley, and sugar, is to be improved by various measures which include tariff cuts.

Assessment and recommendations

Phasing out of the administrative allocation of rice production is an important step to give farmers more freedom to respond to market signals and lower rice prices, yet the remaining trade barriers will keep the price of rice high. A gradual reduction of these measures will help to generate benefits for consumers through lower prices and for farmers through increased flexibility in production decisions.

Japan has made significant efforts to promote land consolidation to “business farmers” certified by authorities. The establishment of farmland banks and various types of support for which only business farms are eligible could contribute to farm size growth and lower production costs. However, farmers may be reluctant to release their farmland if there is a chance of selling their farmland for non-farm usage (such as construction of industry and service facilities, or private housing) at much higher prices. Reducing the incentive for farmland owners to speculate in such a way, for instance by taxing the price differential between agriculture and non-agriculture land, would further help structural change and land consolidation.

Japan’s agricultural productivity (measured by total factor productivity) has grown at a faster pace than the world average. In order to maintain this trend, shifting away from market price support towards the support for agricultural innovation and promotion of private research and development (R&D) activities is important. The 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. A greater involvement of the private sector, including by public-private partnerships in the area of research, could unleash additional potential for innovation and productivity growth.

Lowering GHG emissions from agricultural sources is an important step to achieve Japan’s commitment in the context of the United Nations Framework Convention on Climate Change (UNFCCC) and specifically the 2016 Paris Agreement on Climate Change. R&D activities will play key role in mitigating GHG emissions and helping adaptation to climate change through, for instance, development of low-emission agricultural practices and heat-tolerant varieties.

Japan intends to pursue economic partnerships with other countries and to promote agro-food exports. While this signals a move towards a more market-oriented agricultural sector, the reduction of border measures on agricultural products would contribute to structural change and further productivity growth of the Japanese agro-food sector through competition with foreign products.

Figure 13.1. Japan: 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.

StatLink  http://dx.doi.org/10.1787/888933756666

Support to farmers (%PSE) has declined gradually over the long term. During 2015-17, farm support represented around 46% of gross farm receipts, but remains high compared to the OECD average. The share of potentially most distorting support (MPS and support based on output and variable input use – without input constraints) has decreased slightly in recent years, but still accounts for 85% of the PSE (Figure 13.1). Market price support continues to be the main element of that support. The level of support has increased in 2017 due to an increase in the gap between domestic and border prices, in particular for rice (Figure 13.2): while the domestic rice price increased by 6%, the import price decreased by 17% from 2016 to 2017. The level and structure of the Single Commodity Transfers (SCT) vary greatly by commodity. SCTs above 50% of commodity gross farm receipts are maintained for barley, rice, sugar, milk, pork, cabbage and grapes (Figure 13.3). Expenditures for general services (GSSE) were equivalent to 18% of agricultural value added in 2015-17 and mainly focused on the development and maintenance of infrastructure such as irrigation facility. Total support to agriculture (TSE) was 1.0% of GDP in 2015-17, reduced by more than half since 1986-1988.

Figure 13.2. Japan: 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.

StatLink  http://dx.doi.org/10.1787/888933756685

Figure 13.3. Japan: 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.

StatLink  http://dx.doi.org/10.1787/888933756704

Table 13.1. Japan: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758547

Contextual information

Japan is the world’s third largest economy, after the United States and China, with relatively small land and a highly dense population. Agriculture constitutes a relatively small share in the economy (1.1% of GDP and 3.4% of employment). The most important crop is rice, which is a staple food for Japanese citizens. In value terms, rice alone accounts for about one-fifth of total agricultural production while in terms of land-use, rice accounts for about one-third of agricultural area. Livestock, vegetables, and fruits account for 35%, 27%, and 9% of total production value as covered in the PSE/CSE database. The food self-sufficiency ratio, calculated as the ratio of domestic production to total food supply, was 38% in 2016 on a calorie basis, meaning that more than 60% of calorie intake depends on imports from foreign countries. On a value basis, the self-sufficiency ratio is 68%, having reflected recent proportional increase of domestic vegetables, fruits and livestock products, which have relatively higher unit price and added values per calorie.

Japan is a mountainous country and forest accounts for about two-thirds of total land, and the total agricultural area consists of only 12 % of total land. The agricultural area has decreased by more than 10% over the past two decades, due to farmland abandonment and conversion to non-farm uses (e.g. residential or commercial uses). About half of farmland is irrigated paddy field used for rice production, while the rest is upland (dryland) for non-rice production such as wheat and soybeans. The average farm size has been increasing (1.9 ha in 2005 to 2.5 ha in 2015), yet is still much smaller than in other OECD countries (Bokusheva and Kimura, 2016).

Table 13.2. Japan: Contextual indicators
| Japan | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 2 936 | 5 360 | 10.6% | 6.3%
Population (million) | 125 | 127 | 4.4% | 3.7%
Land area (thousand km2) | 365 | 365 | 0.5% | 0.5%
Agricultural area (AA) (thousand ha) | 5 038 | 4 471 | 0.2% | 0.2%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 336 | 340 | 38 | 45
GDP per capita (USD in PPPs) | 23 404 | 42 269 | 9 650 | 24 866
Trade as % of GDP | 7 | 13 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 1.7 | 1.1 | 3.0 | 3.1
Agriculture share in employment (%) | 5.7 | 3.4 | - | -
Agro-food exports (% of total exports) | 0.4 | 0.7 | 7.7 | 7.3
Agro-food imports (% of total imports) | 12.3 | 8.8 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  76 |  65 | - | -
Livestock in total agricultural production (%) |  24 |  35 | - | -
Share of arable land in AA (%) | 92 | 93 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759003

Japan is the world’s fourth-largest importer of agro-food products, after the United States, China, and Germany (UN Comtrade, 2015). Japan imports a wide range of agricultural products such as meats, cereals, fruits and vegetables, and agro-food imports have been gradually increasing. About half of Japan’s agro-food imports are primary and processed products for consumption, while another half for further processing by domestic industry. In contrast, most agro-food exports are directed to consumers, rather than to industry usages. Export of agricultural products is much smaller than import, but export value has doubled in the last two decades. The main export products are processed food such as alcohol, green tea, sauces and seasonings, and snacks, while large increase in exports are observed for beef, green tea and strawberry in recent years.

Figure 13.4. Japan: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933756723

Figure 13.5. Japan: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933756742

With labour leaving the sector, production levels were sustained by a relatively high productivity growth. Recent TFP growth averaged 2.4% a year, nearly 50% above the world average. Agriculture’s share in energy use is below the OECD average, as is its share in greenhouse gas (GHG) emissions. The main source of GHG emissions from agriculture is methane (CH4) emissions from rice cultivation. Nitrogen and phosphorus balances are higher than OECD averages, probably reflecting land-use patterns (e.g. low share of pastureland) and usage of livestock manure as compost (Shindo, 2012). Water usage as percentage of total resources (water stress indicator) is higher than the OECD average, probably due to rice production, but Japan is water-rich country where annual precipitation exceeds 1 000 mm in most regions.

Figure 13.6. Japan: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933756761

Table 13.3. Japan: Productivity and environmental indicators
| Japan | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 1.64% | 2.45% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | 166 | 178 | 33 | 30
Phosphorus balance, kg/ha | 69.9 | 62.1 | 3.7 | 2.4
Agriculture share of total energy use (%) | 0.1 | 0.2 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 3 | 3 | 8.5 | 8.5
Share of irrigated land in AA (%) | 54.5 | 54.4 | - | -
Share of agriculture in water abstractions (%) | 66 | 67 | 45 | 43
Water stress indicator | 21.5 | 19.5 | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759459

Description of policy developments

Main policy instruments

Market price support accounts for most of the PSE in Japan. Tariff-rate quota systems with high out-of-quota tariffs are applied to major commodities such as rice, wheat, barley and dairy products. For example, the out-of-quota tariff-rate of rice is JPY 341 (USD 3.0) per kg, the tariff-quota for rice is 682 200 tonnes (milled rice), and the maximum mark-up for rice imports is set at JPY 292 (USD 2.6) per kg. Administered prices are applied to pig meat, beef and calves, together with an import tariff. Rice import is conducted through state trading under Japan’s WTO Agreement on Agriculture minimum-access commitment.

For upland-field farming, the income support payment for upland crops (wheat, barley, soybean, sugar beet, starch potato, buckwheat and rapeseed) are provided through area- and output-based payments. The area-based payments are based on the current year’s area planted, while the output-based payments are based on the volume of sales, but the subsidy rate varies by quality and variety. For paddy-field farming, a crop diversification payment, which is conditioned to conserve a favourable environment of paddy fields, is paid to farmers who switch their use of paddy fields from table rice to others (e.g. wheat, soybean)

Crop insurance is available for a wide range of products. It mainly covers yield losses due to natural disaster but deterioration of crop quality and input losses (e.g. livestock or agricultural greenhouse) are also insured for some products. Participation in the crop insurance programme is basically voluntary but compulsory for those who cultivate rice, wheat or barley above certain scales. The government support covers around 50% of the premium. The income based payment compensates farmers when the revenue is lower than a historical average. Specifically, when the total revenue of programme crops (rice, wheat, barley, soybean, sugar beet, and starch potato) falls, the programme compensates 90% of the reduction in revenue suffered to the extent this exceeds crop insurance payments. Current revenues are compared to the Olympic average revenue of the previous 5 years, with the lowest and highest revenues removed; current and historical revenues are calculated from regional average yields and prices. The payment is paid from the fund which is contributed by farmers (25%) and the government (75%).

The income support payment for upland crops (both area- and output-based payments) and the income based payment are available for so called “business farmers (Ninaite)”, defined as a farm management unit which is, or aims to be, an efficient and stable farm. There are three types of business farmers: Certified farmers and certified new farmers are those whose farm management plans are approved by the authorities; and Community-based farm co-operatives are groups of farm households which conduct farm management collectively. To attract younger generations, Japan provides a subsidy to new young farmers during a training period (maximum of two years) and the initial operation period (maximum of five years). Up to JPY 1.5 million (USD 13 369) is paid annually to eligible trainees or farmers. The farmland banks (Public Corporations for Farmland Consolidation to Core Farmers through Renting and Subleasing) have been established since 2014 aiming at farmland consolidation. These banks improve farmland conditions and infrastructure if necessary, and then lease the consolidated farmland to business farmers. Subsidies are provided to land owners who lease their lands to the farmland banks.

Public investment has long been implemented to improve rural infrastructure, such as farmland, agricultural road, and irrigation and drainage facilities. The government supports local co-operative activities which conserve and improve the quality of local resources such as canal maintenance through the program called multifunctional payment. A direct payment for environmentally friendly agriculture is provided to those who reduce chemical fertilisers and chemical pesticides, and those who adopt farming practices that contribute to prevent global warming and/or conserve biodiversity. Direct payments to farmers in hilly and mountainous areas aim to prevent the abandonment of agricultural land and to ensure the role of agriculture for example for environmental protection and landscape preservation.

In ratifying the Paris Agreement on Climate Change, Japan has committed through its Nationally Determined Contribution (NDC) to reducing its emissions on an economy-wide basis to 26.0% below 2013 levels by 2030. Agriculture, forestry, and fishery sectors contribute more than one tenth of the overall reductions by promoting energy-saving equipment, organic fertiliser, fertiliser optimization, carbon sequestration in farmland, and forest management. On climate change adaptation, the government has established the adaptation plan to look at how to build resilience to the effects of climate change.

Japan has fifteen Economic Partnership Agreements (EPAs) in force (Singapore, Mexico, Malaysia, Chile, Thailand, Indonesia, Brunei Darussalam, ASEAN, Philippines, Switzerland, Viet Nam, India, Peru, Australia, and Mongolia). Trades with these partner countries account for 25% of Japan’s agro-food imports, and 21% of its export (2015-2017 average). Japan is currently engaged in several other EPA negotiations such as bilateral negotiations with Colombia and Turkey, and multilateral negotiations including the Japan-China-Korea FTA, the Regional Comprehensive Economic Partnership (RCEP).

Domestic policy developments in 2017-18

From 2018, the government administered rice production quota is abolished. The end of the quota system which had been in place since the 1970s will enable farmers to plan their production in response to market demand. The government provides detailed market information on rice such as supply and demand forecasts to support farmers’ decision making. The income support payment for rice, offering JPY 75 000 (USD 668) per hectare to those who meet the rice production target, is also abolished in 2018.

The floor level of price stabilization bands for pork has remained unchanged in 2018 (JPY 440 or USD 4.0 per kg), while that for beef increased from JPY 900 (USD 8.0) to JPY 925 (USD 8.2) per kg. Similarly, all guaranteed prices per head of calves have increased marginally. The maximum payment rate for manufacturing milk was marginally increased to JPY 10 660 (USD 95) per tonne in 2018 from JPY 10 560 (USD 94) in 2017. As production costs have increased recently due to higher calf prices, the coverage rate of the income stabilization programme for beef, which normally covers 80% of the gap between average production cost and average gross revenue, was temporarily increased to 90% for the period from April 2018 to March 2019.

A number of changes are being made based on the Basic Plan for Food, Agriculture and Rural Areas 2015 (OECD, 2016a) and the Plan to Create Vitality for the Industry and Regional Communities (OECD, 2017). These changes include, among others:

A new revenue insurance programme will be introduced in January 2019. The current crop insurance programme mainly covers yield losses of specific commodities, while the revenue insurance insures total farm revenue and thus covers both price and yield fluctuations. The revenue will be calculated at farm level rather than regional level as in the ongoing income based payment scheme. The participation to revenue insurance is voluntary. Similarly, the compulsory participation requirement for rice, wheat or barley under the crop insurance programme will be eliminated in favour of a voluntary participation.

In order to consolidate more farmland to business farmers, the government revised the related law (land improvement law) to allow farmland banks to improve farmland quality and related infrastructure (e.g. expansion of plot size and investment in drainage facility) without consent and cost sharing of land owners. The background of this revision is that even though business farmers want productive farmland, land owners who rent their land to farmland banks are generally not willing to invest in farmland, as they are going to retire from agriculture.

Trade policy developments in 2017-18

Japan’s tariff-rate-quotas continued to be under-filled in FY2017 for some products, including butter and butter oil, prepared whey for infant formula, skimmed milk powder for school lunches and other purposes, and ground nuts. Japan issued special safeguard measures in FY2017 for some products, including buttermilk and pigeon peas. In 2017, Japan decided to import up to 13 000 tonnes of butter under state trading in order to meet domestic demand.

Japan finalised negotiations for the Economic Partnership Agreement with the European Union in December 2017. Under the agreement, access to the Japanese market for EU agricultural products, including dairy, pork, beef, and wheat will be improved, while rice is excluded from any market access commitment. Import tariffs on hard cheese will be gradually eliminated over a 15 years period, while a tariff rate quota for soft cheese is to be created: The quota is set to be 20 000 tonnes in the first year and to be increased to 31 000 tonnes in the 16th year, while the in-quota tariff should be phased out over 15 years. Tariffs on pasta, biscuits, and chocolate are set to be phased out in 5 or 10 years. Tariffs on beef and pork are also to be reduced.

In March 2018, Japan and ten other Pacific Rim countries signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).¹ The CPTPP incorporates many (though not all) of the provision of the original Trans-Pacific Partnership (TPP) from which the United States had withdrawn in early 2017. Under the CPTPP agreement, market access of agricultural products, including sensitive products such as rice, pork, dairy products, beef, wheat, barley, and sugar, is set to be improved by various measures, including tariff cuts.

In November 2017, the Japanese government announced various plans to cushion the expected effects of CPTPP and Japan-EU EPA on domestic markets. For example, under the CPTPP the country specific tariff rate quota for rice from Australia would reach a total of 8 400 tonnes in the 13th year. This amount is approximately equivalent to 1% of the current total import quota or 0.1% of total rice consumption in Japan. The Japanese government plans to purchase the same amount of domestically grown rice as public stocks every year. The reduction of import tariffs for beef and pork would be accompanied by an amendment of the income stabilization programme: the existing programme coverage up to 80% of the gap between average production cost and average gross revenues would be increased to 90% for both sectors. Farmers’ premium (contribution rate) for the pork income stabilisation programme will be reduced from the current 50% to 25%. For sugar products, the current price adjustment scheme will be revised to cover imported sugar preparations (e.g. cocoa powder). Following the improved access to the Japanese market for EU agricultural products such as cheese, pasta, and biscuits under the Japan-EU EPA, the Japanese government plans to support domestic cheese producers by providing subsidies for high-quality cheese production, investments in cheese production facilities, and training and promotion activities, in order to increase competitiveness. The Japanese government also intends substantially eliminate or reduce the import tariff (mark-up) on wheat for the production of pasta and biscuits, which could improve the competitiveness of domestic pasta and biscuit producers.

The government has set an export target of JPY 1 trillion (USD 9 billion) by 2019. The value of agro-food exports has increased consecutively since 2012. In 2017, the value of exports of agricultural, forestry and fishery products and foods increased by 8% from 2016 and marked a record high of JPY 807 billion (USD 7.2 billion), reflecting increasing demand for Japanese products and public and private efforts in export promotion. Exports were expanded for a wide range of agricultural products such as rice, beef, strawberry, green tea, alcohol drink (sake), and garden trees (bonsai). Under CPTPP and EPA with the European Union, most import tariffs on agricultural products imposed by partner countries are set to be abolished. The government plans to facilitate export by promoting production according to international standards such as HACCP and GAP, protection of intellectual property rights, and strengthening promotion activities on Japanese cuisine and Japan’s own food standards (JAS labelling).

References

Bokusheva, R. and S. Kimura (2016), “Cross-Country Comparison of Farm Size Distribution”, OECD Food, Agriculture and Fisheries Papers, No. 94, OECD Publishing, Paris, http://dx.doi.org/10.1787/5jlv81sclr35-en.

Japan Meteorological Agency (2018), Annual average precipitation (1981-2010 average), available at http://www.data.jma.go.jp/obd/stats/data/mdrr/atlas/precipitation_13.png (accessed on 8 March 2018).

OECD (2016a), “Japan”, in Agricultural Policy Monitoring and Evaluation 2016, OECD Publishing, Paris, http://dx.doi.org/10.1787/agr_pol-2016-16-en.

OECD (2016b), “OECD’s Producer Support Estimate and Related Indicators of Agricultural Support: Concepts, Calculations, Interpretation and Use (The PSE Manual)”, March 2016.

OECD (2017), “Japan”, in Agricultural Policy Monitoring and Evaluation 2017, OECD Publishing, Paris, http://dx.doi.org/10.1787/agr_pol-2017-17-en.

OECD (2018) “Japan: Estimates of support to agriculture”, available under “Definitions and sources” at PSE portal site, http://www.oecd.org/tad/agricultural-policies/producerandconsumersupportestimatesdatabase.htm.

Shindo, J. (2012), “Changes in the nitrogen balance in agricultural land in Japan and 12 other Asian Countries based on a nitrogen-flow model”, Nutrient Cycling in Agroecosystems, 94(1), 47-61.

Revisions in Japan’s PSE database in 2018

Japan’s PSE database covers nine fruits and vegetables (apples, grapes, mandarins, pears, strawberries, cabbage, cucumbers, spinach, and welsh onions), which account for 13% of the country’s total production value, and 15% of its total market price support of covered products. Thus, precise estimates for fruits and vegetables are crucial. Following the established methodology (OECD, 2016b), the measurement of market price support for Japanese fruits and vegetables has been improved in two aspects for this edition of the report.

First, marketing margins were adjusted for the nine products based on wholesale price data, instead of using incomplete margin data. Margin data are unavailable for many years, and for some products, no margin data are available at all. In addition, the representativeness of the margin data seems low as margins are derived from questionnaire information from only 10 to 20 sellers. In contrast, wholesale price data are available for all products and years, and sample coverage is high.

Second, quality adjustments have been made for vegetables (cabbage, cucumbers, spinach, and welsh onion) using price gaps observed at the wholesale market (due to lacking data availability, this was not possible for fruits). The wholesale price statistics report wholesale price of domestic products and imported products. As prices are measured at the same market level, if two products are exactly the same in quality, prices should be the same as well. Any price gaps can therefore be interpreted as an indication of quality differences.

As a result of these two revisions, the estimated total market price support of fruits and vegetables and %PSE are reduced relative to previous estimates, by 8 and 1.4 percentage points on average respectively. The details of these revisions are fully discussed in the Japan cookbook (OECD, 2018).

Note

 1.  CPTPP countries are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Viet Nam.

Chapter 14.

Kazakhstan

Support to agriculture

The share of producer support in gross farm income (%PSE) was nearly 6% in 2015-17. In 2017, domestic producer prices remain on average below world levels although to a lesser extent than in 2016, leading to a negative aggregate price support (MPS)¹ and an implicit transfer from farmers to consumers as measured by the Consumer Support Estimate. Support to farm investments gains prominence, with its share in budgetary transfers to producers increasing to 60% in 2017 from less than 30% in 2013. On average, total support to agriculture growth is in par with economic growth and its share in the economy (%TSE) is stable. The share of General services to the sector (GSSE) in the TSE is stable at around 22%. Spending on Inspection and control and on development and maintenance of infrastructure together made up more than 80% of the GSSE in the past three years.

Main policy changes

In 2017, Kazakhstan continued the implementation of changes initiated in 2016 to its set of agricultural policy instruments. The total budget for state support was maintained while the number of payment schemes reduced from 65 to 54. Output payments to livestock were reallocated to subsidise feed costs. Larger amounts were attributed to the subsidisation of pedigree livestock, debt rescheduling and interest rates for investments, for micro-credit and for agricultural loans and leasing contracts.

On 1 January 2018, Kazakhstan eliminated the VAT preference to certain agricultural producers and processors as foreseen in its WTO accession protocol of 2015.. Beyond binding the AMS, the de minimis levels and agricultural export subsidies, other commitments include the compliance with the WTO SPS and TBT Agreements, the use of international standards for technical regulations as well as participation in international conformity assessment procedures.

Greater use is made of Information Technologies. Since 2017, applications to KazAgro credit and leasing instruments can also be submitted through an electronic system. Computerised customs procedures are now part of the new Customs Code of the Eurasian Economic Union that came into force in January 2018.

The partial privatisation of KazAgro is delayed as no buyers came forward at auctions in 2017 for the sale of 11 KazAgro subsidiaries.

Assessment and recommendations

Between 1995-97 and 2015-17, Kazakhstan’s support to agriculture as measured by the %PSE has decreased and its composition has changed. While market price support is no longer the sole instrument, all farm support requires production and is hence likely to influence farm management decisions, increase pressure on resources and distort markets.

An important and growing share of payments support farm level long-term development and productivity. This should have a positive effect on the sector. As from 2014, the formation of fixed capital attracts 50% or more of payments, mostly to livestock pedigree programmes.

The debt restructuring programme initiated in 2013 absorbs higher budgets every year. Any future allocation of public funds and productive resources would be improved by increasing farmers' co-responsibility and a more active use of bankruptcy procedures.

Support conditional on compliance with administratively specified requirements should be evaluated in light of desired outcomes.

Increased subsidies for fertiliser and chemicals inputs and for the use of industrial feed should be assessed in light of their potential negative environmental impact. Furthermore there is a risk of subsidy leakage to the input industry. Current efforts to streamline support to fewer measures and more transparent attribution conditions should be continued.

The sector’s long term productivity should be strengthened by giving producers access to land ownership and long-term rent, by enabling them to better manage market and climate-related risks and by creating incentives for a more efficient and sustainable use of natural resources. Farm decision-making and performance could be improved by developing a national system of extension services.

A number of infrastructure projects are underway that have the potential to reduce weaknesses in the transport and market infrastructure, facilitate farmers’ access to domestic and international markets and improve water and land management. The focus on infrastructural development needs to be maintained.

Kazakhstan’s emission reduction target of 15% by 2030 relative to the 1990 levels (25% conditional on international investments to access low carbon technologies) covers all sectors including agriculture. An agriculture-specific target or reduction plan, however, has not been defined. It therefore remains unclear whether, to what degree and how agricultural emissions will be reduced.

Figure 14.1. Kazakhstan: 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.

StatLink  http://dx.doi.org/10.1787/888933756780

Support to agricultural producers as measured by the %PSE was estimated to less than 6% of gross farm receipts on average in 2015-17. In 1995-97 nearly all (99%) support was potentially most distorting (support based on output and variable input use – without input constraints). This share has gone down to 12% on average in 2015-17. Domestic prices were lower than world prices for crop products and higher than world prices for livestock commodities, resulting in average prices received by farmers at 1% below world prices. Support to general services (GSSE) represents 4% of agricultural value added in the most recent period, an increase from less than 1% in 1995-97. This reflects the setting up of basic services including pest and disease inspection and control as well as institutional and market infrastructures. Total support to agriculture (TSE) as % of GDP was stable at about 1.4%. The share of GSSE in TSE increased from 5% in 1995-97 to 22% in 2015-17. In 2017, the MPS was less negative than in 2016, driven by price changes on domestic and world markets. Reflecting individual commodity price gaps, SCTs were strongly negative for rice and sunflower and slightly positive for livestock products.

Figure 14.2. Kazakhstan: 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.

StatLink  http://dx.doi.org/10.1787/888933756799

Figure 14.3. Kazakhstan: 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.

StatLink  http://dx.doi.org/10.1787/888933756818

Table 14.1. Kazakhstan: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758566

Contextual information

Kazakhstan has the ninth largest land area in the world and is one of the least densely populated countries. It has the second-highest per-capita availability of arable land in the world. The country is an upper middle-income economy.

Although lower than in 1995, the share of trade in GDP rebounded from 21% in 2015 to 23% in 2016. Kazakhstan is an exporter of mineral fuels and its share of trade in GDP is substantially higher than the corresponding value for all countries analysed in the report. Agriculture contributes about 5% of GDP and employs 18% of the country’s working age population. The farm structure is dualistic: large-scale and often highly integrated operations dominate the grain sector, while around 76% of beef and 80% of milk is produced by rural households.

Table 14.2. Kazakhstan: Contextual indicators
| Kazakhstan | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 96 | 451 | 0.3% | 0.5%
Population (million) | 16 | 18 | 0.6% | 0.5%
Land area (thousand km2) | 2 700 | 2 700 | 3.6% | 3.6%
Agricultural area (AA) (thousand ha) | 217 187 | 216 992 | 8.0% | 8.1%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 6 | 7 | 38 | 45
GDP per capita (USD in PPPs) | 6 039 | 25 331 | 9 650 | 24 866
Trade as % of GDP | 27 | 23 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 12.9 | 4.8 | 3.0 | 3.1
Agriculture share in employment (%) | 26.7 | 18.0 | - | -
Agro-food exports (% of total exports) | 2.0 | 5.9 | 7.7 | 7.3
Agro-food imports (% of total imports) | 0.7 | 11.9 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  54 |  56 | - | -
Livestock in total agricultural production (%) |  46 |  44 | - | -
Share of arable land in AA (%) | 16 | 14 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759022

GDP growth slowed down to 1.2%, in 2015 from 6% in 2013 and 4% in 2014.2 The rate of inflation has stabilised at around 6.7% in 2014 and 2015. Unemployment has been on a steady decline and reached its lowest level in 2016 at 4.9%. Kazakhstan is a net agro-food importer since the mid-2000s while one of the world’s largest wheat exporters. More than 60% of agro-food exports are in primary commodities, of which 84% go to processing. While more than 60% of agro-food imports are in processed commodities, of which 75% are for final consumption.

Figure 14.4. Kazakhstan: Main economic indicators, 1996 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933756837

Figure 14.5. Kazakhstan: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933756856

The average annual TFP growth rate of 0.5% between 2005 and 2014, underscores the remaining gap to achieve the world average of 1.6%. Output grew by 2.3% per year, reflecting the intermediate inputs growth, while the primary factors use decline offset the TFP growth. Agriculture’s share of energy use declined considerably between 1991-2000 and 2005-14 when it was equal to the OECD average. Agriculture’s share of GHG emissions also fell during the period while it remained above the OECD average, a comparison that should be qualified by the higher contribution of agriculture to the country’s GDP than the OECD average. The share of irrigated land remains low at 1%.

Figure 14.6. Kazakhstan: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933756875

Table 14.3. Kazakhstan: Productivity and environmental indicators
| Kazakhstan | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 5.54% | 0.50% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | .. | .. | 33 | 30
Phosphorus balance, kg/ha | .. | .. | 3.7 | 2.4
Agriculture share of total energy use (%) | 4.6 | 1.9 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 12 | 10 | 8.5 | 8.5
Share of irrigated land in AA (%) | 0.9 | 1.0 | - | -
Share of agriculture in water abstractions (%) | .. | .. | 45 | 43
Water stress indicator | .. | .. | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759478

Description of policy developments

Main policy instruments

Since 2017, the State Programme of Agro Industrial Complex Development for 2017-2021 (hereafter, the 2021 State Programme) defines the agricultural policy framework in Kazakhstan. It replaced the Programme for the Development of Agro Industrial Complex for 2013-20 (Agribusiness 2020) that had been in place since 2013.

Major principles from the previous programme are maintained, namely 1) financial rehabilitation of the sector; 2) subsidies and other budgetary support to the sector; 3) development of phyto-sanitary and veterinary systems; 4) enhancement of state regulation (development of information systems, agrochemical services, seed testing, technical regulation, state inspections and control and other public services). Nonetheless, the 2021 State Programme announced a stronger emphasis on the development of, and support to, individual household plots and small farms, agricultural producer co-operatives and agriculture supporting services and infrastructure such as agricultural machinery, agrichemicals, taxation, trade infrastructure and certification. In addition, some input subsidies including on seed, fertiliser and pesticides were also to be increased. Since the implementation of Agribusiness 2020, sub national budgets subsidise a larger share of agricultural policy instruments.

Kazakhstan is a party to the Paris Agreement on Climate Change. Through its Intended Nationally Determined Contribution, Kazakhstan set an economy-wide target to reduce its total GHG emissions by 15% in 2030 compared to 1990, over a period starting in 2021. This target covers all emissions including from agriculture. A more ambitious target of 25% reduction has also been identified conditional on international investments to access low carbon technologies. Specific targets or reduction plans for the agricultural sector have not been defined.

Kazakhstan applies a range of border and domestic price intervention instruments. Border measures are in large part implemented within the Customs Union of the Eurasian Economic Union (EAEU) and include Tariff Rate Quotas (TRQs) and non-tariff measures. TRQs apply to imports of beef of lower grade and poultry products.

Intervention on domestic markets is twofold. The State Commission for the Modernisation of the Economy decides intervention purchases of grains to support domestic producer prices. At the same time, a system of consumption price stabilisation is in place for 29 commodities.³ Intervention is funded by local budgets and responds to local conditions. Purchase occurs after harvest at market prices and commodities are stored before they are released at below market prices later in the year.

Area payments apply to “priority crops”⁴ while the livestock sector is supported by headage and output payments. Large commercial livestock producers receive most of the output payments. Pedigree support is also in place for all types of livestock; 65% of this support goes to beef cattle.

The Agribusiness 2020 programme substantially increased mineral fertiliser subsidies. Subsidies apply also to the purchase of high quality seeds. The largest share of support to the livestock sector is distributed through pedigree support. Other forms of support to livestock are silage and fodder subsidies, support to artificial insemination and to the purchase of young cattle for feedlots.

Administered prices apply to diesel fuel sold to agricultural producers; total volumes to be supplied at these prices during the sowing and harvesting periods are pre-determined as well.

Investment subsidy budgets have increased and, together with concessional credit, they represent principal forms of support. Concessional credit is delivered through numerous channels. Loans are provided at reduced interest rates by several credit agencies under the umbrella of the state company KazAgro Holding. Interest rates on agricultural loans and leasing contracts are subsidised by up to 7% and 5% per annum for contracts in KZT and USD, respectively. Concessional credits are granted both for short-term and investment loans. Primary producers also benefit from concessional leasing of machinery, which is additionally exempt from Value Added Tax (VAT). Along with agricultural producers, food processors benefit from concessional credit and leasing of machinery and equipment from credit agencies of KazAgro Holding. In addition to support through state-controlled institutions, interest subsidies on loans taken in private banks and direct subsidies to interest rates and leasing fees are also available for loans or leasing provided by commercial banks and companies.

A restructuring of overdue farm loans, known as the Programme of Financial Rehabilitation, began in 2013. Prior to the implementation of this programme, bad and sub-standard loans represented 42% of all credit portfolios of the state holding KazAgro and over one-half of the total agricultural credit portfolios in commercial banks. The programme offers substantial interest concessions, with repayment schemes of overdue loans prolonged for up to nine years. The interest rate on restructured loans is subsidised by up to 7% and 5% per annum, on loans in KZT and USD, respectively. Furthermore, there is also a write-off of fines and penalties on overdue loans. Large scale crop producers are the main beneficiaries of the programme which also concerns livestock-specialised producers, food processors and other businesses not belonging to primary agriculture. Resources underlying these mechanisms have increased substantially through time. They are mainly drawn through emissions of state securities and directed to provide liquidity to KazAgro credit agencies and commercial banks that implement debt restructuring.

The 2021 State Programme foresees measures to improve the financial discipline of farms undergoing debt restructuring procedures. Farms with delays in loan repayment over 90 calendar days would be excluded from the financial rehabilitation programme.

The regional specialisation scheme for Kazakhstan approved in 2014 recommends the types of agricultural production for each country region considering climatic and market conditions and infrastructure availability. Compliance with the scheme has been mandatory up to 2017 for producers seeking support payments and access to concessional credit.

Investment subsidies for new operations or the expansion of existing operations is an important support measure applied since 2014. In contrast to interest subsidies on investment loans, which reduce farmers’ credit costs, this support covers a share of investment project costs and is provided through a complex approval system. It applies to eighteen “priority sectors” conditioned on compliance with a number of technical specifications and regulatory rules and has to be approved by regional authorities and in some circumstances also by the Ministry of Agriculture.

Five business taxes apply in Kazakhstan. These include property tax, social tax, VAT, profit tax, and tax on vehicles. Agricultural enterprises and individual farms benefit from special tax regimes with substantial concessions. For example, corporate and family farms enjoy a 70% discount on all five taxes. Other VAT preferences also apply to agricultural producers and processors. A practice of a 100% subsidisation of VAT to primary processors and procurement organisations on agricultural products procured from individual farms is in place since January 2016. The land tax has applied from 2015 and has since seen a five-fold increase in its basis rates.

Individual farms of less than 3 500 hectares are eligible for a Single Land Tax, which is set as a percentage of the cadastre value of land owned or used and replaces the land tax and the five business taxes mentioned above. Since 2015 individual farms have to pay a 10% income tax for physical persons on the income above KZT 150 million (USD 0.4 million).

A Law on Agricultural Cooperation that came into effect on 1 January 2016 facilitates the creation and operation of producer co-operatives and qualifies them as eligible for the 70% discount on the five business taxes mentioned above, for credit concessions, for investment subsidies and for a subsidy covering 50% of auditing costs. From 2017, agricultural co-operatives have a preferential access to investment subsidies to establish milk-collection and animal-slaughter points, and fruits, vegetable and potato warehouse facilities.

Harnessing Information Technologies is part of Kazakhstan’s longer term strategy to simplify, ease control and improve the transparency and effectiveness of government support to agriculture. An electronic system of subsidy payments is under construction. Applicants to KazAgro credit and leasing can apply electronically. Electronic systems of warehouse receipts and for the provision of investment subsidies are planned. A national land cadastre database is under construction.

The production of organic food is regulated and the legal, economic, social and organisational frameworks required for the development of organic farming in the country are under review.

Changes in the organisation and structure of the state company KazAgro Holding were announced in 2015 which concern: i) the partial privatisation of three KazAgro subsidiary companies;⁵ and ii) the optimisation of the holding structure and specialisation of its subsidiary companies on the provision of specific support programmes. The Agricultural Credit Corporation (ACC) would specialise on funding commercial banks, credit co-operatives, micro-finance organisations and leasing companies, the Fund of Financial Support of Agriculture (FFSA) would serve small and medium agribusiness and agricultural co-operation, and KazAgroFinance would focus on the leasing of machinery and equipment and no longer provide credits.

The President’s Edict dated 6 May 2016 imposed a moratorium until 31 December 2021 on the foreseen introduction of private ownership of agricultural land and on the extension of the maximum period of agricultural land rent to foreign entities from 10 to 25 years.

The Law on Pasture Land sets procedures for granting the use of pastures within and beyond boundaries of urban and rural settlements, and within regional administrative units.

Several infrastructure projects are under construction that may ease constraints to agricultural development in Kazakhstan in general and agro-food export capacity in particular. Among other components, expenditure on general national programme for the development of transport infrastructure “Nurly Zhol” envisages the expansion of the railway network to facilitate access to the Persian Gulf region. The programme was started in 2016 and is expected to increase grain exports by up to 8-10 million tonnes per year and open opportunities for other agro-food exports.

Domestic policy developments in 2017-18

The intervention purchase of 2 million tonnes of grade 3 wheat at KZT 42 000 (USD 131) per tonne was decided in December 2017. To implement the intervention, KazAgro’s subsidiary Food Corporation is to receive KZT 8.3 billion (USD 25 million) from the State reserve and a loan of KZT 60 billion (USD 187 million) from the State Social Insurance Fund.

The implementation of the 2021 State Programme began in 2017. Adjustments to the existing policy instruments were made and more are foreseen as the Programme is rolled out.

Adjustments to the “priority crops” area payments scheme continued. A number of crops no longer qualify,⁶ while greenhouse vegetables (both in industrial businesses and farmhouses) and drip-irrigated cotton are newly included. This scheme also covers maize and rice, oilseeds, sugar beet, forage crops, horticultural crops under specific growing conditions and cotton. While the overall budget for area payments has been reduced, the earmarked spending for sugar beet, cotton, silage sunflower and maize has been substantially increased.

Payments to livestock production underwent major changes in 2017. Output payments decreased by more than 30% on average and most payments per head of livestock were reallocated to subsidise feed costs. The per-head subsidy to young cattle for feedlots, however, was maintained and increased seven-fold.

Since 2017, the regional specialisation scheme for Kazakhstan is no longer mandatory for producers seeking support payments and access to concessional credit.

The cost of restructuring overdue farm loans weighs increasingly on government spending and the programme reached KZT 26 billion (USD 81 million) in 2017. This is approximately 15% of the PSE on average, the second largest agricultural budget spending item.

Application to KazAgro credit and leasing underwent simplification and an electronic application system is in place since June 2017. Technical and regulatory requirements for investments subsidies s were also simplified.

The transition period for replacing value-added tax preferences for domestic producers and processors in agriculture to a WTO compatible subsidy mechanism came to an end on 1 January 2018 (WTO, 2015). Preferences were eliminated, however information on the new replacement system is not available.

While auctions were held twice in 2017 for the sale of shares of 11 subsidiaries of KazAgro, no buyers came forward and no progress was achieved on the privatisation plan adopted in 2015.

Trade policy developments in 2017-18

Trade policy reforms are underway in Kazakhstan, mostly driven by the country’s commitments to the Eurasian Economic Union and to the WTO.

Kazakhstan is a participant to the Treaty on the Eurasian Economic Union (EAEU) since its establishment in 2015. This body unifies five countries – Armenia, Belarus, Kazakhstan, Kyrgyzstan and the Russian Federation. Custom procedures between the signatories are simplified and mostly carried out electronically. Beyond free trade and common customs territory, the EAEU guarantees the free movement of labour and capital and sets a common framework for economic policies in its member-states. On 1 January 2018, the Treaty approving the EAEU Unified Customs Code came into force.

Kazakhstan’s border measures are implemented within the Customs Union of the EAEU and a number of national competences in the area of custom regulations are transferred to the EAEU, including SPS and technical regulations.

In 2017-18, EAEU related developments concerned veterinary control and surveillance, seeds circulation and the creation of EAEU common seed register, traceability of goods, product safety, and other issues.

As a member of the EAEU, efforts to harmonise veterinary and phytosanitary standards are on-going with several export destinations, including China, Iran and Saudi Arabia. Future harmonisation negotiations are planned with Israel, Kuwait, Malaysia, Japan, South Korea and the European Union. The harmonisation of veterinary requirements relates to beef, sheep and camels, to varieties of honey and to fish. The harmonisation of phytosanitary requirements relates to flax, beans, peas, safflower, melon seeds, alfalfa and oil cake.

Kazakhstan is a member of the WTO since November 2015. As part of its accession protocol to the WTO, Kazakhstan agreed to a number of commitments, some specific to agricultural trade. These include the compliance with the WTO SPS and TBT Agreements, the use of international standards for technical regulations as well as participation in international conformity assessment procedures. The average final bound rate of Kazakhstan’s agricultural import tariffs is 9.7% compared to the non-agricultural of 6.0% (WTO, 2018).

A TRQ of 21 000 tonnes applies to imports of fresh, chilled or frozen beef and a 140 000 tonnes TRQ applies to fresh, chilled, or frozen poultry, the latter includes a TRQ of 128 000 tonnes for certain frozen bone-in chicken parts, and another one of 12 000 tonnes for remaining poultry items. Bound rates for in-quota tariffs for these TRQs are set at 15%. Bound rates for over-quota imports are set at 40% and no less than EUR 0.65 (USD 0.80) per kilogramme for poultry products. The tariff on pig meat was reduced from 65% to 30% and is set to decline to 25% by 2020.

Currently, a Register of Exporting Companies is in place for primary agro-food companies that have fulfilled the veterinary and phyto sanitary requirements for exports to China. In December 2017, five lamb exporting businesses were registered.

References

WTO (2018), Kazakhstan Tariff profile, http://stat.wto.org/TariffProfiles/KZ_e.htm.

WTO (2015), Overview of Kazakhstan’s accession protocol commitments, https://www.wto.org/english/news_e/news15_e/kazakhannex_e.pdf.

Notes

 1.  Wider price distortions at individual commodity levels offset each other in the aggregate measurement.

 2.  2015 is the latest year available for real GDP growth and the inflation rate.

 3.  Intervention varies depending on local conditions. It is implemented for flour (grade 1 and extra class), buckwheat, millet, oats, sugar, rice, potatoes, onions, carrots, beets, peas, cabbage, milk, butter, yoghurt, cheese, curd, beef, lamb, poultry meat, eggs, manna groats, pearl barley, pasta, sunflower-seed oil, oil 49% spread, tea and salt.

 4. Cereals, maize, millet and rice, oilseeds, sugar beet, forage crops, horticultural crops, cotton, vineyards and potatoes.

 5. KazAgroFinance, KazAgroProduct and KazAgroMarketing.

 6. Basic payments to cereals, maize and millet were eliminated; maize, sugar beet, cotton and potatoes under drip irrigation; vegetables and melon and vineyards are no longer listed.

Chapter 15.

Korea

Support to agriculture

Korea has gradually reduced its support to agriculture over the long term, with modest progress towards more market-oriented policies. Since 2015, all import restrictions on agricultural products are in the form of tariffs and tariff rate quotas. Along with reducing price support, the government has introduced a range of direct payment programmes from the late 1990s, an agricultural insurance scheme from 2005, and a variable payment for rice from 2003.

Total support to agriculture (TSE) as a percentage of GDP has significantly declined from 8.6% in 1986-88 to 1.8% in 2015-17. However, producer support accounted for 52% of gross farm receipts (% PSE) in 2015-17, which is almost three times the OECD average. Most support to farmers is in the form of market price support (MPS), which accounted for 90% of the PSE in 2015-17. The ratio of producer price to border price has declined from 3.3 in 1986-88 to 2.0 in 2015-17. Transfers to individual farmers represented 89% of the TSE in 2015-17. Support to general services (GSSE) accounted for 9% of the Gross Value Added of agriculture. The expenditure on the development and maintenance of infrastructure accounted for 52% of the GSSE.

Main policy changes

Direct payments for farms in less-favoured area per ha were increased in real terms. Variable payments for rice more than doubled compared to the previous year as rice prices declined. A Complementary plan to the 2015 plan was introduced to balance the supply and demand of rice. It includes a reduction in the area of rice paddies, measures encouraging diversification of activities, and measures stimulating demand.

The Agriculture, Rural Community and Food Industry Development plan 2018-22 foresees further adjustments in direct payments programmes along the same lines, in addition to lower coupling of direct payments for rice, stronger cross-compliance in the direct payment scheme, and further expansion of crop insurance programmes. The plan also includes investment support to young farmers, for the integration of digital technology into food and agriculture, and for the promotion of renewable energy generation.

Measures were implemented in 2017, to strengthen procedures for certification of agricultural products, the labelling of products and pest and disease control. The Development plan 2018-22 includes further measures to enhance food safety and traceability in the supply chain.

The Development plan 2018-22 also includes measures to improve rural well-being, such as income support for farmers' retirement and support to infrastructure and access to rural services. Bottom-up policy participation will be strengthened.

Assessment and recommendations

Reforms of the rice policy should be a priority. The plan to balance the supply and demand of rice is a first step towards a more efficient and sustainable system. Efforts to change production and trade distortive measures that prevent producers from receiving market signals, including a gradual reduction of border protection, should be strengthened.

The highly fragmented land ownership structure hinders farm consolidation. Inheritance and farmland regulations should be revised to facilitate farm-scale adjustment (OECD, 2018).

Recent efforts to improve traceability along the food chain and information to consumers should continue as they contribute to a better functioning of the market.

Further decoupling of direct payments from production decisions and strengthened cross-compliance in the Development plan 2018-22 are expected to reduce distortions and improve environmental performance. For the benefits to materialise, careful design and implementation parameters are required.

Direct payment schemes targeting explicit societal objectives, such as the provision of environmental services including water management, flood buffering and biodiversity, should be promoted as there remains room for improving the environmental performance of the sector. At the same time, environmental policies should increasingly build on the polluter-pays principle. A multi-dimensional approach to manure management, including regulation, incentive to invest in developing new technology, capacity building and building partnership between stakeholders, would also help reduce the high nutrient surplus per hectare.

The development of livestock farming increased greenhouse gas emissions from animals and strengthened the need for formulating a roadmap with emission reduction goals and detailed measures to implement the 2030 emission reduction target for the main emission sectors (rice and livestock). Agriculture is expected to contribute to Korean commitments to reduce Greenhouse Gas emissions by 2030..

The subsidised insurance scheme is being expanded as a tool to help farmers manage risks. It would be useful at this stage to evaluate the performance of the system.

The Development plan 2018-22 for agricultural policy covers measures to improve rural incomes. It would be more efficient and equitable to adopt a more comprehensive policy approach beyond agricultural policy to address the low-income problem of farm households. Steps could be taken to induce farmers to declare income situation to allow the government to design better-targeted policies to the household income.

The plan also includes measures to foster the adoption of innovation for sustainable agriculture. Efforts should be made to improve the functioning of the agricultural innovation system as suggested in OECD (2018).

Finally, it would be timely to review existing agricultural policy instruments to improve their coherence with policy objective to reduce the conflicting incentives generated by different programmes.

Figure 15.1. Korea: 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.

StatLink  http://dx.doi.org/10.1787/888933756894

Support to farmers (%PSE) has declined gradually over the long term. Despite this reduction, support has averaged about 52% of gross farm receipts in 2015-17, almost 3 times the OECD average. The share of potentially most distorting support (based on output and variable input use – without input constraints) still dominates at 91% of total support to farmers in 2015-17, well above the OECD average (Figure 15.1). In 2017, the level of support has increased due to higher budgetary payments and MPS; the latter is due to a larger price gap as domestic prices increased more than world prices in absolute terms (Figure 15.2). On average, prices received by farmers were twice the level on world markets as measured by the NPC in 2015-17. The highest NPCs are for soybeans, barley, pig meat garlic and red pepper. Transfers to specific commodities, mainly from MPS, represented 93% of total support to farms in 2015-17. The share of the Single Commodity Transfers (SCT) in commodity gross farm receipts is over 60% for soybeans, barley, pig meat, garlic, red pepper, and milk (Figure 15.3). The expenditures for general services (GSSE) were equivalent to 9% of the agricultural value added in 2015-17, almost 70% higher than the OECD average. More than half the GSSE was spent on the development and maintenance of infrastructure. Total support to agriculture (TSE) as a share of GDP has declined significantly, mainly due to fast growth outside the agricultural sector. At 1.8% in 2015-17, however, it remains 2.5 times higher than the OECD average.

Figure 15.2. Korea: 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.

StatLink  http://dx.doi.org/10.1787/888933756913

Figure 15.3. Korea: 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.

StatLink  http://dx.doi.org/10.1787/888933756932

Table 15.1. Korea: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758585

Contextual information

Featuring a relatively high GDP per capita, Korea is a land-scarce country with the highest population density among OECD countries. Moreover, only 18% of the land area is used for farming, and this area has been reduced by 15% over the period 1995-2016. Close to 85% of agricultural land is arable. Crops account for about 60% of the total value of agricultural production, a declining share compared to the mid-1990s as the livestock sector expanded rapidly to meet a growing domestic demand. Most farms are small family farms with less than 2 hectares of agricultural land. Land consolidation is very slow with the share of land cultivated by farms with more than 10 hectares below 15% in 2015.

The importance of agriculture in the economy has been decreasing rapidly, its share in GDP and employment more than halving since 1995 to reach 2.2% of GDP and 4.9% of employment in 2016. Agro-food products accounted for 5.9% of total imports and 1.2% of total exports.

Table 15.2. Korea: Contextual indicators
| Korea | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 600 | 1 872 | 2.2% | 2.2%
Population (million) | 45 | 51 | 1.6% | 1.5%
Land area (thousand km2) | 96 | 97 | 0.1% | 0.1%
Agricultural area (AA) (thousand ha) | 2 048 | 1 748 | 0.1% | 0.1%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 453 | 511 | 38 | 45
GDP per capita (USD in PPPs) | 13 296 | 36 532 | 9 650 | 24 866
Trade as % of GDP | 23 | 32 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 5.9 | 2.2 | 3.0 | 3.1
Agriculture share in employment (%) | 11.8 | 4.9 | - | -
Agro-food exports (% of total exports) | 1.3 | 1.2 | 7.7 | 7.3
Agro-food imports (% of total imports) | 7.0 | 5.9 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) | 77 | 60 | - | -
Livestock in total agricultural production (%) | 23 | 40 | - | -
Share of arable land in AA (%) | 87 | 84 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759041

Since 2000, the Korean economy has enjoyed dynamic growth and low levels of unemployment. Annual inflation rates have decreased to levels below 2% since 2013. Korea is one of the largest net agro-food importers in the world. Since 2011, however, the agro-food trade deficit has declined as exports increased while imports remained relatively stable. While over 80% of agro-food exports are products for final consumption, about half of imports are for further processing by the industry. Imported agricultural commodities include maize, soybeans and wheat for animal feed.

Figure 15.4. Korea: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933756951

Figure 15.5. Korea: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933756970

Total factor productivity (TFP) growth in Korea was slightly higher than the global average over the period 2005-14. It helped maintain production with lower input use, in particular land and labour. Nutrient surplus results from high fertiliser use and livestock density linked to land scarcity. Although the level of nutrient surplus per ha has declined over the last two decades, it is still much above the OECD average and among the highest in the area. Greenhouse gas (GHG) emissions from agriculture slightly decreased as the decline of lower methane and nitrous oxide emissions due to lower rice area and associated fertiliser use, partly offset higher emissions due to an increase in livestock numbers. The share of agriculture in water consumption is higher than the OECD average since rice paddy fields account for close to 55% of agricultural land area.

Figure 15.6. Korea: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933756989

Table 15.3. Korea: Productivity and environmental indicators
| Korea | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 3.93% | 1.89% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | 258 | 222 | 33 | 30
Phosphorus balance, kg/ha | 57.5 | 46.3 | 3.7 | 2.4
Agriculture share of total energy use (%) | 2.8 | 0.9 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 5 | 3 | 8.5 | 8.5
Share of irrigated land in AA (%) | 44.2 | 42.8 | - | -
Share of agriculture in water abstractions (%) | 63 | 61 | 45 | 43
Water stress indicator | 32.1 | 33.0 | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759497

Description of policy developments

Main policy instruments

Tariffs and a wide range of tariff rate quotas (TRQs) are the main instruments to support domestic prices. Market price support accounted for 88% of the producer support estimate, and 47% of the value of gross farm receipts in 2017. In-quota rates range from 0% to 50% while out of quota rates fall between 9% and 887%. With the conclusion of the Uruguay Round, trade restrictions on all agricultural products except rice were converted to tariffs. Non-tariff measures on rice were replaced by a tariff scheme from 1 January 2015, with a tariff rate of 513% on imported rice (this tariff rate is still under process of verification by the WTO). A volume of 408 700 tonnes is maintained at a 5% tariff rate. Rice is imported exclusively by state trading enterprises (STEs).

Domestic market price support measures apply to rice and soybeans. A public stockholding scheme for rice, also known as the Public Storage System for Emergencies, was established in 2005. Under this scheme, the government purchases rice from farmers at the market price during the harvest season and releases the stocks during the non-harvest season at the market prices. The government purchase programme for soybeans was introduced in 1968. Purchased quantities have increased in recent years due to efforts for encouraging crop diversification from rice to other commodities.

Direct payment programmes have been implemented from 1997 including early retirement payments, a rice income compensation, and payments for the promotion of environmentally-friendly agriculture, for maintaining agriculture in less-favoured areas, and for rural landscape conservation.

The most important direct payment programme is the rice income compensation scheme introduced in 2005. This scheme includes both fixed and variable payments. While the fixed payment is a decoupled income support, the variable payment is determined according to the difference between a target price and each year’s harvest-period price. If the harvest-period price is lower than the target price, farmers receive 85% of the difference, after deduction of the fixed payment. The target price is set every five years based on the five-year price change. It was set at KRW 188 000 per 80 kilogrammes (USD 2 078 per tonne) of rice for the period 2013-17, which is an increase from the previous period.

The agricultural disaster insurance scheme, initially introduced for apples and pears in 2001, was gradually extended to 58 crops and 16 livestock categories by 2017. The government subsidises 50% of the insurance premium. A pilot project of an agricultural revenue insurance scheme was introduced for onions, soybeans and grapes in 2015, and the number of commodities covered increased to six by adding garlic in 2016, and potato and sweet potato in 2017.

The 2007 Framework Act on Agriculture, Rural Community and Food Industry lays out the basic policy principles in agriculture, on which five-year implementation plans are established. The Agriculture and Rural Community and Food Industry Development Plan for 2013-17 emphasises adding value to agricultural products in an innovative way and creating jobs by integrating agriculture with other industries such as manufacturing, processing, or information and communication technology. The Agriculture and Rural Community and Food Industry Development Plan for 2018-22 has four main policy targets: strengthening income safety net; innovation for sustainable agriculture; enhancing food safety in supply chain; and improving rural welfare. Specific measures to pursue these objectives are included in Box 15.1. The Plan also foresees a strengthening of bottom-up participation in policy.

Box 15.1. Korea: Agriculture and Rural Community and Food Industry Development Plan for 2018-22

1. Strengthening income safety net

Reduction of the area of rice paddy fields by 100 000 ha in 2018-19.

Direct payments for rice less coupled with production.

Strengthened cross-compliance in the Direct payment scheme.

Expansion of Crop insurance programmes.

Promotion of rural diversification (food industry, tourism) to give more access to non-farm income for farmers.

2. Innovation for sustainable agriculture

Comprehensive support to young start-up farmers.

Integration of digital technology into agriculture with regard to production, distribution and risk management.

Promotion of renewable energy generation, including solar photovoltaic, biomass and geothermal heat.

3. Enhancing food safety in supply chain

Development of a bio-security system focusing on animal disease prevention.

Support for environmentally-friendly livestock industry to reduce pollution.

Development of a comprehensive animal-welfare road-map to provide standards for facilities, maintenance and rearing density.

Development of a labelling system informing consumers about animal welfare and health in each livestock farm.

The pesticide registration and traceability management system will be improved.

4. Improving rural welfare

Enhanced direct payments for retirement, farmland pension and basic pension to encourage aged and low-income farmers to retire from production

Support to infrastructure including housing, traffic and medical facilities.

Affordable transportation for the elderly and financially disadvantaged.

Support for rural rental housing with energy saving facilities and barrier-free design.

Development of a medical outreach service for health check-ups.

5. Bottom-up policy participation

Agricultural governance to reflect local and regional characteristics.

Policy design reflecting the opinion of farmers and customers.

Source: Ministry of Agriculture, Food and Rural Affairs (MAFRA).

The five-year (2016-20) promotion plan for environmentally-friendly agriculture sets targets to increase the share of pesticide-free (including organic) cultivation area and more generally to reduce the input of chemical fertilisers and pesticides in crop production through strengthening current direct payment for the promotion of environmentally-friendly agriculture, and support for organic fertiliser use.

Korea has increased investment on “smart farms”, which can check the situation in real-time using smart phones and remote control. As a result, the number of smart farms is on the rise since 2014.

The government is making efforts to transform agriculture into a 6th industry,¹ where agriculture is integrated with manufacturing, processing, marketing and tourism services, based on all the tangible and intangible resources of the agricultural sector, thereby creating new added-value. Each province has established and operates the 6th industry support centres. For stable growth of businesses of the 6th industry, a series of support measures ranging from product development to the establishment of distribution channels has been provided to broaden markets.

Support for people moving to farm villages and rural areas to newly join the agricultural industry has been strengthened, thereby reviving the rural community. Centres for people who return to farm villages and rural areas were created to provide advisory service and information on relocation policies and house availability. Also, these centres run training programmes on farming technology, processing and distribution of agricultural products, and rural lifestyle.

Korea has sixteen bilateral and regional Free Trade Agreements (FTAs) in force. Rice is excluded from tariff concession in all the existing FTAs, but significant tariff concession for livestock and fruit products are included in some of the FTAs (OECD, 2018). Tariffs on beef from the United States, Australia and Canada will be completely eliminated in 15 years of implementation, respectively. It is also agreed to eliminate tariffs on pork originating from the European Union, the United States, Chile and Canada over the maximum 10 years. Tariffs on chicken meat mainly coming from the United States and the European Union will be abolished over 10 to 13 years of implementation. Another FTA with Central American States is scheduled to become effective when both parties complete their domestic approval procedures.

In the context of the Paris Agreement on Climate Change, Korea has committed itself to a reduction of its economy-wide GHG emissions by 37% relative to a Business As Usual Baseline in 2030.2 In December 2016, the Korean government released its Basic National Roadmap for Greenhouse Gas Reductions by 2030. All sectors and all gases are included in the reduction commitment. The Roadmap includes commitment for agriculture, which is expected to achieve a 1 Megatonne (Mt) CO2 eq reduction, or 0.3% of the total reduction commitment. The government is currently undertaking a review of the Roadmap in order to come out with an upgraded version in the course of 2018.. A National Climate Change Adaptation Plan, developed in 2010, is currently being implemented.

Domestic policy developments in 2017-18

Fixed direct payment rates for upland crop farms and for less-favoured area were increased in 2017, compared to previous year, to reach KRW 450 000 (USD 398) per ha,³ and KWR 550 000 (USD 354) per ha respectively. In both cases, the rate was increased by KRW 50 000 (USD 44) per ha or 12.5% for payments for farms, and 10% for direct payments for less-favoured areas, which is more than inflation.

In response to lower rice prices in a context of declining rice consumption, the government introduced a rice income compensation payment in 2005 to compensate farm revenue losses. The total value of this payment has been multiplied by close to 8 since 2015 to reach about KRW 1 500 billion (USD 1.3 billion) in 2017.

The government also announced a complementary plan in February 2017, which includes adjustments to the initial plan of 2015 with a view to balance the supply and demand by 2019. Among the range of policy measures, the area of rice paddies was reduced from 799 000 hectares in 2015 to 711 000 hectares in 2019, while crop diversification and the use of high quality seeds instead of high yield seeds are encouraged. To expand rice consumption, the government intends to strengthen R&D investment in rice food processing industries and reinforce dietary education on the nutritional value of rice. The release of public rice stocks for the use as feed increased from 90 000 tonnes in 2016 to 470 000 tonnes in 2017. In addition, the government plans to provide rice to developing countries through the APTERR (ASEAN Plus Three Emergency Rice Reserve).

Current rice policies, such as direct payments, the public stockholding scheme and farmland regulations, are to be re-examined to optimise the level of production. Further changes are foreseen in the Development Plan 2018-22, which will succeed the 2015 Plan and 2017 Complementary Plan.

The total value of Direct payments for environment-friendly farming practices and Direct payments for landscape preservation continued to decline in 2017 for the second consecutive year since 2015. The five-year (2016-20) promotion plan for environmentally-friendly agriculture, foresees the introduction of agricultural environmental protection programmes for soil conservation and water quality improvement, but no payment was made in 2016 and 2017.

The scope and coverage of the agricultural disaster insurance scheme were expanded to three additional products (citron, fig, and crown daisy raised in facilities). In addition, the base for compensation of tangerine losses has changed from compensation for falling fruits to reduction in quality.

Agriculture’s productivity enhancement is promoted through R&D investment. Within the Golden Seed Project, KRW 491 billion (USD 434 million) are to be invested during the ten years from 2012 to 2021 by both the government and the private sector in order to develop domestic seeds and promote seed export. By 2017, 386 new varieties were developed. A private breeding research complex, upholding seed companies’ research of varieties and industrialisation, was completed in October 2016. In 2017, the collaborative projects are to promote the development of small automated farm machinery, which can be easily used by aged and female farmers; the upgrade of the farmland observation system by using drones; and the development of a big data-based model to predict the supply and demand of crops.

The Korea national food cluster (Foodpolis), an R&D-focused and export-oriented platform established with an area of 2.32 square kilometres, was completed in December 2017. In order to support food companies that purchased or rented land, the government has been operating specific R&D facilities from end of 2016: the food functionality assessment centre, the food quality safety centre and the food packaging centre. The companies can benefit from a range of subsidies and tax exemptions. In particular, foreign investment companies are eligible for the reduction or exemption of site rents for up to 50 years, if they fulfil certain requirements such as on the size of investment or the level of technologies. As of December 2017, 48 Korean food companies and two foreign investment enterprises signed for moving into the Foodpolis and are in the process of constructing their plants.

From 2017, a single private certification organisation can provide certificates for environmentally-friendly agricultural products, which had previously been provided by both public and private organisations. In addition, products from organic agriculture were integrated into the National Agricultural Products Quality Management system. A system to certify direct transaction of agricultural produce will be adopted, with strengthened support for training, consulting and promotion to facilitate adoption. The scope of the system ensuring traceability in livestock products was expanded to include meat processed for direct sales.

Support is made available for manufacturers of processed products, restaurants and school catering to promote the use of local products. The provision of free milk in schools will be expanded to older students from lower income families.

The labelling of the rice quality grades was generalised. As of 2018, one of the grades “best, good, average, fail” should be mentioned and the label “non-inspection” is no longer accepted.

Measures concerning the reporting of pest and disease were introduced both at the domestic and the border levels. For example, it became mandatory for plant growers to report the occurrence of pests and diseases subject to quarantine. Border measures for pest and disease control are described in the next section.

As a step towards administrative simplification, farmers applying for assistance no longer need to provide a registration certificate of agricultural business; the business operating agency (NACF) now provides necessary information directly.

Regarding institutional changes in agricultural organisations, following the re-structuring of the National Agricultural Cooperative Federation (NACF) the Nonghyup Business Holding was established. The activities of the two organisations are specified as follows:

NACF is in charge of training for members’ associations, and of implementing mutual financial projects.

Nonghyup Business Holding is to focus on business activities such as the sale or distribution of agricultural and livestock products.

Trade policy developments in 2017-18

Korea is currently engaged in a further five FTA negotiations. These include two bilateral FTA negotiations with Ecuador and Israel, and three multilateral FTA negotiations on the Regional Comprehensive Economic Partnership Agreement (RCEP), the Korea-China-Japan FTA, and the Korea-Central America FTA.

The Korean government started negotiations for the improvement of current FTAs with Chile, India, the United States and ASEAN with a view to expand the level of market liberalisation. Three bilateral FTA negotiations with Indonesia, Japan and Mexico and one multilateral FTA negotiation (the Korea-Gulf Cooperation Council FTA) were discontinued and are ready to resume (ARIC, 2018).

In August 2017, the government of Korea lifted its ban on imports of US poultry and poultry products, including fresh eggs, after the United States notified the World Organization for Animal Health (OIE) that it is now free of highly pathogenic avian influenza (HPAI). The ban had been imposed in response to a detection of HPAI (USDA, 2017).

Additional food products were included in the list of food items subject to labelling of country of origin in restaurants, and the labelling is required to be more visible. The country of origin of the three main ingredients in processed food should also be indicated on food labels. Penalties for violating country of origin labelling requirements include mandatory training for the violator in the country of origin and minimum imprisonment sentence in case of repeated violation. Seedlings subject to isolated cultivation need to have mandatory tags indicating the country of origin, the name and the date of import.

Measures were introduced to strengthen border measures for pest and disease control, including the reporting of travel in infected countries for people working in the livestock industry returning to Korea; and the extension of quarantine to a larger range of products. At the same time, new measures aim to facilitate the implementation of the quarantine system. They include the adoption of the quarantine system of consignment; the possibility to have an intermediary agent preparing quarantine plan reports on behalf of the original reporter; the adoption of electronic plant quarantine certificates meeting international standards; and the creation of overseas food certification support centres to provide quarantine information, analysis on prohibited content, and tailored training.

References

ARIC (2018), Asia Regional Integration Center, https://aric.adb.org/fta-country (consulted 15 March 2018).

OECD (2018), Innovation, Agricultural Productivity and Sustainability in Korea, OECD Publishing, Paris, forthcoming.

USDA (2017), “South Korea Lifts U.S. Poultry Ban”, USDA Foreign Agricultural Service News Releases USDA 0085.17, 17 July, www.fas.usda.gov/newsroom/south-korea-lifts-us-poultry-ban.

Notes

 1.  The term 6th industry refers to activities connecting primary industries with the secondary sector such as processing of agricultural products, and the tertiary sector such as marketing and tourism activities.

 2.  Submission by the Republic of Korea: Intended Nationally Determined Contribution. NDC Registry: http://www4.unfccc.int/ndcregistry/Pages/All.aspx#collapseKORFirst.

 3.  Direct payment for farms have different rates within and outside agriculture promotion area, of KRW 575 530 (USD 509) per ha and KRW 431 648 (USD 381) per ha, respectively

Chapter 16.

Mexico

Support to agriculture

Transfers to producers (PSE) accounted for 80% of total support to the agricultural sector in 2015-17, with 11% directed to general services and 9% to provide direct budgetary subsidies to low-income food consumers. General services are focused on large irrigation infrastructure and agricultural knowledge systems – these areas absorbed 80% of total allocations for general services in 2015-17. Relative to agricultural value added, the financing for general services has slightly decreased since the mid-1990s.

Following trade liberalisation and domestic policy reforms in the 1990s, the share of farm gross receipts due to agricultural support (%PSE) decreased from 29% in 1991-93 to 8.8% in 2015-17. The reforms led to a considerable reduction in the most distorting support, such as that based on output and unconstrained use of variable inputs. However, the shift away from the most distorting support was reversed in recent years, with its share in producer support almost doubling since the mid-1990s.

Total support to agriculture was equal to 0.5% of Mexican GDP in 2015-17 (%TSE) – this percentage has significantly declined over time and is currently at the OECD average. Taxpayers provide 85% of these transfers, the remaining 15% coming from consumers. Consumer contribution to agricultural support is due to agricultural prices supported slightly above the international levels (by 2% on average). Market price support was dominated by one commodity: MPS for raw sugar represented 22% of the commodity gross farm receipt.

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 reach a positive balance in agro-food trade. The implementation of the main programmes under this Plan continued with no major changes. Support schemes for agriculture contracts were halted and payments for price hedging instruments and advancement in the consolidation of information systems continued. In particular, the organic labelling programme that was launched in 2013 continued to expand. A draft regulation to establish a domestic beef grading system is currently under revision.

Mexico continued advancing towards the digitalization of the programmes beneficiaries’ database, including the geo-referencing of farmland subject to support payments and, more generally, the use of digital technologies. New guidelines for obtaining subsidies for gasoline and diesel purchases for agricultural purposes were published throughout 2017 and they are in a pilot phase. As of March 2018, the fuel subsidy programme had not resumed yet.

Duty-free tariff rate quotas (TRQs) to import beef, lemons, onions, rice and poultry were extended through the end of 2019, mainly due to high domestic prices and shortages of such products. Together with ten more signatories, Mexico signed the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership in March 2018 and Congress ratified it in April 2018.

Assessment and recommendations

While support to agriculture as a percentage of gross farm receipts and most distorting forms of support significantly decreased since the 1990s, following Mexico’s pro-market agricultural policy reforms, particularly distorting forms of support, mainly input-based, have been partly reversed since the 2000s.

Support linked to variable inputs – subsidies for electricity, insurance and purchase of price hedging contracts – increased. Since 2013, support based on fixed capital with no constraints increased, mostly for covering investment costs in small farms and to promote crop reconversion. A subsidy for fuel used in agriculture, which was planned to be re-instated in 2017, is still under a testing phase.

While support for general services has been growing since 1990s, redirecting input-linked support towards the provision of public goods, through electricity and roads infrastructure, particularly in the southern part of the country, price and weather information systems, credit access, agricultural knowledge transfer and research and development could unleash the productivity potential of the agriculture sector, while improving its sustainability and profitability.

As the Sectoral Development Programme for Agriculture, Fisheries and Food is approaching the end of its implementation, a thorough evaluation of the economic and social impacts of the main policy instruments, such as Productive-PROAGRO, would be timely to contribute to the development of new and revised policy instruments.

High subsidies for one specific risk management instrument, such as price hedging, should be avoided. Those subsidies are not effective to reduce price volatility, are unstable over time as they are largely affected by exchange rates fluctuations and tend to generate large amounts of income transfers to few producers.

Phasing-out subsidies to electricity for pumping water would help a more efficient use of water. Direct support could be considered to help farmers adopt practices for more efficient and sustainable use of water, combined with training in good resource management practices and appropriate water pricing.

Currently, few support programmes require compliance with good environmental practices. Input-based payments and payments based on area could be improved by imposing environmental conditionality. Achieving the country’s commitments for GHG emission reductions under the Paris Agreement on Climate Change will require additional efforts to improve agricultural practices and should go hand in hand with reducing more local and regional environmental pressures, including related to water.

Figure 16.1. Mexico: 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.

StatLink  http://dx.doi.org/10.1787/888933757008

Support to farmers (%PSE) has declined gradually over the long term. During 2015-17, farm support has been around 8% of gross farm receipts, less than half the OECD average. The share of potentially most distorting support has decreased significantly over time due to a decline in market price support (MPS), falling well below the OECD average (Figure 16.1). The level of support slightly decreased in 2017 due to a reduction in budgetary payments, more than offsetting a higher MPS from a larger price gap as domestic prices increased more than world prices (Figure 16.2). Prices received by farmers, on average, were higher than world prices; particularly large differences between commodities persist with domestic prices for raw sugar substantially above international reference prices. MPS is the main component of Single Commodity Transfers (SCT) for sugar, milk, dried beans and barley. Other forms of product-specific support are particularly relevant for wheat, maize, sorghum, beef and veal, and coffee. Sugar, sorghum, wheat, soybeans and dried beans had the highest share of SCT in commodity gross farm receipts (Figure 16.3). The expenditures for general services (GSSE) relative to agriculture value added were substantially lower than the OECD average.

Figure 16.2. Mexico: 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.

StatLink  http://dx.doi.org/10.1787/888933757027

Figure 16.3. Mexico: 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.

StatLink  http://dx.doi.org/10.1787/888933757046

Table 16.1. Mexico: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758604

Contextual information

Mexico has a population of 122 million, ranks as the 11th largest world economy and has a per capita GDP of USD 18 000. Economic growth has remained relatively stable around 2% per year since 2014. Trade is an important driver of Mexico’s economy: it represents 34% of GDP and has grown 10 percentage points in 20 years. Agro-food trade is a non-negligible fraction of total trade, both in terms of exports and imports, representing 7.5% and 6.5% of each, respectively. In the last two decades the labour structure of the agriculture sector transformed radically; in 2016 the share of agriculture in total employment was 10 percentage points below compared to what it represented in 1995. More recently, the livestock sector has increased its share in the value of total agriculture production.

Table 16.2. Mexico: Contextual indicators
| Mexico | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 700 | 2 195 | 2.5% | 2.6%
Population (million) | 94 | 122 | 3.3% | 3.6%
Land area (thousand km2) | 1 944 | 1 944 | 2.6% | 2.6%
Agricultural area (AA) (thousand ha) | 106 195 | 106 705 | 3.9% | 4.0%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 48 | 62 | 38 | 45
GDP per capita (USD in PPPs) | 7 411 | 17 953 | 9 650 | 24 866
Trade as % of GDP | 24 | 35 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 4.4 | 3.8 | 3.0 | 3.1
Agriculture share in employment (%) | 23.4 | 12.9 | - | -
Agro-food exports (% of total exports) | 7.3 | 7.5 | 7.7 | 7.3
Agro-food imports (% of total imports) | 7.2 | 6.5 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  62 |  57 | - | -
Livestock in total agricultural production (%) |  38 |  43 | - | -
Share of arable land in AA (%) | 21 | 22 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759060

The inflation rate rose in the last year mainly due to energy and food prices. The increase was mainly due to the liberalization of the domestic energy market. In 2015 and 2016, Mexico registered a positive net agro-food balance. While most agro-food exports are for direct consumption, agro-food imports are mainly intermediate goods for further processing.

Figure 16.4. Mexico: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933757065

Figure 16.5. Mexico: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933757084

Since 2005, agricultural output in Mexico has been increasing predominantly due to the improvements in Total Factor Productivity (TFP) and only to a limited extent, due to more intermediate inputs (fertiliser and feed). Primary factor use (mainly labour, capital and land) has even slightly declined in the last decade. TFP growth in the 2000s, however, has been less dynamic than during the 1990s; and has been similar to world average TFP growth. Environmental pressures from agriculture such as phosphorous balances, energy consumption and water abstraction rates have increased at higher rates than OECD average, which may limit the sustainable growth of the sector. Agriculture’s high share in total water consumption may suggest an area of concern.

Figure 16.6. Mexico: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933757103

Table 16.3. Mexico: Productivity and environmental indicators
| Mexico | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 2.81% | 1.69% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | 24 | 24 | 33 | 30
Phosphorus balance, kg/ha | 1.2 | 2.1 | 3.7 | 2.4
Agriculture share of total energy use (%) | 2.6 | 3.3 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 15 | 12 | 8.5 | 8.5
Share of irrigated land in AA (%) | 4.9 | 5.6 | - | -
Share of agriculture in water abstractions (%) | 85 | 77 | 45 | 43
Water stress indicator | 15.6 | 18.0 | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759516

Description of policy developments

Main policy instruments

Mexico’s agricultural policy is framed in a Sectoral Development Programme for Agriculture, Fisheries and Food. The current six-year plan covers the period 2013-18. The Programme is broadly oriented at boosting domestic production and strengthening food security. It seeks to achieve greater self-sufficiency in principal grains and oilseeds and to eliminate the negative balance in agro-food trade that Mexico had in the past. Partly due to the Programme, since 2015 Mexico registered a positive agro-food trade balance. The Programme emphasises increased productivity, profitability and competiveness of the agriculture and food sector and sets the specific objectives on: improving the productivity of small farms, reduction of water use, increased domestic production of agricultural inputs, extension, risk prevention and management, promotion of healthy food, financing, regional development, expanding information systems and modernising the Ministry of Agriculture. The Sectoral Programme brought two main changes to the type of support. First, PROCAMPO was replaced by Productive PROAGRO which continues to provide for area payments, but unlike PROCAMPO that did not require production, the new payments only cover proved production expenses incurred (machinery, certified seeds, fertilisers, insurance, or price hedging). After more than 20 years of being stagnant in terms of beneficiaries and supported farmland, Productive PROAGRO’s beneficiaries list (PROCAMPO’s list in the past) was updated and more farmland was selected for support. Compared to the previous plan, the current Sectoral Programme puts a stronger emphasis on investment and on-farm services support, particularly targeting poor and arid areas.

Mexico has reformed its agricultural policies over the last two decades, reducing border protection following the commitments within WTO, NAFTA and other trade agreements and implementing direct payment programmes. Mexican agricultural markets operate today under a fairly open trade regime, the majority of trade flows occurring within regional free trade arrangements. However, domestic market price support and payments based on output are maintained for some key commodities, such as sugar, grains, coffee and oilseeds. Market price support is the largest component of support to producers.

Another important type of support is in the form of investment assistance, which mainly covers part of the investment cost or finances the credit warranty for purchases of on-farm machinery and infrastructure for crop and livestock production and the development of feasibility investment assessments; specific support is available for small and poor farmers. Investment support is also provided for the technical upgrading of irrigation systems and protected agriculture. Subsidies for variable inputs are another principal direction of support, consisting of subsidies for price hedging, electricity, irrigation, and crop insurance. Payments based on area and livestock numbers are also important, mostly provided through two programmes: Productive PROAGRO and Productive PROGAN. Productive PROAGRO makes per hectare payments based on historical area and amount of land owned, while Productive PROGAN offers per head payments based on historical livestock numbers and requires its beneficiaries to comply with certain environmental conditions.

A range of programmes are addressed to small agricultural producers and rural poor, more broadly. A special investment support programme operates for small maize and bean growers. The Strategic Project for Food Security (PESA) provides investments and technical assistance, both at individual and community levels, to support farming in marginal and poor areas, by covering up to 90% of the investment costs mostly related to improving water and food supply in poor households and 100% of technical assistance costs for making the food system in poor areas more sustainable.

A considerable part of Mexican territory is under some type of social land tenure – ejidos, or agrarian communities – in which special management regimes govern both collective land and land plots granted to individuals. The most recent census (2007) reports 69% of production units under the social land tenure, operating 39% of agricultural land. Land reforms were initiated in 1990, but had limited practical impact. Although perceived as socially important, some of the provisions related to communal land are among the factors constraining today the sale and use of agricultural land.

With slightly over half of the population below the national poverty line, food consumer subsidies are an important poverty alleviation instrument in Mexico. Poor families obtain basic staples through DICONSA rural shops, while the LICONSA programme distributes reduced-price milk, and the SEDESOL programme provides conditional cash transfers.

Mexico’s climate pledge to the Paris Climate Conference in December 2015 includes both unconditional and conditional contribution targets. Mexico has committed to unconditionally lower GHG emissions by 22% and black carbon emissions, a short-lived powerful climate warming pollutant, by 51 percent of business as usual (BAU) levels by 2030. In order to achieve such targets, the general strategy for the agriculture sector promotes its sustainable technification and the use of biodigesters in livestock farms as well as conserving and restoring grasslands.

Domestic policy developments in 2017-18

No major policy developments occurred during 2017-18. Mexico continued advancing towards the digitalization of the programmes beneficiaries’ database, including the geo-referencing of farmland subject to support payments and, more generally, the use of digital technologies to facilitate and speed up the application process for support measures. This process is expected to increase the transparency of programmes and reduce the administrative costs involved in the application process.

In 2017, 1.4 million producers benefited from Productive PROAGRO payments, a number similar to that in 2016. However, the area covered by Productive PROAGRO declined from 9.6 million ha to 7.8 million ha. Payments per ha differed across five categories of producers and ranged from MXN 180 (USD 9.5) per ha for commercial farms with the majority of land under irrigation to MXN 1 500 (USD 79.5) per ha for subsistence farms of less than 3 ha. The distinction of commercial farmers by coverage of irrigation was newly introduced in 2017.

Advancement in the consolidation of information systems continued. In particular, the organic labelling programme that was launched in 2013 has continued its expansion. Currently, there is only one certification agency and a call for increasing the number of certifying agencies was launched. A draft regulation to establish a domestic beef grading system is currently under revision. This regulation will grade beef meat according to their physiological maturity and marbling. If approved it will impact products directed at domestic and export markets. On 16 January 2018, the Secretariat of Health published a norm that specifies sanitary specifications and testing methods for eggs and egg products to be marketed in Mexico. It will mainly affect domestic producers as most producers from the largest exporter to Mexico, the United States, already comply with such regulations.

In contrast to 2016, no payments to support agricultural contracts between buyers and sellers were granted in 2017. Support for agricultural contracts was provided only for price hedging instruments. Additional support for price hedging was granted for individual producers and/or industrial consumers that were not part of agricultural contracting programmes. In total, price hedging grants covered 17.3 million tonnes of grains out of which 9.7 million were corn. Payments for insurance premiums covered 2.3 million hectares out of which 888 000 corresponded to corn. Livestock insurance covered 13.9 million heads, mostly cattle.

New guidelines for obtaining subsidies for gasoline and diesel purchases for agricultural purposes were published throughout 2017 and are piloted in 2018. Its main novelty is that instead of being budgetary support they will now be tax exemptions with ceilings (up to 5 000 liters per equipment and up to 20 000 liters per beneficiary). As of March 2018, the fuel subsidy programme had not resumed. Subsidies to electricity for pumping water continued and increased compared to 2016; such subsidies can cover up to 90% of the total energy cost associated to pumping water.

Trade policy developments in 2017-18

In December 2017, Mexico extended the duty-free tariff rate quotas (TRQs) to import beef and rice through the end of 2019. These TQRs were initiated in June 2016 for countries with which Mexico has no free trade agreements. The beef TRQ covers fresh, chilled and frozen carcasses and meat. Its total amount is 200 000 tonnes, which corresponds to around 12% of national beef consumption in 2015-17. The rice TRQ covers paddy, husked, milled, other and broken rice and totals 150 000 tonnes, also equivalent to 12% of annual domestic consumption in 2015-17. Both beef and rice quotas are to be allocated on a first-come first-served basis and are granted in case there are shortages. Additionally, a TRQ was applied to lemons and onions on a seasonal basis, mostly following a reduction in the production of both products. The total amount for lemons is 140 000 tonnes and 100 000 tonnes for onions. A TRQ for poultry products was also extended through the end of 2019. It amounts to 300 000 tonnes, which represents nearly 8% of the average domestic consumption of poultry meat in the period 2015-2017. On 14 April 2017, the Secretariat of Economy (SE) extended the application period of the dry bean duty-free tariff rate quota (TRQ) for most favoured nation (MFN) trading partners, mainly due to domestic supply shortages.

On 16 November 2017, Mexico lifted restrictive trade measures which had been in place for Lincoln Country, Tennessee, due to an outbreak of Highly Pathogenic Avian Influenza (HPAI). There are currently no further trade restrictions in place for the United States.

In June 2017, the United States and Mexico reached agreement on revised agreements to suspend antidumping and countervailing duties on imports of Mexican sugar into the United States.

Mexico, Canada and the United States began negotiations toward modernising the North American Free Trade Agreement (NAFTA). A modernisation of the Free Trade Agreement (FTA) with the European Union is underway and an agreement in principle was reached in April 2018. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) was signed by 11 nations, including Mexico, in March 2018, and ratified by the Mexican Congress in April 2018. Mexico is also negotiating an expansion of the Agreement for Economic Cooperation (ACE) that was signed with Brazil in 2002 and started negotiations with members of the Pacific Alliance – Chile, Peru, and Colombia - for adding Australia, Canada, New Zealand and Singapore.

Chapter 17.

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, and the level of support for farmers has been the lowest among OECD countries for almost three decades. Practically all prices are aligned with world market prices, with the exceptions of fresh poultry and table eggs (as well as some bee products) which cannot be imported to New Zealand due to the absence of Import Health Standards for these products, required for risk products to be allowed for imports.

Agricultural policies in New Zealand predominantly focus on animal disease control, relief payments in the event of natural disasters, and the agricultural knowledge and information system. New Zealand also provides support to large-scale off-farm investments in irrigation systems, and over the past decades has significantly increased its agricultural land under irrigation. As a consequence, in recent years, more than 70% of all support was through general services.

Main policy changes

Key policy changes respond to specific problems and thus comprise a set of detailed measures. In particular, these relate to disaster relief, biosecurity risks, and foreign investment in sensitive business assets.

Several medium-scale adverse events in 2017 have triggered additional Government support, including flooding and storm damages as well as a drought in both the North and South Islands. Support was provided for the reparation of infrastructure, including drinking water, storm water, waste water, and river management systems, re-grassing of pastures, re-sowing of crops, clean-up of silt and debris, and Rural Assistance Payments and tax relief measures for affected farmers. Grants were also provided in response to the regions impacted by the Kaikoura earthquake in November 2016, for community projects, professional advisory and recovery related work on farms.

Several measures concern the country’s biosecurity risks, including the launch of the Biosecurity 2015 Direction Statement in late 2016, a biosecurity response after the finding of the bacterial cattle infection mycoplasma bovis in mid-2017, and the signing of the Government Industry Agreement on Biosecurity Readiness and Response deed by four more industry sectors.

Since November 2017, foreign investors in New Zealand agricultural land and other sensitive business assets have to get consent through the Overseas Investment office. Before that, this had only been required for investments in sensitive agricultural land.

Assessment and recommendations

New Zealand’s consistently low level of farm support, and in particular of potentially most distorting support, underlines the country’s openness and focus of its agricultural sector towards foreign markets and trade.

New Zealand’s Import Health Standards help to ensure the country’s biosecurity for imported products and are required for all risk products to be importable. For some livestock products, including eggs, fresh chicken meat and some bee products, no IHS are in place, and these products therefore cannot be imported. While this concerns only a small share of New Zealand’s agricultural output, the development of relevant IHS would allow consumers to benefit from additional variety and lower prices in these markets, while ensuring the required biosecurity standards.

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. A 2017 update of the Kiwifruit Export Regulations 1999 has not led to changes in these restrictions, even though these could facilitate participation in Kiwifruit exports by all firms wishing to do so and hence increase competition and efficiency in Kiwifruit trade.

Agricultural policies in New Zealand rightly focus on key general services, but expenditures for general services relative to the sector’s value added are not particularly high when compared to other countries covered in this report. The country’s above-average focus on its knowledge and innovation system is appropriate not least given the comparatively low estimates of its sector’s total factor productivity growth in the most recent decade for which data is available. The positive development in the capitalisation of farms should help to boost future productivity growth.

New Zealand’s focus on lower GHG emissions from agricultural sources is in line with its commitment in the context of the Paris Agreement on Climate Change. In contrast to many other countries, New Zealand’s agricultural sectors, including meat and dairy processors, nitrogen fertiliser manufacturers and imports, and live animal exporters have reporting obligations under the New Zealand Emissions Trading System, even though agricultural GHG emissions are neither constrained nor taxed. New Zealand supports a number of research activities aiming at reduced agricultural emissions, however, involving public and private institutions as well as the international community. Similar efforts are also needed to reduce the high Nitrogen and Phosphorus balances which pose a threat to the environment.

Figure 17.1. New Zealand: 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.

StatLink  http://dx.doi.org/10.1787/888933757122

Support to farmers (%PSE) has declined sharply due to reforms in the mid-1980s, and has remained at levels below 2% of gross farm receipts since 1990. The majority of this (very low) support to producers is provided through potentially most distorting support, due to some market price support (MPS) arising from SPS-related import restrictions (Figure 17.1). These create some Single Commodity Transfers (SCT) for poultry meat and eggs, corresponding to 15% and 25% of commodity-specific gross farm receipts, respectively (Figure 17.3). Apart from those, domestic prices are aligned with world market prices, resulting in an average price ratio between domestic and reference levels of less than 1.01. Overall, the Total Support to agriculture represents less than 0.3% of GDP, with most of the support to the sector provided for general services, mainly focusing on the knowledge and information system and on biosecurity-related measures (Figure 17.1). In 2017, the low level of support to farmers has decreased by a quarter as the SPS-related market price support has declined. While average domestic prices remained unchanged, the reduced MPS was almost exclusively due to a rise in average world market prices (Figure 17.2).

Figure 17.2. New Zealand: 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.

StatLink  http://dx.doi.org/10.1787/888933757141

Figure 17.3. New Zealand: Transfer to specific commodities (SCT), 2015-2017

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

StatLink  http://dx.doi.org/10.1787/888933757160

Table 17.1. New Zealand: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758623

Contextual information

New Zealand is a relatively small and comparatively thinly populated economy with a per capita GDP slightly below the OECD average, but well above the average of all countries covered by this report. Its market openness is related to its high dependency on international trade. Agriculture’s importance in the total economy is higher than in most other countries covered in this report, accounting for almost 7% in both GDP and employment. Moreover, agro-food products account for close to two-thirds of the country’s total exports. With little arable land, grass-fed livestock products represent the backbone of the agricultural sector, making New Zealand the world’s largest exporter of dairy products and sheep meat. Fruit and horticultural products also contribute significantly to the country’s agriculture and food exports.

Table 17.2. New Zealand: Contextual indicators
| New Zealand | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 66 | 181 | 0.2% | 0.2%
Population (million) | 4 | 5 | 0.1% | 0.1%
Land area (thousand km2) | 263 | 263 | 0.4% | 0.3%
Agricultural area (AA) (thousand ha) | 14 975 | 11 116 | 0.6% | 0.4%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 14 | 18 | 38 | 45
GDP per capita (USD in PPPs) | 17 819 | 38 346 | 9 650 | 24 866
Trade as % of GDP | 22 | 19 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 8.2 | 6.8 | 3.0 | 3.1
Agriculture share in employment (%) | 9.7 | 6.5 | - | -
Agro-food exports (% of total exports) | 50.8 | 62.8 | 7.7 | 7.3
Agro-food imports (% of total imports) | 7.8 | 11.5 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  20 | 24 | - | -
Livestock in total agricultural production (%) |  80 |  76 | - | -
Share of arable land in AA (%) | 11 | 5 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759079

New Zealand has a stable economy having featured robust growth and a relatively low inflation rate for most of the past decade. It is a consistent and growing net exporter of agricultural products, despite some drop in agro-food exports in 2015 and 2016 due to, among others, lower dairy prices. Most of New Zealand’s agro-food trade, and particularly of its exports, is processed food for final consumption. On the import side, intermediary products represent more than a third of the trade basket.

Figure 17.4. New Zealand: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933757179

Figure 17.5. New Zealand: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933757198

New Zealand’s average growth in total factor productivity (TFP) is estimated at just 0.2% p.a. over the 2005-14 period, the lowest value across countries covered by this report and well below the growth during the 1990s.

New Zealand’s agricultural sector is the country’s prime consumer of freshwater and has strongly expanded its irrigated land as a response to climate related uncertainties. Nonetheless, its overall level of water stress is limited. Agriculture is also the main source of GHG emissions, due to the high importance of grass-fed livestock production. For the same reason, the country’s nitrogen and phosphorous surpluses are well above the respective OECD averages.

Figure 17.6. New Zealand: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933757217

Table 17.3. New Zealand: Productivity and environmental indicators
| New Zealand | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 1.66% | 0.18% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | 36 | 60 | 33 | 30
Phosphorus balance, kg/ha | 10.7 | 7.4 | 3.7 | 2.4
Agriculture share of total energy use (%) | 3.5 | 5.0 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 51 | 48 | 8.5 | 8.5
Share of irrigated land in AA (%) | 3.7 | 6.3 | - | -
Share of agriculture in water abstractions (%) | .. | 62 | 45 | 43
Water stress indicator | 0.6 | 1.1 | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759535

Description of policy developments

Main policy instruments

New Zealand largely limits its agricultural support to expenditures on general services, such as agricultural research and bio-security controls for pests and diseases. A significant share of the costs of regulatory and operational functions, including for border control, is charged to beneficiaries or those who create risks.

Practically all of New Zealand’s agricultural production and trade is free from economic regulations. Since the phasing out of restrictions for dairy exports to specific tariff quota markets by the end of 2010, such export rights are now allocated to dairy companies on the proportion of milk-solids collected. Export regulations continue to exist for kiwifruit: the New Zealand company Zespri has the default right to export kiwifruit to all markets other than Australia, although not the exclusive one. Other traders can export kiwifruit to markets other than Australia in collaboration with Zespri, subject to approval by Kiwifruit New Zealand, the relevant regulatory body. Kiwifruit exporters to Australia are required to hold an export licence under the New Zealand Horticulture Export Authority Act 1987 which provides for multiple exporters to that market.

The Dairy Industry Restructuring Act 2001 (DIRA) was established to promote the efficient operation of the New Zealand dairy industry. In particular it aims at ensuring that farmers can freely enter and exit the Fonterra Co-operative, and that other processors can obtain raw milk necessary for them to compete in dairy markets.

The Food Act 2014 came into force on 1 March 2016. It aligns the domestic food system with the risk-based approach of other New Zealand food statutes that have more of an export focus. New Zealand’s food system aligns with international trends in food regulation that have shifted to using a risk-based approach that focuses on the outcome of providing safe and suitable food, rather than using prescriptive regulation.

Import Health Standards (IHS) are documents issued under the Biosecurity Act 1993. They state the requirements that must be met before risk goods can be imported into New Zealand. Risk goods can only be imported if an IHS is in place for the product, and if all the IHS measures have been met by the good to be imported. For some products (representing a small share of New Zealand’s agricultural output: table eggs, uncooked chicken meat, and honey) there is currently no IHS in place, and therefore the goods cannot be imported. This leads to some market price support for the mentioned products as the domestic prices for those products are above the world market level.

“Industry good” activities¹ (such as research and development, forming and developing marketing strategies, and providing technical advice) previously undertaken by statutory marketing boards are now managed through producer levy-funded industry organisations under the Commodity Levies Act 1990. Under this legislation, levies can only be imposed if they are supported by producers, and producers themselves decide how levies are spent. With a very limited number of exceptions, levy funds may not be spent on commercial or trading activities. The levying organisations must seek a new mandate to collect levies every six years through a referendum of levy payers.

OVERSEER is a nutrient management tool used for setting and managing nutrients within environmental limits. It helps farmers and growers improve their productivity, reduce nutrient leaching into waterways, and reduce greenhouse gas emissions. The intellectual property is jointly owned by the Ministry for Primary Industries, AgResearch Limited, and the Fertiliser Association of New Zealand. The tool is increasingly being used by regional councils that are implementing the National Policy Statement on Freshwater Management.

Pastoral Genomics is a New Zealand consortium for forage improvement through biotechnology. It is funded by the Ministry of Business, Innovation and Employment (MBIE), DairyNZ, Beef+Lamb New Zealand, Grasslands Innovation, NZ Agriseeds, DEEResearch, AgResearch, and Dairy Australia. The consortium aims to provide pastoral farmers with better forage cultivars that will increase productivity, profitability and environmental sustainability of New Zealand’s pastoral farming systems, and to raise the value of the sector’s exports. The New Zealand Government is investing NZD 7.3 million (USD 5.2 million)² between 2015 and 2020 through the MBIE partnerships scheme; this funding will be matched by industry funding. The partnership intends to use non-regulated biotechnologies to help progress breeding and commercialisation of high-performing forages for grazing livestock, in order to improve the nutritional content of forage cultivars and to make the forage sectors more resilient to drought and disease.

Since 2000, the Sustainable Farming Fund (SFF) has invested in community-driven projects that deliver economic, environmental and social benefits to New Zealand’s land-based primary industries and aquaculture sector. Approximately 80 SFF projects are underway at any one time.

The Primary Growth Partnership (PGP) programme was introduced in 2009 and is administered by the Ministry for Primary Industries. The PGP is a government-industry partnership initiative that invests in significant programmes of research and innovation to boost agricultural productivity, economic growth and the sustainability of New Zealand’s primary, forestry and food sectors. Investments cover the whole of the value chain, including education and skills development, research and development, product development, commercialisation, commercial development, and technology transfer. PGP programmes are up to seven years duration. Industry co-investors must invest a minimum of 60% of the total investment (50% for programmes approved in or before December 2015), with a minimum amount of NZD 0.5 million (USD 0.36 million) to co-invest over the lifetime of a programme; the balance is invested by the Crown. By the end of 2017, the total PGP funding commitment from government and industry to the portfolio of 22 programmes was around NZD 759 million (USD 539 million), of which the government’s commitment was NZD 358 million (USD 254 million). NZD 254 million (USD 180 million) of this commitment have already been paid out.

Most of the Government’s funds to support large (regional) scale and community scale investments for the development of water storage, distribution and off-farm irrigation infrastructure are channelled through the Ministry for Primary Industry’s Crown Irrigation Investments Limited (CIIL) and Irrigation Acceleration Fund (IAF), respectively.

A total of NZD 183 million (USD 130 million) has been allocated to CIIL for investment into scheme construction. Construction of Central Plains Water (CPW) Stage 1 is complete and commissioned and CPW Stage 2, an investment worth NZD 65 million (USD 46 million), commenced in early 2017. Negotiations for investments in four further schemes are in progress. In addition to scheme construction investments, since July 2016 CIIL has also managed the development grant funding for regional irrigation schemes. CIIL secured an additional NZD 26.7 million (USD 19 million) in Budget 2017, to provide further grants to irrigation schemes in development. The IAF supports community scaled irrigation infrastructure development and strategic water management studies and trials. Crown funded projects are expected to result in some 126 000 hectares of new irrigated areas, and improvements to up to 104 000 hectares of irrigation infrastructure. Of these, around 47 000 hectares are commissioned or currently being constructed and 55 000 hectares have received upgrades. All projects are co-funded by private investors whose investments have to represent no less than 50% of the total funding.

The two parties continue to work closely together to provide an overall Crown funded irrigation portfolio. In the past decade, more than 30 projects throughout New Zealand have received support by way of grant funding. Some NZD 46 million (USD 33 million) have been provided from the IAF and, more recently, CIIL, for water storage and infrastructure development. To be eligible for funding, the projects need to promote efficient use of water, environmental management, and demonstrate a commitment to good industry practice. Schemes receive development grant funding to the stage where they are commercially robust and demonstrate a high level of community support.

In ratifying the Paris Agreement on Climate Change, New Zealand has committed itself to a Nationally Determined Contribution (NDC) of reducing emissions on an economy-wide basis to 30% below 2005 levels over the period 2021-2030 (-11% below 1990 levels by 2030). The commitment includes all sectors and all gases, with no specific targets or commitments set for the agricultural sector. New Zealand is on track to achieve its current target under the UNFCCC (-5% below 1990 levels by 2020).

The New Zealand Emissions Trading Scheme (NZ ETS), New Zealand's primary policy response to climate change, imposes reporting obligations on agriculture, including meat processors, dairy processors, nitrogen fertiliser manufacturers and importers, and live animal exporters, although some exemptions apply. The NZ ETS also imposes an emissions cost on the transport fuels, electricity production, synthetic gases, waste and industrial processes sectors.

The New Zealand Government continues to research and develop mitigation technologies to reduce agricultural greenhouse gas emissions. It does so through the New Zealand Agricultural Greenhouse Gas Research Centre (NZAGRC), the Pastoral Greenhouse Gas Research Consortium (PGgRc), and in co-ordination with the 49 member countries of the Global Research Alliance on Agricultural Greenhouse Gases (GRA).

The NZAGRC, funded by the Ministry for Primary Industries, brings together nine organisations that conduct research to reduce New Zealand’s agricultural greenhouse gas emissions.³ Research is focused on finding practical ways of reducing on-farm methane and nitrous oxide emissions while improving productivity and sequestering soil carbon.

The PGgRc is a partnership, funded 50:50 by Government and industry,⁴ that aims to provide livestock farmers with the information and means to mitigate their greenhouse gas emissions. The PGgRc mainly focuses on research to reduce methane emissions in ruminant animals.

The GRA, of which New Zealand hosts the secretariat, was established in 2009. Its member countries collaborate on the research, development and extension of technologies and practices that can deliver more climate-resilient food systems without growing greenhouse gas emissions. In 2017, a new PhD scholarship programme was established to build global expertise on climate change, agriculture, and food security, with the purpose of boosting New Zealand’s contribution to agricultural greenhouse gas research. The scholarship programme is a joint initiative of the GRA and the climate change programme of the Consultative Group on International Agricultural Research (CGIAR). New Zealand funding will support up to 40 recipients to be hosted in research centres of the CGIAR and GRA member countries and partners over the next three years.

The Afforestation Grant Scheme is a NZD 19.5 million (USD 13.9 million) programme to establish 15 000 hectares of new forest plantations between 2015 and 2020, providing funds to farmers and land owners. New planting aims at increased erosion control, improved water quality, reduced environmental impacts following flooding, and reduced GHG emissions.

On climate change adaptation, the New Zealand Government has established a Technical Working Group to look at how to build resilience to the effects of climate change, while ensuring sustainable economic growth. Members of the Group represent various economic sectors, including agriculture.

New Zealand currently has nine Free Trade Agreements (FTAs) in force, which account for approximately 50% of the value of New Zealand’s total exports and for almost half of its agro-food exports. As a trade dependent economy, and being geographically distant from export markets, FTAs are one way through which the New Zealand government aims at supporting improved productivity, value-added, and export earnings in the primary sector. There are an additional three agreements that are concluded but not yet in force – the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP; see also section on trade policy developments), the New Zealand-Gulf Cooperation Council FTA (involving Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates), and the Anti-Counterfeiting Trade Agreement (ACTA) (also signed by ten other WTO member countries).

Domestic policy developments in 2017-18

Farmers and growers faced three medium-scale adverse events in 2017: flooding and storm damage, and drought in both the North and South Islands. Classifying these adverse events triggered additional Government support. In the case of flooding in Otago, the New Zealand Government contributed NZD 50 000 (USD 36 500) to the Dunedin Mayoral Relief Fund in addition to funding its share of the costs associated with repairing essential infrastructure, such as drinking water, storm water, and waste water systems, and river management systems. In response to the Bay of Plenty flooding, the Primary Industries Bay of Plenty Flood Recovery Grant was established to help with essential uninsurable infrastructure repairs. Affected farmers and growers could apply for contributions from the NZD 300 000 (USD 213 000) grant to help with specific infrastructure repairs such as re-grassing of pasture, re-sowing of crops, and clean-up of silt and debris. An additional NZD 1 million (USD 0.71 million) was committed by the New Zealand Government to enable Enhanced Taskforce Green teams to clear debris from towns, rural properties, and parks and reserves in affected areas of the Bay of Plenty. The severity of the storm damage in the Franklin Ward, Hauraki District, Thames-Coromandel and Waikato Districts led to additional funding being made available to the Waikato Rural Support Trust, and for Rural Assistance Payments (RAPs). RAPs are available to farmers in real hardship. RAPs cover essential living costs for those farmers whose income is severely impacted by a medium-scale (or greater) adverse event and who have no other means of supporting the family.

In December 2017, drought affecting Taranaki and parts of Manawatu-Whanganui, Wellington regions was classified as a medium scale event. This was extended to parts of the West Coast of the South Island in January 2018. NZD 350 000 (USD 249 000) was made available to the Rural Support Trusts. Rural Assistance Payments and tax relief measures allowing farmers to make late income equalisation deposits and apply for early refunds are also available to farmers and growers in affected districts.

Grants provided by the Earthquake Recovery Fund support farmers and growers in the Marlborough, Kaikoura and Hurunui region, impacted by the Kaikoura earthquake, by funding community-driven projects and professional advisory services for future land use planning. Eight community project applications were approved, totalling NZD 3.54 million (USD 2.52 million) over three years. A further NZD 1 million (USD 0.71 million) was available for land owners and managers to access professional advisory services from an approved support list. The remaining NZD 460 000 (USD 327 000) covered earthquake recovery related work such as precision agriculture and resilience planning.

In July 2017, the bacterial infection Mycoplasma bovis was found in cattle in the Oamaru region. This was the first detection of Mycoplasma bovis in New Zealand and the Ministry for Primary Industries declared a biosecurity response. Mycoplasma bovis can cause serious health problems in cattle, which do not respond to treatment. The bacterium presents no food safety or human health risks, but adversely affects both animal welfare and productivity. Between October and December 2017, around 5 000 cattle were culled to prevent further spread of the disease. A programme has been put in place to decontaminate and repopulate affected farms, and the response is ongoing in an effort to contain the disease. Affected farmers can claim compensation for the losses directly caused by the Ministry for Primary Industries’ exercise of powers, under the Biosecurity Act 1993. Compensation may cover verifiable losses as a result of damage to or destruction of property (including stock and equipment destroyed in an attempt to limit the spread of the bacteria), or as a result of restrictions imposed on the movement or disposal of their goods. Compensation claims are still under review.

The Biosecurity 2025 Direction Statement was launched in late 2016 and sets out a long-term vision for protecting New Zealand. Working groups are developing plans to implement each of the five strategic directions: involving all New Zealanders, harnessing science and technology, improved information availability and data analysis, effective leadership and governance, and skills and assets. Better targeting and facilitation of low-risk travellers and traders and concentrated efforts on high-risk areas aim at further efficiency gains at the border.

The New Zealand government continues to engage with industry and stakeholders to build biosecurity readiness and response capability. The Government Industry Agreement on Biosecurity Readiness and Response (GIA) has established an integrated approach to preparing for and effectively responding to biosecurity risks, through partnerships between the government and primary industry sector groups. Signatories share decision making, costs and responsibility in preparing for and responding to biosecurity incursions. In 2017, Summerfruit New Zealand, Meat Industry Association of New Zealand, New Zealand Winegrowers and the Dairy Companies Association of New Zealand (DCANZ) signed the GIA deed, bringing to 17 the number of industry sectors that have joined with the Ministry for Primary Industries under GIA. Participation in GIA is voluntary, and further industry sector groups are considering whether or not to join GIA, with membership expected to increase further in 2018.

The New Zealand kiwifruit industry is overcoming the challenges of the bacterial kiwifruit vine disease “Psa-V”. A class action, brought by a group of kiwifruit growers and a post-harvest operator against the Crown for an alleged negligence resulting in Psa-V entering the country in 2010, is awaiting the High Court’s decision after the hearing in 2017.

In response to the industry’s self-review of its performance through the Kiwifruit Industry Strategy Project, the Government updated the Kiwifruit Export Regulations 1999, taking effect on 1 August 2017. The changes allow Zespri shareholders to consider setting rules around maximum shareholding and eligibility for dividend payments; clarify the activities Zespri can undertake as a matter of core business; and enhance the independence and transparency of the independent industry regulator, Kiwifruit New Zealand.

The Resource Legislation Amendment Act 2017 (RLAA) represents the Government’s second phase of reform of the Resource Management Act 1991 (RMA). Together these changes aim at supporting more effective environmental management and driving capacity for development and economic growth.

Crown Forestry, a business unit that administers the Crown’s residual interest in a range of commercial forestry assets, has entered into commercial arrangements with farmers and landowners to plant trees on privately owned land. Funding of NZD 14 million (USD 10 million) will support the planting of trees in 2018 and the purchase of seedlings in 2019. Farmers and landowners with more than 200 hectares of unused land have the option of a lease or joint-venture with Crown Forestry in order to meet the government’s target of planting one billion trees over 10 years. For land to be suitable it needs to be reasonably fertile, easily accessible, and identified as suitable for production forestry. Crown Forestry will pay establishment and management costs, pay rent to the land owner, and allow carbon credits to be retained.

On 5 February 2018, the Ministry for Primary Industries’ General Export Requirements for Bee Products notice came into effect. In particular, these requirements strengthen traceability across the supply chain and implement a robust scientific definition of mānuka honey that can be used to identify and authenticate mānuka honey from New Zealand. The definition is a combination of five attributes (comprising four chemicals and one DNA marker from mānuka pollen) required to separate mānuka honey from other honey types. The requirements aim to give consumers and trading partners confidence that all mānuka honey exported is true to label.

In November 2017, rules around foreign investment in “sensitive agricultural land” were extended to virtually all agricultural land. Foreign investors in New Zealand agricultural land and other sensitive business assets have to get consent through the Overseas Investment Office. These rules aim to make growth more inclusive and to ensure more benefits from such investment are captured by New Zealanders.

Forthcoming changes

The Dairy Industry Restructuring Amendment Bill was introduced in December 2017 to prevent the expiry of the key Dairy Industry Restructuring Act 2001 (DIRA) provisions in the South Island. This Bill is planned to be passed by 31 May 2018. The Government also intends to undertake a comprehensive policy review of the DIRA as a matter of priority. Officials are currently scoping the review, and terms of reference for the review are likely to be publicly released later in 2018.

Changes to the Animal Welfare Act 1999 in May 2015, gave the Ministry for Primary Industries the ability to make animal welfare regulations. After the Young Calf and Live Animal Export regulations were released in July 2016, a further 46 new animal welfare regulations are being developed, and are to come into effect before October 2018. These regulations concern stock transport, farm husbandry, companion and working animals, pigs, layer hens, and the way animals are accounted for in research, testing and teaching. A third tranche of regulations is to be considered in 2018, for introduction in 2019.

An agreement reached between New Zealand and Australian food safety authorities will lead to hemp seed legalised as food in New Zealand. Before the standard can take effect in New Zealand, changes to New Zealand domestic legislation will need to occur. This process will take place in 2018.

Trade policy developments in 2017-18

In March 2017, an arrangement on developing an Agricultural Growth Partnership (AGP) was signed between New Zealand and Argentina. The AGP is a public-private partnership aimed at developing and delivering agricultural cooperation programmes focused on education, training and research in the primary sector.

The Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) was signed by the Trade Ministers of the eleven partner countries⁵ in March 2018, but remains to be ratified before entering into force. The CPTPP would eliminate tariffs on all New Zealand’s exports to CPTPP economies, including in agriculture, with the exception of beef and a number of dairy products into several partner countries which would see partial tariff reductions and duty-free quotas. As New Zealand’s MFN tariffs are zero or at low levels already, tariff changes due to the CPTPP would be small. The 11 signatories to the CPTPP collectively account for 13.5% of global GDP, nearly one-third of New Zealand’s current goods and service trade and about one-fourth of New Zealand’s exports of agro-food products.

New Zealand continues negotiations to upgrade, including on agricultural products, the New Zealand-China FTA and the New Zealand-Singapore Closer Economic Partnership (CEP).

New Zealand continues negotiations in the Regional Comprehensive Economic Partnership (RCEP). Negotiations between New Zealand and the countries of the Pacific Alliance⁶ started in October 2017 and will continue into 2018. Negotiations for a New Zealand-European Union FTA have been delayed and are expected to begin in the first half of 2018.

New Zealand is currently developing a New Progressive and Inclusive Trade Agenda through extensive civil society, industry, and public consultation and engagement.

References

NZIER (2007), Productivity, Profitability and Industry Good Activities, Report to Dairy Insight, February, available at at http://nzier.org.nz/publication/productivity-profitability-and-industry-good-activities.

Notes

 1.  Activities “beneficial to the industry, but whose benefits cannot be captured by those who fund or provide the activity”, or “long-term investments in the industry made with the expectation of accelerating delivery of better technology and products for the industry” (NZIER, 2007).

 2.  All values in this policy description use the 2017 exchange rate for monetary conversion.

 3.  The seven member Crown research institutes and universities are: AgResearch, Landcare Research, Lincoln University, Massey University, National Institute of Water and Atmospheric Research, Plant Food Research and Scion. The two other organisations involved are DairyNZ and the Pastoral Greenhouse Gas Research Consortium.

 4.  Industry partners are DairyNZ, Beef+Lamb New Zealand, DEEResearch and Fertiliser Research.

 5.  CPTPP countries are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Viet Nam.

 6.  Pacific Alliance countries are Chile, Colombia, Mexico and Peru.

Chapter 18.

Norway

Support to agriculture

Norway’s progress in reducing support levels has been modest; its farming sector continues to receive one of the highest levels of support in the OECD area. The principal policy instruments supporting agriculture include border measures, budgetary payments and domestic market regulations.

The Total Support Estimate to agriculture (TSE) was slightly less than 1% of GDP in recent years. Support to farmers (PSE) accounts for 57% of gross farm receipts, which is three times higher than the OECD average. Expenditures on general services for the sector as a whole (General Service Support Estimate - GSSE) are relatively small – around 5% of TSE – and mostly finance the agricultural knowledge and innovation system.

Market price support (MPS), mainly due to border protection, still remains the main component of support to farmers, and its share in support to farms has been reduced by only 2 percentage points between 1986-88 and 2015-17. 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 among commodities. Effective prices received by producers are on average 84% above world market prices.

Main policy changes

In the White paper, released in December 2016, plans to reform agricultural policies are being considered. The White paper was discussed in the Parliament in April, but the government did not obtain a majority. The government aims to enhance the efficiency and competiveness of the sector by reducing and simplifying the number of support programmes, while maintaining the overall system of market regulation.

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. There is considerable scope for accelerating the pace of reforms in order to achieve stated goals at less cost to taxpayers and consumers.

Further progress is needed to reduce the potentially most distorting support in order to increase exposure to market signals and eliminate measures impeding structural shifts towards a more productive agricultural sector.

The limited reforms agreed by the Parliament in April 2017, such as the commitment for some simplification in support measures and the rule changes on milk quota, are steps towards enhancing the efficiency and reducing policy-related transaction costs and should be accelerated.

Environmental taxation, which is a core pillar of Norway’s efforts to reduce non-ETS greenhouse gas (GHG) emissions and in tackling other environmental issues, should be considered for agriculture, along with other market-based climate mitigation measures. Efforts to identify measures for reducing emissions from agriculture are important.

Pursuing productivity growth while maintaining environmental protection and sustainable natural resource management should be a policy priority. In this context, re-orienting support towards general services, especially for the agricultural knowledge and innovation system is an avenue to be further explored.

Figure 18.1. Norway: 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.

StatLink  http://dx.doi.org/10.1787/888933757236

Support to farmers (%PSE) has declined gradually over the long term. In 2015-17, support has been around 57% of gross farm receipts, which is more than three times higher than the OECD average. The share of the potentially most distorting support has decreased over time, but it is still more than half of farmers support (Figure 18.1). Market price support is the main component of the most distorting support. The level of support in 2017 has decreased mainly due to higher border prices in USD, particularly for butter (Figure 18.2). Effective prices received by farmers, on average, were 1.8 times higher than world prices in 2015-17. Single Commodity Transfers (SCT) accounted for 39% of the total PSE. The share of the SCT in the commodity gross receipts is higher than 30% for all commodities, exempt for sheep meat and eggs (Figure 18.3). The expenditures for general services (GSSE), mainly on knowledge and infrastructure, relative to agriculture value added were in line with OECD average. Total support to agriculture as a share of GDP has declined significantly over time. About 92% of the total support is provided to individual farmers (PSE).

Figure 18.2. Norway: 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.

StatLink  http://dx.doi.org/10.1787/888933757255

Figure 18.3. Norway: 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.

StatLink  http://dx.doi.org/10.1787/888933757274

Table 18.1. Norway: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758642

Contextual information

Agriculture constitutes a relatively small share of the economy. Land most suitable for farming, around 3% of the territory, tends to be located in the most populous and rapidly growing regions. While the contribution of agriculture to GDP and employment is small, Norway has consistently stressed the importance of the sector for policy priorities such as achieving food security and maintaining population in rural areas.

The sector produces a rather narrow range of commodities. In addition to sheep farming, the primary activity has traditionally been livestock (for milk and meat) and crops, such as grass and cereals (mainly used as animal feed). The farm structure is dominated by relatively small family farms, many of which are in remote locations.

Table 18.2. Norway: Contextual indicators
| Norway | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 106 | 308 | 0.4% | 0.4%
Population (million) | 4 | 5 | 0.2% | 0.2%
Land area (thousand km2) | 365 | 365 | 0.5% | 0.5%
Agricultural area (AA) (thousand ha) | 1 127 | 987 | 0.04% | 0.04%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 14 | 17 | 38 | 45
GDP per capita (USD in PPPs) | 24 322 | 58 792 | 9 650 | 24 866
Trade as % of GDP | 24 | 22 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 3.0 | 2.4 | 3.0 | 3.1
Agriculture share in employment (%) | 5.1 | 2.1 | - | -
Agro-food exports (% of total exports) | 1.3 | 1.2 | 7.7 | 7.3
Agro-food imports (% of total imports) | 6.2 | 9.7 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  27 |  28 | - | -
Livestock in total agricultural production (%) |  73 |  72 | - | -
Share of arable land in AA (%) | 88 | 82 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759098

Sound management of natural resources and business dynamism has helped to boost Norway’s per capita GDP, which is now one of the highest in the world. Combined with its “Nordic model” ensuring inclusiveness and low inequality, Norway exhibits impressive levels of well-being in many dimensions. Sustaining Norway’s inclusive society will require successful economic diversification away from oil-related activities and continue seizing opportunities from globalisation and digitalisation.

Norway is a net importer of agricultural products: agro-food imports represent around 10% of total imports, while agro-food exports represent 1% of total exports. The vast majority of Norway’s agricultural production is consumed domestically. Imports of products mostly take place where domestic production does not meet demand. Most of the agro-food trade is for final consumption.

Figure 18.4. Norway: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933757293

Figure 18.5. Norway: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933757312

Over the 2005-14 period, agricultural output is estimated to have increased at a slow annual pace. Variable inputs and fixed factors of production have declined, while total factor productivity is estimated to have increased – at a rate that is slightly higher than the world average. Overall, pressure from agriculture on the environment has decreased, as is shown by the decrease in nutrient surpluses per hectare, in air emissions and energy use from agriculture. The lowering of nutrient surpluses has reduced the risk of environmental pressures on soil, water and air. This reflects both improvements in nutrient use efficiency by farmers and slow growth of agricultural production.

Figure 18.6. Norway: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933757331

Table 18.3. Norway: Productivity and environmental indicators
| Norway | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 0.62% | 1.73% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | 104 | 94 | 33 | 30
Phosphorus balance, kg/ha | 14.0 | 9.0 | 3.7 | 2.4
Agriculture share of total energy use (%) | 3.6 | 1.5 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 9 | 8 | 8.5 | 8.5
Share of irrigated land in AA (%) | .. | 3.3 | - | -
Share of agriculture in water abstractions (%) | 30 | 29 | 45 | 43
Water stress indicator | 0.6 | 0.8 | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759554

Description of policy developments

Main policy instruments

The strategic objectives of agricultural and food policies, as set out in the White Paper No. 11 (2016–17) “Change and development - A future-oriented agricultural production” 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 component of Norway’s regional and rural policies.

The principal policy instruments supporting agriculture include border measures, budgetary payments and domestic market regulation based on the Marketing Act. The Act covers certain types of meat (beef, mutton, pork and poultry); milk, butter and cheese; eggs; cereals and oilseeds; potatoes, vegetables, fruit and berries; and fur skins.

Target prices are provided for milk, pork, grains, some fruits and vegetables. Target prices and the budgetary framework for payments to farmers are negotiated annually between the government and farmers’ organisations. Marketing fees are collected from producers to finance marketing activities dealing with surpluses, including export subsidies for livestock products. Export subsidies of processed products to the European Union and marketing activities for horticultural products are financed directly by the government.

Milk production quotas were introduced in 1983 and a system of buying and selling quotas was introduced in 1997. Most of Norway’s tariff-rate-quotas were eliminated in 2000 when the WTO bound tariff rates became equal to the in-tariff quota rates. Tariffs for some products, particularly livestock products are set between 100-400% although there is a system of “open periods” for imports at reduced tariff rates when domestic prices rise above threshold levels.

Various direct payments to farmers, including area and headage payments as well as payments based on product quantities (meat) continue to be provided. Many of these payments are differentiated by region and farm size in order to provide adequate income support across all type of farms and regions. Environmental levies on agricultural pesticides are applied.

Domestic policy developments in 2017-18

The White paper No. 11 (2016-17) “Change and development - A future-oriented agricultural production”, released in December 2016, makes suggestions for reform of agricultural policies. The White paper was discussed in the Parliament in April, but the government did not obtain a majority to vote it through. The government aims to enhance the efficiency and competiveness of the sector by reducing and simplifying the number of support programmes, while maintaining the overall system of market regulation.

In June 2017, an agreement was reached between the government and the two farmers’ organisations involved in the agricultural negotiations. The main changes in the agreement were: i) an increase in target prices with a total budgetary effect of NOK 150 million (USD 18 million) from 1 July 2017; ii) an increase in budgetary support of NOK 377 million (USD 46 million) from 2017 to 2018; iii) transfer of NOK 79 million (USD 10 million) from the 2016 budget and an increase in the tax relief on NOK 19 million (USD 2.3 million); iv) increased support for the investments and development programme; and v) increased payments for grazing animals.

For 2017 and 2018, both the basic milk quotas and the actual production capacity are reduced by 2%. In 2017, farmers selling cow milk quota were allowed to sell up to 80% of their quota at a free price directly to other producers within a production region (mainly defined as the county), and a minimum of 20% had to be sold to the government at a fixed price. Following the December 2016 White Paper, the Parliament accepted for cow milk to reduce the number of production regions for quota redistribution from 18 to 14.

The National Environmental Programme contains the main agri-environmental measures, such as the Acreage Cultural Landscape Support, payments to extensive grazing, payments for grazing animals, organic agriculture, Regional Environmental Programmes (REP) and special environmental measures in agriculture. The budget for the REP was increased from NOK 422.4 million (USD 50 million) to NOK 432.4 million (USD 52 million). Examples of programmes include payments to reduce water pollution from agricultural fields, environmentally-friendly spreading of manure, mowing small (abandoned) fields with high or special biodiversity in the forest and mountains areas, grazing on islands, maintenance around heritage sites in the agricultural landscape, etc.. The 2016 White Paper advocates: a revision of the National Environmental Programme; accordance of higher priority to climate adaptation; and continuing the work on simplification and enhancement of goal-orientation of programmes.

Although carbon pricing is extensive in Norway, emissions from agriculture are neither subject to a carbon-dioxide tax nor included in the European Trading System (ETS). Norway’s Paris commitment is to reduce greenhouse-gas (GHG) emissions by at least 40% by 2030 compared with the 1990 level. Norway is in dialogue with the European Union on joint fulfilment of the 2030 climate commitment. The government will appoint a Committee to evaluate the possibility of introducing a gradually increased CO2 tax for agriculture and to propose other climate mitigation measures. However, Norway has implemented other measures – both statutory and financial as well as measures related to information – affecting the emissions from agriculture.

In June 2017, the Parliament adopted a Climate Change Act (Lov om klimamål) which establishes by law Norway’s target of becoming a low-emission society by 2050. The Act has an overarching function in addition to existing environmental legislation. It sets binding emission reduction targets for 2030 and 2050 and establishes by law the long-standing political aim to become a low emission society by 2050. The Act also calls for the government to appoint a working group to evaluate the existing support schemes for climate measures at farm level. An agreement was signed in June 2017 with the food industry to halve food waste by 2030.

The rural development aspects of Norwegian agricultural policy include several programmes designed to stimulate innovation and the establishment of alternative businesses on farms and alternative employment in rural areas. Most of the funding is financed through the Agricultural Development Fund. The proposal of the total allocation of funds for rural development (on the Agricultural Agreement) was NOR 1 148 million (USD 137 million) for 2017 and NOR 1 124 million (USD 136 million) for 2018.

Trade policy developments in 2017-18

Article 19 of the European Economic Area (EEA) agreement provides that contracting parties will periodically carry out reviews of the conditions of their trade in agricultural products. Another round of these reviews was agreed in 2013 and finalised in April 2017, but the outcomes of these reviews have not yet been implemented.

As part of the European Free Trade Association (EFTA), Norway has negotiated 27 Free Trade Agreements with 38 partner countries. Free trade negotiations are currently being conducted between EFTA and India, Indonesia, Viet Nam, Malaysia, Philippines and Ecuador. EFTA has also started re-negotiations of free trade agreements with Mexico, Chile, Turkey and the Southern African Customs Union (SACU) - Botswana, Lesotho, Namibia, South Africa and Swaziland. These Free Trade Agreements and negotiations include processed agricultural products and a range of primary agricultural products. Norway and China have held further meetings on a bilateral agreement in 2017.

As from 1 January 2015, Norway unilaterally eliminated import duties on 114 agricultural tariff lines. While these duties were low (and not of significant importance for the protection of Norwegian agricultural production), their elimination resulted in reduction of customs procedures and administrative costs.

At the WTO Ministerial Meeting in Nairobi on 19 December 2015, the member states decided that if the developed countries (Norway, Canada and Switzerland) abolish export subsidies on products destined for the least developed countries, they would be permitted to provide export subsidies for processed products, dairy products and swine meat until the end of 2020. The Norwegian Parliament has adopted a Government recommendation that Norway would phase out all export subsidies for agricultural products by the end of 2020.

Chapter 19.

Philippines

Support to agriculture

The level of support to farmers in the Philippines – as measured by the share of policy-driven transfers from consumers and taxpayers in gross farm revenues (%PSE) – averaged 26% in 2015-17. This is higher than the OECD average of 18% and one of the highest among all Emerging Economies covered by this report.

Market price support (MPS) is the dominant form of support to Philippine producers. It is strongly focused on rice producers. The MPS for rice accounted for 42% of the total value of MPS and 41% of the total value of Producer Support Estimate in 2017. In addition to rice, substantial levels of support are provided to sugarcane and animal products, in particular through high import tariffs. The high level of MPS comes with an implicit taxation of consumers and the food processing industry, averaging 26% of the value of consumption in 2015-17 (%CSE).

Expenditures on general services as a ratio of agricultural value added have increased in recent years. These mainly focus on the development of infrastructure, in particular for irrigation systems and – increasingly – for extension programmes.

The overall cost of support, through market price support and budgetary transfers, to the Philippine agricultural sector was high at 3.2% of GDP in 2015-16. It was nearly five times the OECD average during the same period and one of the highest across all countries measured.

Main policy changes

Crop insurance has expanded significantly in recent years. Approximately 15% of farmers received subsidised insurance in 2017 and the government plans to increase coverage to 20% in 2018.

To increase support for rice producers, the government abolished the Irrigation Service Fee paid by farmers to cover operational and maintenance costs of the irrigations systems as from 2017.

According to an agreement with the WTO in 2012, the Philippines had committed to discontinue quantitative restrictions (QR) on rice imports in June 2017. However, in May 2017, the Philippines issued an executive order extending tariff concessions in exchange for continuing QRs until end-2020 or until Congress amends the existing local law, the Agricultural Tariffication Act of 1996.

Assessment and recommendations

The Philippines’ key agricultural policy objectives focus on food security and poverty alleviation through guaranteeing a stable supply of staple food at affordable prices. The goal of self-sufficiency in rice has driven a range of policy measures supporting rice producers – in contrast to diversification towards higher value commodities typical of other countries in the region – while contributing to the undernourishment of poor households that are net rice consumers. The Philippines could improve the country’s food security through policies such as: diversification of production, consumption and income by removing commodity-specific incentives; gradual removal of restrictions on rice imports; and transformation of the National Food Authority’s (NFA) into a market-neutral agency managing emergency stocks.

In view of the Philippines’ high susceptibility to typhoons, tropical storms and flooding, the government should adopt a holistic approach to risk management and mainstream adaptation policy objectives across programmes and institutions. Moreover, the effectiveness of current risk management tools should be assessed – in particular, the extent to which insurance and cash-transfer schemes encourage resilient decision-making on the farm. Lastly, farmer awareness should be increased by sharing information about local conditions, future projections and adaptive solutions.

The Philippines’ agricultural sector’s total factor productivity growth is slower than the world average and slower than in most countries in the region. This is the result of decades of underinvestment (or, in some cases, mis-directed investment), policy distortions, uncertainties linked with the implementation of agrarian reform and periodic extreme weather conditions. In 2017, the Philippines reallocated some funding from variable input subsidies to investment in infrastructure and through the re-orientation of agricultural knowledge systems. Continuing such efforts to refocus budgetary support on long-term structural reform is key to promoting total factor productivity growth.

• Agricultural policies in the Philippines are designed and implemented by a complex system of institutions. The government could strengthen institutional co-ordination between the Department of Agriculture and other relevant departments and institutions that implement programmes supporting agriculture; strengthen transparency and accountability of publicly-funded programmes; accelerate efforts to build a solid policy-relevant statistical system; and integrate monitoring and evaluation mechanisms into the policy process.

Figure 19.1. Philippines: 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.

StatLink  http://dx.doi.org/10.1787/888933757350

Support to farmers (%PSE) was 26% in 2015-17, indicating that more than one-fourth of gross farm revenues were generated by policies. Compared to 2000-02, the level of support has grown (Figure 19.1); however, a slight decline can be noted from 2016 to 2017 due to a smaller price gap between domestic prices and world prices (Figure 19.2). A dominant part of support is provided through market price support, with a strong focus on rice. Market price support and input subsidies without input constraints, both considered as potentially most distorting forms of support, explain almost the total value of support to producers. On average, prices received by farmers were 36% higher than world prices in 2015-17 (compared to 31% in 2000-02). MPS is also the main component of Single Commodity Transfers (SCT): rice and sugar had the highest share of SCT in commodity gross farm receipts in 2015-17 (Figure 19.3). Expenditures for general services (GSSE) relative to agricultural value added more than doubled from 2000-02 to 2015-17 (Figure 19.1). A dominant share of these expenditures is allocated to infrastructure, in particular on investment in irrigation systems. Total support to agriculture as a share of GDP was 3.2% in 2015-17 – one of the highest across all countries covered by the OECD support indicators.

Figure 19.2. Philippines: 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.

StatLink  http://dx.doi.org/10.1787/888933757369

Figure 19.3. Philippines: 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.

StatLink  http://dx.doi.org/10.1787/888933757388

Table 19.1. Philippines: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758661

Contextual information

The Philippines is a mid-size country in terms of land area, but its population of 103 million makes it the world’s 12th most populous country. At USD 7 819 in PPPs, GDP per capita in the Philippines is approximately one-third the average GDP per capita of all countries analysed in this report (Table 19.2). In recent years, the Philippines has achieved relatively weak annual GDP growth of 3.9% annually over 2012-15 despite rebounding from the global economic crisis of 2008-09 (Figure 19.4) – a growth rate below other Emerging Economies globally and below other Asian and ASEAN peers. Overall, the Philippine economy, including its agro-food sector, is relatively integrated in international markets – as measured by the ratio of trade to GDP at 23% in 2016.

Table 19.2. Philippines: Contextual indicators
| Philippines | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 202 | 808 | 0.7% | 0.9%
Population (million) | 70 | 103 | 2.4% | 3.0%
Land area (thousand km2) | 298 | 298 | 0.4% | 0.4%
Agricultural area (AA) (thousand ha) | 11 015 | 12 440 | 0.4% | 0.5%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 234 | 341 | 38 | 45
GDP per capita (USD in PPPs) | 2 887 | 7 819 | 9 650 | 24 866
Trade as % of GDP | 33 | 23 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 21.6 | 9.7 | 3.0 | 3.1
Agriculture share in employment (%) | 44.1 | 29.1 | - | -
Agro-food exports (% of total exports) | 8.5 | 7.5 | 7.7 | 7.3
Agro-food imports (% of total imports) | 8.6 | 11.8 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  63 |  63 | - | -
Livestock in total agricultural production (%) |  37 |  37 | - | -
Share of arable land in AA (%) | 48 | 45 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759117

Agriculture is a key sector for the Philippines, accounting for almost three-tenths of total employment and one-tenth of GDP (Table 19.2). Farms tend to be small-sized with the average landholding at just 1.3 ha – a figure that has been falling in recent years.

With limited land and a large population, the Philippines is a growing net importer of agro-food products. Of these imports, three-quarters are processed goods that are used directly for (final) consumption or as intermediate inputs by the processing industry. On the export side, around half of all agro-food exports are sold to firms for use as inputs in overseas markets, with another half targeting foreign consumers (Figure 19.5).

Figure 19.4. Philippines: Main economic indicators, 1995 to 2017

Note: Change in the ILO definition of employment in 2005.

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933757407

Figure 19.5. Philippines: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933757426

While agricultural total factor productivity growth has increased over the past ten years, growth has remained relatively weak and has averaged 1.2% per year, well below the world average (Figure 19.6) and is one of the lowest growth rates in Southeast Asia (OECD, 2017a). In particular, labour productivity in agriculture is only one-sixth of that seen in industrial sectors, dragging down the overall average across the economy. Agricultural land resources are under strain from frequent natural disasters, population growth and urbanisation. The Philippines has abundant water resources, of which the agriculture sector is the main user – accounting for 82% of total freshwater withdrawals (Table 19.3). Nonetheless, shortages can occur during the dry season in some regions.

Figure 19.6. Philippines: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933757445

Table 19.3. Philippines: Productivity and environmental indicators
| Philippines | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 0.26% | 1.22% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | .. | .. | 33 | 30
Phosphorus balance, kg/ha | .. | .. | 3.7 | 2.4
Agriculture share of total energy use (%) | 0.3 | 0.7 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 33 | .. | 8.5 | 8.5
Share of irrigated land in AA (%) | .. | .. | - | -
Share of agriculture in water abstractions (%) | .. | 82 | 45 | 43
Water stress indicator | .. | .. | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759573

Description of policy developments

Main policy instruments

Market price support is the dominant form of support to Philippine producers. Price support policy is focused on rice and sugar. The rice price support policy is implemented by the National Food Authority (NFA) through price support for producers, a subsidised release price for consumers, government procurement, and import restrictions. The NFA also accumulates buffer stocks of rice to stabilise consumer price levels and ensure adequate and continuous supply. Price support and market regulation of sugar is implemented through sugar production quotas and regulation of foreign trade.

Tariff protection remains the Philippines’ main trade policy tool. Trade liberalisation has primarily occurred within regional trade agreements, particularly the ASEAN Free Trade Area. The simple average applied Most Favoured Nation tariff on agricultural products was 9.8% in 2016. All tariff lines applied are ad valorem and range from 0-65%.

Tariff rate quotas are applied for 14 agricultural products, with in-quota tariffs ranging from 30% to 50% and out-quota from 35% to 65%. Import licensing is intended to safeguard public health, national security and welfare and to meet international treaty obligations.

Imports of agricultural products, live animals, plants, their products and by-products must be accompanied by a sanitary, phytosanitary or health certificate from their country of origin and are subject to inspection upon arrival. Generally, only sanitary and phytosanitary considerations are taken into account when issuing certificates; however, in some cases, the level of domestic supply is also considered (WTO, 2012).

Several agricultural commodities are subject to export controls and may require permits in addition to agency approval, namely rice, grains and grain products, and sugar. Exports of rice and maize remain restricted and, in principle, controlled by the NFA.

Budgetary support to agricultural producers, both through payments provided to farmers individually and to the agricultural sector as a whole (general services), is low compared to the value of transfers created by market price support and when compared to the OECD average. During the 2000s, budgetary support to producers was mainly allocated to subsidise use of variable inputs. However, payments to producers for fixed capital formation have increased in recent years.

Crop insurance has expanded significantly in recent years. Approximately 15% of farmers received subsidised insurance in 2017 and the government plans to increase coverage to 20% in 2018 (PCIC, 2018). The system is fully dependent on the Philippines Crop Insurance Corporation, a government corporation under the Department of Agriculture.

Expenditures on general services have increased significantly since the end of the 2000s. The most important item is the development and maintenance of infrastructure, of which a major share is devoted to investments in irrigation systems.

In 1988, the Philippines undertook an ambitious agrarian reform that covered close to three quarters of the country’s total agricultural land. By end-2015, the redistribution of land was almost complete, but property rights remain to be settled, with almost half of the reform beneficiaries still covered by collective ownership certificates. Various restrictions on land-market transactions and insecure property rights limit on-farm investment and weakened the economic benefits of the reform.

Domestic policy developments in 2017-18

The Irrigation Service Fee (ISF) was abolished for rice producers in 2017. Before that, the ISF was paid by farmers to cover operational and maintenance (O&M) costs of the irrigations systems. It was paid in terms of 2-3 cavans (100-150 kg) of paddy rice per hectare or in its cash equivalent to the National Irrigation Administration (NIA) (OECD, 2017b). The government approved a fund of PHP 2.3 billion (USD 48 million) to enable the NIA to cover the O&M costs in 2017 (FAO, 2016).

Total budgetary allocations to agriculture remained relatively stable at USD 1.8 billion in 2017, though their structure changed. Payments based on input use declined – in particular, due to a decline in funding for post-harvest facilities (such as dryers, warehouses and seed storage). At the same time, funding for general services support increased – most notably, due to a rise in the budget for the development and maintenance of irrigation systems (in line with the national priority to increase infrastructure spending, GAIN, 2017a) as well as additional funding for extension programmes.

The Philippines ratified the Paris Agreement on Climate Change in March 2017, committing to cut emissions by 70% by 2030 and strengthen adaptation efforts. While a laudable emissions target, no specific plans to reduce emissions have been released and the 2015 INDC notes that reaching this target is conditional on the availability of sufficient financial resources (UNFCCC, 2015; Climate Action Tracker, 2017). Agriculture is not among the priority sectors for emission reductions (energy, transport, waste, forestry and industry); however, it is identified as a priority sector for adaptation and resilience.

Trade policy developments in 2017-18

The Philippines had previously committed in the WTO to discontinue a quantitative restriction (QR) on rice imports in mid-2017; however, an executive order (No. 23) was issued in May 2017 which has unilaterally extended tariff concessions and the QRs. The QRs will now be maintained until December 2020 or until Congress amends the Agricultural Tariffication Act of 1996 (which currently exempts rice from tariffication). These restrictions were first established when joining the WTO in 1995: the Philippines benefited from a special treatment clause (Article 5 of the Agreement on Agriculture) which allowed it to maintain QRs on rice imports on the basis of food security until 2012. In return, the Philippines had to guarantee minimum market access in the form of a progressively increasing import quota (minimum access volume, MAV). In 2012, the Philippines requested a new extension of its special treatment for rice through a waiver until 2017. The waiver was granted in July 2014 on the condition that the Philippines increased the MAV to 805 200 tonnes, lowered the in-quota tariff to 35% and that, after 30 June 2017, its importation of rice would be subject to ordinary customs duties established on the basis of a tariff equivalent to be calculated in accordance with the guidelines defined in the WTO Agreement on Agriculture (WTO, 2014). Executive Order No. 23 has now extended the QR on rice imports beyond the WTO commitment. A bill to amend the Agricultural Tariffication Act’s exemption of rice from tariffs is under development; however, the timeline for its completion is unknown (GAIN, 2017b).

In April 2016, the Philippines signed a Free Trade Agreement (FTA) with the member states of the European Free Trade Association (EFTA). This broad-based agreement covers trade in goods (industrial and agricultural goods, fish and other marine products), rules of origin, trade facilitation, trade in services, investment, competition, protection of intellectual property rights, government procurement and sustainable development (GAIN, 2016). In March 2018, the Philippines Senate voted to ratify the agreement, an important step towards the agreement taking effect.

The Philippines and the European Union continue to negotiate an EU-Philippines FTA. The current relationship between the two parties is based on the Partnership and Cooperation Agreement signed in 2012. The aim of the negotiations is to conclude an agreement that covers a wide range of areas including tariffs, non-tariff barriers to trade, trade in services and investment, as well as trade aspects of public procurement, intellectual property, competition and sustainable development (EU, 2017).

References

Climate Action Tracker (2017), “Philippines”, http://climateactiontracker.org/countries/philippines.html.

EU (2017), “Countries and regions: The Philippines”, http://ec.europa.eu/trade/policy/countries-and-regions/countries/philippines/.

FAO (2016), FAO policy developments website: www.fao.org/economic/est/est-commodities/commodity-policy-archive/en/.

GAIN (2017a), “Philippine Oilseeds and Products Situation and Outlook”, 30 March.

GAIN (2017b), “Grain and Feed Situation and Outlook”, 15 December.

GAIN (2016), “Philippines: EFTA-Philippines Free Trade Agreement Signed”, 19 May.

OECD (2017a), Building Food Security and Managing Risk in Southeast Asia, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264272392-en.

OECD (2017b), Agricultural Policies in the Philippines, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264269088-en.

PCIC (2018), “2 million farmers to get free crop insurance”, http://pcic.gov.ph/news/pcic-in-the-news/2-million-farmers-to-get-free-crop-insurance/.

UNFCCC (2015), “Republic of the Philippines, Intended Nationally Determined Contributions”, October 2015, Republic of the Philippines.

WTO (2014), Decision on Waiver relating to Special Treatment for Rice of the Philippines, WT/L/932, https://docs.wto.org/dol2fe/Pages/FE_Search/DDFDocuments/126136/q/WT/L/932.pdf.

Chapter 20.

Russian Federation

Support to agriculture

Around 86% of total support to agriculture (TSE) in 2015-17 was provided to producers individually (PSE), with the rest directed to general services for agriculture (12%) and to support agricultural commodity buyers (2%).

Support to producers fluctuated over the long-term, but after 2010 has remained within a band between 12% and 15% of gross farm receipts (%PSE). The largest part of support to producers (74%) originates from the most distorting forms of support, such as market price support and subsidies based on output and variable input use. 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 the implicit taxation of exported grains and oilseeds. Livestock producers additionally benefit from domestic grain prices being below the world levels. Within support to general services, the agricultural knowledge system, development and maintenance of infrastructure, and the inspection and control system absorb the largest shares of funding.

Total support to agriculture (TSE) was equal to 0.8% of GDP in 2015-17. This percentage is three times lower than it was in the mid-1990s, largely reflecting GDP growth and the declining GDP share of the agricultural sector. Taxpayers provide 41% of total support transfers, the remaining 59% coming from consumers. Consumer contribution to agricultural support is due to agricultural prices supported on average 10% above the international levels. Net of the budgetary support to agricultural commodity buyers, this increased their expenditures by 10% (%CSE) in 2015-17.

Main policy changes

In 2017, further amendments were made to the State Programme for the Development of Agriculture for 2013-20. A new sub-programme was created for the development of the agricultural export potential. Previous sub-programmes were regrouped under broader headings and a range of subsidies consolidated to simplify the implementation and provide greater flexibility to the regions in prioritising the use of funds. In 2018, the State Programme is to broadly maintain previous year’s parameters, both in terms of structure and spending. Following the second consecutive high grain crop, tariffs for transportation of grain between country regions were reduced. This measure adds to the temporary waiver of wheat export duty introduced in the previous season. Conditions for intervention purchases of dry milk and butter were announced, but no interventions made as prices remained above the minimum levels. Previously, interventions were carried out only for grains. For the first time, a list of regions with unfavourable conditions for agricultural production was published. The ban on agro-food imports from a number of countries imposed in 2014 was extended until end-2018. As one of the parties to the Treaty on the Eurasian Economic Union (EAEU), the Russian Federation ratified a new EAEU Customs Code and adopted a number of new EAEU regulations in SPS and technical regulation areas.

Assessment and recommendations

The ongoing State Programme for Development of Agriculture for 2013-20 is aimed at boosting the agricultural production and agro-food import substitution. The political context since the mid-2010s has intensified the country’s import substitution orientation into self-sufficiency policy in the agro-food area.

Most recently, the policy orientation was broadened to also include the development of agricultural export potential, with emphasis on sanitary and phytosanitary (SPS) improvements and market research and promotion. These improvements may contribute to raising the quality standards of local products and to tapping into external demand for agro-food staples, as well as niche and organic products.

Domestic policy has traditionally concentrated on increasing the flows of financial resources into agriculture. The strengthened orientation at self-sufficiency has emphasised support to investments in import competing sectors, including new priorities, such as horticulture, agro-marketing and food distribution infrastructure. These investment priorities and underlying investment projects warrant a comprehensive assessment in terms of economic and financial feasibility.

Development of domestic seed production and pedigree livestock breeding are also in the focus with the aim of reducing dependence on imports of these agricultural inputs as part of the self-sufficiency orientation. The success of these efforts will depend, among other things, on long-term stability of relevant R&D financing and international cooperation.

Steps were taken to rationalise the budgeting of support spending and the transfer of funds from the federal centre to regions; regional governments received greater flexibility in allocating the spending across different supports. This may reduce administration costs of support and facilitate a more efficient use of funds. However, the budget rationalisation did not involve changes in the list of potentially available types of support.

Overall, distorting subsidies and import protection prevail as policy instruments to achieve the stated objectives of import substitution and export development.

These objectives, however, require substantial and sustained improvements in the competitiveness of agriculture, which is 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.

While consecutive targeted programmes directed resources for rural development, but much remains to be done to improve living conditions in rural areas to increase sector’s human capital.

Figure 20.1. Russia: 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.

StatLink  http://dx.doi.org/10.1787/888933757464

Support to farmers (%PSE) was at 13% of producer gross receipts in 2015-17, below the OECD average and below the level observed in 1995-97 (18%). The share of potentially most distorting support – based on output and unconstrained input use – decreased only slightly from 77% to 74% of the total PSE between 1995-97 and 2015-17 (Figure 20.1). The total value of producer support fell by 18% in the most recent year, largely due to the reduced market price support as domestic prices increased less strongly than border prices. The effect of decreased market price support on the PSE was amplified by some reduction in budgetary transfers (Figure 20.2). Prices received by farmers were on average 10% above those observed on world markets in 2015-17 (NPC), compared to 9% in 1995-97. This aggregate NPC, however, disguises border protection for livestock products and sugar and taxation of exported grains and oilseeds. Products receiving the highest commodity-specific support relative to the value of commodity (%SCT) are milk (28%), sugar (25%), and beef and veal (23%). Grains and oilseeds are implicitly taxed (Figure 20.3). The share of Single Commodity Transfers (SCT) in the PSE was 72% in 2015-17. The expenditures for general services (GSSE) fell relative to the sector’s value added – they were equivalent to 2.3% in 2015-17, less than a third of that percentage in 1995-97 (7.2%). This partly reflects the growth of agricultural output value as production has been recovering from low levels in the mid-1990s. Total support to agriculture (TSE) as a % of GDP decreased from 2.5% in 1995-97 to 0.8% in 2015-17, largely being a result of the GDP growth.

Figure 20.2. Russia: 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.

StatLink  http://dx.doi.org/10.1787/888933757483

Figure 20.3. Russia: 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.

StatLink  http://dx.doi.org/10.1787/888933757502

Table 20.1. Russia: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758680

Contextual information

The Russian Federation has the largest land area in the world and is abundantly endowed with agricultural land. Natural, economic, and social conditions are highly diverse. The country is the world’s sixth largest economy in purchasing parity terms (PPP). Agriculture contributes 4.7% of GDP and 6.7% of employment, both shares significantly reduced since the mid-1990s.

The farm structure is dualistic, where commercial operations co-exist with small household units. Commercial units generate nearly two-thirds of agricultural output and produce virtually all grain, oilseeds, and sugar, 80% of animals for slaughter, and 58% of milk. Households engage in agriculture mainly for own consumption and generate one-third of total output value. They are the source of 77% of potatoes, 66% of vegetables, 20% of animals for slaughter and 42% of milk produced in the country.

The rural population is 38 million (2017) or 26% of the total, a share which has remained stable since the beginning of the 2010s. Households allocated on average 37% of their final consumption expenditures to food in 2016, this share ranging from 52% for the poorest to 30% for the richest 20% population groups.

Table 20.2. Russia: Contextual indicators
| Russia | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 896 | 3 636 | 3.2% | 4.3%
Population (million) | 148 | 146 | 5.2% | 4.3%
Land area (thousand km2) | 16 378 | 16 377 | 22.0% | 21.7%
Agricultural area (AA) (thousand ha) | 216 400 | 217 722 | 8.0% | 8.1%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 9 | 9 | 38 | 45
GDP per capita (USD in PPPs) | 6 038 | 24 855 | 9 650 | 24 866
Trade as % of GDP | 18 | 18 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 7.2 | 4.7 | 3.0 | 3.1
Agriculture share in employment (%) | 15.7 | 6.7 | - | -
Agro-food exports (% of total exports) | 2.1 | 4.9 | 7.7 | 7.3
Agro-food imports (% of total imports) | 18.1 | 13.1 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  53 | 54 | - | -
Livestock in total agricultural production (%) |  47 |  46 | - | -
Share of arable land in AA (%) | 59 | 57 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759136

Growth resumed in 2017 after two years of recession, inflation decelerated to the lowest level since the early 1990s, and the unemployment rate continued to decrease. Agricultural output grew by 2.4% in 2017 compared to 4.8% in 2016. Abundant grain crop was harvested for the second consecutive year and the Russian Federation became the largest wheat and the third largest barley exporter in 2017. The country is among the top ten meat importers. Agro-food products account for an important but declining share of total imports and for a smaller, but rising share in total exports. The negative trade balance has narrowed, however the country remains net agro-food importer. The agro-food imports are focussed on supplying domestic final food consumption, while exports are largely destined to agro-processors abroad.

Figure 20.4. Russia: Main economic indicators, 1996 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933757521

Figure 20.5. Russia: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933757540

Agricultural output has been recovering from a deep recession in the 1990s. Its growth since 2005 has been driven mainly by the improvements in Total Factor Productivity (TFP). The higher use of intermediate inputs contributed to growth to a lesser degree, while the employment of primary factors has declined. TFP growth during 2005-15 has been more dynamic than on average across the world. The share of agriculture in total energy use decreased since the 2000s and was slightly below the OECD average in 2016, despite greater importance of the sector in the economy. Agriculture's contribution to GHG emissions has declined to below-OECD level. Compared to the OECD area, agriculture accounts for a relatively small share of total water abstractions. Aggregate indicators suggest that water stress is much less of a problem than in many OECD countries.

Figure 20.6. Russia: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933757559

Table 20.3. Russia: Productivity and environmental indicators
| Russia | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 1.09% | 2.02% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | .. | .. | 33 | 30
Phosphorus balance, kg/ha | .. | .. | 3.7 | 2.4
Agriculture share of total energy use (%) | 5.3 | 1.8 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 8 | 5 | 8.5 | 8.5
Share of irrigated land in AA (%) | .. | 2.0 | - | -
Share of agriculture in water abstractions (%) | 29 | 28 | 45 | 43
Water stress indicator | 1.8 | 1.6 | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759592

Description of policy developments

Main policy instruments

The Russian Federation applies a range of price policy instruments. The main one is border protection, including through Tariff Rate Quotas (TRQs) and non-tariff measures. Border measures are in large part implemented within the framework of the Customs Union of the Eurasian Economic Union (EAEU). Domestic price regulation measures are also applied, such as market interventions. They can be implemented for grains and, since 2017, also for milk. The government can purchase or sell these products if the market prices move above or below the established price band. Prices at which market interventions are carried out, however, do not play the role of price guarantees. Restrictions on imports or exports can be imposed during the intervention periods.

Payments based on output for marketed livestock products are provided from regional budgets and there is also a national payment for milk, which is co-financed by the federal and regional governments. Concessional credit is one of the most important support instruments, with concessions taking the form of interest subsidies to borrowers of loans. Since 2017, concessions are also granted in the form of reduced interest rates to final borrowers fixed by the government, combined with the compensation to lending banks. In addition to interest subsidies, a range of subsidies for variable inputs are in place. Support is also provided through investment co-financing and leasing of machinery, equipment and pedigree livestock at preferential terms. Area payments for crop production began in 2013, replacing several previous nationwide input subsidies provided for sowing and harvesting campaigns. Agricultural producers benefit from a number of tax preferences and from concessions on repayment of historical arrears on federal taxes and social contributions.

Most of the support measures described above are implemented within a multi-year State Programme for the Development of Agriculture – the country’s main agricultural policy framework. It is based on the principle that support measures be co-financed by federal and regional governments, with co-financing rates varying across the regions and individual measures. In addition to support included in the State Programme, regions implement and finance their own, strictly regional support measures.

The current State Programme for 2013-20 has been undergoing amendments in response to the significant changes in overall economic conditions during this period. Its sub-programmes were reconfigured in 2015 and 2017. The Programme’s initial budget targets were also adjusted in terms of the overall amounts of spending and shifts of funds within and between programme components. For 2018, the State Programme underwent no significant changes compared to the previous year, either in terms of structure or spending levels.

Domestic policy developments in 2017-18

At its inception, the State Programme 2013-20 has been oriented at the 2010 Doctrine on Food Security. As its primary objective, the Programme stated reaching the self-sufficiency targets in key foodstuffs set in the Doctrine.¹ The political context in the second half of the 2010s further strengthened the self-sufficiency orientation for agricultural policy in the Russian Federation. However, while until recently agro-food import substitution has been the principal agricultural policy objective, in 2017 the government announced export development as an additional objective.

The government’s actions during the monitored period also continued to focus on cushioning macroeconomic impacts on the agricultural sector, although the conditions have improved. The rouble has gradually strengthened and inflation has considerably slowed down, leading the Central Bank to lower its key interest rate. Decelerated inflation and some monetary easing reduced the cost pressures on the sector, including the costs of borrowing. The strengthening of the rouble, however, eroded some of the previous competitive margin of local products domestically and internationally.

The State Programme 2013-20 was further adjusted in 2017. This followed the amendments in 2015 which were aimed to support an “accelerated import substitution” for priority products and assist the sector in the deteriorated economic conditions. The changes in 2017 included a consolidation of the previous 11 sub-programmes into seven: i) technical and technological modernisation and innovation-driven development; ii) development of the financial and credit system; iii) development of the sub-sectors of the agro-industrial complex; (iv) ensuring general conditions for the agro-industrial complex,² v) stimulation of investment activities; vi) administration of the State Programme; and vii) a newly created Priority Project “Export of Agricultural Products”. A related change was the consolidation of some individual support measures into so-called Unified Payment. The latter incorporated twenty-seven individual measures across previous components of the State Programme. All these reconfigurations, however, did not modify the list of individual activities that can potentially receive support. The principal change was that regions received greater flexibility in allocating the funding across specific activities under the broader headings; another purpose was to simplify and accelerate the flows of funding from the federal centre to regions. The State Programme 2013-20 continued to integrate the two “federal targeted programmes” on rural development and on land improvement in 2017, which will, however cease to exist separately in 2018 and will be integrated into other components of the Programme.

In 2017, the federal budget allocated RUB 234 billion (USD 4.0 billion) to the State Programme, 7% more than last year (State Treasury, 2018; MOA, 2017). Around 25% of this total was directed to development of the sub-sectors (iii above) and 35% to stimulation of investment activities (v above), the latter consisting of interest subsidies on investment loans and the co-financing of investment projects. This federal spending within the State Programme was topped up by contributions from the regions. In addition, regions provided strictly regional support beyond the State Programme.

The federal funding for the State Programme is budgeted at RUB 242 billion (USD 4.1 billion) for 2018, which is slightly below the similar budget target set at the beginning of 2017 (FL, 2017a; State Treasury, 2018). For some Programme components the funding targets are maintained nearly at the previous year level, while the component on stimulation of investment activities is to receive around 9% more, and a reduction in the funding is foreseen for the technical modernisation, and export development components.

In a context of low world prices and ample domestic public stocks, the government carried out grain interventions in 2016/17 crop season. In order to reduce storage costs, sellers to the state intervention fund were for the first time provided an opportunity to buy back their grain during the 2016/17 season. After a high grain crop in 2016/17, a record harvest followed in the 2017/18 season, with the result of continued downward pressure on grain prices. Government grain purchases were announced, but postponed until early 2018. Reduced transportation tariffs on domestic grain shipments came into force in December 2017. The associated loss of the Russian Railways company is compensated from the federal budget. It is foreseen to subsidise the transport of 3.181 million tonnes of grain from thirteen Russian regions with excess supplies to another twelve country regions. This measure adds to the temporary waiver of wheat export duty introduced in the previous season that will remain in force until July 2018.

Dairy intervention purchases were introduced in 2017 as a price smoothing mechanism. The government announced minimum prices for butter, and skimmed and whole milk powder. Eleven regions which manufacture dairy products above certain levels were selected for interventions. Interventions are triggered if the price of fluid milk in July falls at least 15% below its level in February. However, no interventions were actually implemented in 2017 as the prices remained above the triggering levels.

Interest subsidies on short-term loans and investment credit are one of the principal producer support measures. The policy orientation at the start of the State Programme 2013-20 has been to downsize the new commitments to subsidise credit. The pledge to accelerate import substitution and the sharp deterioration of lending conditions in late 2014 reversed the original plans. The decision to stop concessional investment loans for industrial poultry production units as of 2015, and for industrial pig production units as of 2017, was suspended. The subsidising of investment loans in these sectors will continue until 1 January 2019, with the focus on Trans-Ural, Siberian and Far East regions. Support is currently focussed on investment credit, particularly on meeting the subsidy commitments on outstanding long-term loans. Total spending on interest subsidies for investment credit was nearly RUB 54.7 billion (USD 938 million) in 2017, of which approximately 10% represented regional co-financing (MOA, 2018).

A new mechanism for providing a part of the interest subsidies was introduced in 2017. Previously, all subsidies have been paid to final borrowers and have been set at a fraction of Central Bank’s refinancing rate. The new mechanism transfers the funds to banks, instead of final borrowers, to compensate the difference between banks’ interest rates and a 5% interest rate set for the borrowers. The new mechanism applies for both long-term and short-term lending. It simplifies the procedures and aims to eliminate delays in subsidy payments. The degree to which the new mechanism changes the cost of borrowing across different recipients and types of loans requires further analysis. In response to initial concerns that access to credit for smaller borrowers would be worsened, in 2018 government established minimum quotas within the total compensation to banks that shall be allocated for credit to small borrowers.

As in 2015 and 2016, the government made transfers to RosSelkhozBank³ for recapitalisation, which in 2017 amounted to RUB 5 billion (USD 86 million) (Federal Treasury, 2018).

Investment grants is a relatively recent measure in place since 2015, whereby investors can receive a 20% or 30% grant on the amount of investment depending on the type of project, increasing to 25% or 35% for the Far East region. In 2015-16, almost 90% of the investment grants were directed for construction of industrial milk production units and greenhouses, the remainder provided for facilities to store horticultural products, wholesale distribution centres, and for setting-up or modernising selection and genetic centres for livestock and plants. In 2017, the sector received around RUB 16 billion (USD 280 million) in investment grants, of which over 90% was provided from the federal budget and the rest by the regions (MOA, 2018).

A unified payment was introduced in 2017, integrating 27 previous individual subsidies from different components of the State Programme. This includes several subsidies for crop and livestock production, subsidies for insurance and interest on short-term credit, support of small-scale producers, and the assistance provided within the previous component on “economically important regional programmes”. The aggregate spending across these supports was around RUB 44 billion (USD 748 million) in 2017, with regions contributing 11% of this amount (MOA, 2018). The purpose of the unified payment has been to simplify the budgeting and transfer of funds from the federal centre to regions. Regions top-up this payment and continue to allocate it across individual supports included in the unified payment. They, however, can determine the proportions of specific types of support depending on regional needs.

In 2017, the government for the first time published a list of Russian regions with unfavourable conditions for agricultural production. Thirty-two regions are currently included, the majority located in the North Western, North Caucus, Siberian, and Far Eastern federal districts. The criteria cover climate, soil conditions, geographical location, and socio-economic conditions. The concept of regions with unfavourable conditions for agricultural production was introduced in 2013 through an amendment to the framework law “On Development of Agriculture”. This newly adopted list is a move towards qualifying for the provision on regional assistance programmes for disadvantaged regions contained in the WTO Agreement on Agriculture. It allows WTO members to claim an exemption of related spending from domestic support reduction commitments.

In the area of taxation, the list of agro-food products eligible for reduced VAT rate (10% compared to a standard rate of 18%) was extended to include additionally certain live animals for slaughter, meat sausages, incubation eggs, seed potatoes and some other products.

Another tax novelty concerns businesses that have opted for the Single Agricultural Tax (SAT). Currently, SAT payers are exempt from a number of taxes, including value added tax (VAT). VAT exemption may create cost disadvantages to taxpayers, for example when purchasing inputs. SAT taxpayers also cannot claim VAT refunds if they export agro-food products. This gave rise to “grey” schemes to access VAT refunds, putting bona fide businesses at competitive disadvantage. From 2019, SAT payers will become eligible for VAT, but can apply for an exemption from VAT if their receipts from agricultural activity do not exceed RUB 100 million (USD 1.7 million), this threshold gradually decreasing to RUB 60 million (USD 1 million) by 2022 (FL, 2017b). This official decision was largely propelled by the action of grain businesses against fraud in VAT refunds which led them to adopt a Charter on Turnover of Agricultural Products. By early 2018, this initiative has expanded beyond the grain sector, with over 2 000 agribusinesses from 20 agro-food sectors joining the Charter in a pledge to restore fair competition and promote intolerance to violation of the national tax legislation (APK Charter, 2018).

Trade policy developments in 2017-18

Since the accession to the World Trade Organisation (WTO) in July 2012, the Russian Federation’s applied Most Favoured Nation (MFN) agricultural tariff has been brought down to 11%, which corresponds to the average final bound agricultural tariff.⁴ In 2016, the applied agricultural tariff was nearly twice the non-agricultural tariff (6.5%). Animals and animal products, sugar and confectionary, and dairy products face the highest import duties within the agricultural group (WTO/ITC/UNCTAD, 2017). Meat imports from the non-CIS area are subject to TRQs.

In June 2017, the ban on agro-food imports from the European Union, the United States, Canada, Australia, Norway and several other countries was extended until 31 December 2018. It was initially introduced on 7 August 2014 for a period of one year after the imposition of sectoral sanctions on the Russian Federation in the context of developments related to Ukraine. Sanctions and counter-sanctions have since then been extended several times. The list of products prohibited for imports into the Russian Federation include meat, milk products, fruits and vegetables, prepared foods, fish, and salt. In October 2017, live swine (except pure-bred animals for breeding) and certain meat by-products were also included. However, since the first introduction of the ban, lactose free milk and its derived products, seed potatoes and seeds of some other crops, young salmon and trout, and certain molluscs have been excluded from this list.

The remaining restrictions on agro-food imports from Turkey were lifted in June 2017, except the restriction on imports of fresh and chilled tomatoes. This move follows the lift of the ban for some fruits in October 2016. A ban on imports of a number of agro-food products from Turkey was initially imposed in late 2015, amid tensions in bilateral political relations. It covered certain groups of fruits, vegetables, specific poultry products, and salt.

On the export policy side, government stated export development as a new policy priority. Beyond the longer-term growth in grain and oilseed exports, this re-orientation is also due to more recent increases in production of other agricultural products, notably swine and poultry meat.

In 2017, a Priority Project on Export of Agricultural Products was included in the State Programme as a new component. The goal is to increase agro-food exports to USD 21.4 billion by 2020, or by around 25% compared to 2016. RUB 694 million (USD 12 million) were allocated to this project in 2017 and around RUB 659 million (USD 11 million) are foreseen in 2018 (State Treasury, 2018; FL, 2017a). The Federal Service for Sanitary and Phytosanitary Surveillance will receive around three-quarters of the total over this biennium, and the remaining part is to be spent mostly for the setting-up of a centre for export analysis and studies of potential foreign markets. The key activities to be financed include consulting services and training for potential exporters, development of regional brands, improvement of quality control systems for exported products, financial support for exhibitions and fairs, visits by importers, and other (Shagaida et al., 2017). The Ministry of Agriculture adopted seven product-specific programmes for promotion and increase of exports, covering grain, grain products, sugar, confectionery, vegetable oils, poultry, and high value-added products (organic, pine nuts, forest mushrooms and others). Beyond this project focussed specifically on agro-food area, the Russian Export Centre with its group members, the Russian Agency for Export Credit and Investment Insurance (EXIAR) and Eximbank of Russia reported that they have started the development of insurance and financing products for agro-food exporters.

The Russian Federation, together with Belarus, Kazakhstan, Armenia and Kyrgyzstan, is a member of the Treaty on the Eurasian Economic Union (EAEU). During the monitored period, the EAEU continued to develop its regulatory activities in various areas. In 2017, all members ratified the new EAEU Customs Code. Developments in SPS and technical regulations in 2017-18 concerned veterinary control and surveillance, seeds circulation and creation of EAEU common seed register, traceability of goods, product safety, and other issues.

References

APK Charter (2018), APK Charter in the Area of Turnover of Agricultural Products, https://xn----7sbb4am3adqy8h.xn--p1ai/ (in Russian).

FL (2017a), Federal Law of 05.12.2017 N 362-FZ “On federal budget for 2018 and for 2019 and 2020 planning period”, http://www.consultant.ru/document/cons_doc_LAW_284360/.

FL (2017b), Federal Law of 27.11.2017 N335-FZ “On amendments to parts one and two of the Tax Code of the Russian Federation and selected legal acts of the Russian Federation”, http://www.consultant.ru/document/cons_doc_LAW_283495/.

Federal Treasury (2018), Report on Execution of Federal Budget, 1 January, 2018, http://www.roskazna.ru/.

MOA (2017), National Report “On implementation of State Programme for Development of Agriculture and Regulation of Agricultural Product, Raw Materials and Food Markets in 2013-2020”, Ministry of Agriculture of the Russian Federation, http://mcx.ru/activity/state-support/programs/program-2013-2020/.

MOA (2018), Information on Provision of State Support to Agriculture to Recipients, Ministry of Agriculture of the Russian Federation, http://mcx.ru/activity/state-support/funding/.

Shagaida, N. I., E. A. Gataulina, R. G. Yanbykh, and V. Y. Uzun (2017), “Results and developments in agrarian policy: 2017” in: Russian Economy in 2017. Trends and Outlooks, Issue 39, Gaidar Institute for Economic Policy, Moscow, www.iep.ru.

WTO/ITC/UNCTAD (2017), World Tariff Profiles, https://www.wto.org/English/res_e/publications_e/world_tariff_profiles17_e.htm.

Notes

 1.  These targets are expressed as minimum percentages of commercial food supplies originating from domestic production. They are set at between 80% and 95% and cover the following products: grains, sugar, vegetable oil, meat and meat products, milk and meat products, fish and fish products, and salt. In 2016, self-sufficiency rates were above the targets of the Doctrine on Food Security for all products except milk and salt (MOA, 2017).

 2.  This component covers activities, such as commodity interventions, anti-epizootic measures, including specific measures related to control and prevention of African Swine Fever, disaster assistance and some others.

 3.  RosSelkhozBank (Russian Agricultural Bank) is a principal agricultural lender. As of January 2017, it held 34% of the outstanding investment credit and 66% of the outstanding short-term credit in agriculture (MOA, 2017).

 4.  Agricultural tariff corresponds to the WTO definition and covers the HS-codes as specified in Annex 1 of WTO Agreement on Agriculture.

Chapter 21.

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. In 2015-17, support to agriculture was below 3% of gross farm receipts. Total support estimate to agriculture (TSE) was around 0.3% of GDP in 2015-17 and direct support to farms (PSE) represented around 60% of the total support, the remaining 40% financing general services beneficial to the sector.

Market price support and payments based on input use are the most important components of support to farmers. However, the level of price distortions is low and domestic prices for most commodities are aligned with world price levels, except for sugar and to a lesser extent milk and wheat. Direct payments, mainly in the form of investment subsidies, are mostly directed towards the small scale farming sector. As for the General Services Support Estimate (GSSE), the main elements are payments financing the agricultural knowledge and innovation system and expenditure on infrastructure. Most of the support in these two GSSE categories is targeted towards creating an enabling environment for the small scale farming sector that has emerged following the land reform.

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 restituted land).

There were several policy changes targeted to enhance the redistribution of land within the land reform. In May 2016, South Africa passed a bill that allows the compulsory purchase of land in the public interest. The bill, approved by parliament, enables the state to pay for land at a value determined by a government official and then expropriate with an administratively fixed compensation for the “public interest”, ending the willing-buyer, willing-seller approach to land reform. Another initiative of the government to accelerate the land reform is the new policy approach called Strengthening the Relative Rights of People Working the Land. This initiative is directed towards empowerment of farm workers through a model that positions farm workers to become part owners in agricultural operations alongside the existing farm owners. The most recent political decision was the vote of the Parliament in March 2018 in favour of legislation that allows for the expropriation without compensation of the commercial farms owned by white farmers. In order to be applied in practice, this legislation requires a change in the Constitution.

Assessment and recommendations

The current relatively low level of Market Price Support for South African agriculture is the result of significant policy reforms implemented in the mid-1990s. These reforms contributed to a substantial reduction in total support to agriculture and of its distortive effects on production and trade and to an enhanced efficiency of the commercial farming sector and more integration with world markets.

Since the reforms in the 1990s, increases in budgetary spending are financing the land reform process and supporting its beneficiaries (subsistence, smallholders and emerging commercial farmers). The main challenge continues to be implementing and effectively targeting support programmes that are tailored to the needs of emerging farmers. From the recent discussions around the land reform (land redistribution), stakeholders appear to disagree on which form of farming is to be targeted as the desired outcome of land reform (commercial farming, small scale farming for proximity markets, subsistence farming, etc.), and on the resulting adjustment of the relevant forms of support both through direct support to farms and in form of creation of enabling environment (general services).

To strengthen the capacity and efficiency of programmes assisting incoming entrepreneurs into commercial farming, the early involvement of experienced commercial farmers in the development of support programmes is key. Private-public partnerships are an efficient tool for engaging the available resources and addressing the current weaknesses in supporting programmes and services from public authorities. In this respect, the latest Parliament decision to allow for expropriation of white commercial farms, where most of the skill for commercial farming lies, puts a hurdle to the declared goal of building a market oriented competitive farming sector and is a potential threat to the food security of the country.

In any case, the pace of land reform should be closely linked to the development of the enabling environment (education and training, adequate infrastructure, marketing channels, etc.) for the beneficiaries of land reform. Without those developments, 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.

Figure 21.1. South Africa: 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.

StatLink  http://dx.doi.org/10.1787/888933757578

Support to farmers (%PSE) declined substantially in the second half of the 1990s and has remained low since then. In the most recent period support has been below 3% of gross farm receipts, well below the OECD average. The share of potentially most distorting support remains high, as most support is provided in the form of MPS and input subsidies (Figure 21.1). But this high share should be interpreted against the very low level of total support provided to farms. The level of support in the most recent year has increased due to higher MPS, due to both an increase in the price gap and quantity produced. The larger price gap reflects domestic prices increasing more than world prices. The increase in the border price was due to higher prices in USD, which was partly offset by the exchange rate effect (Figure 21.2). Prices received by farmers were, on average, slightly above world prices; most products are aligned to world prices, although price gap is larger for sugar being 33% above world prices. MPS is the main component of Single Commodity Transfers (SCT): with sugar having the highest share of SCT in commodity gross farm receipts (Figure 21.3). Overall, SCT represent 60% of the total PSE. The expenditures for general services (GSSE) relative to agriculture value added, mainly on knowledge and infrastructure, are in line with the OECD average. Total support to agriculture as a share of GDP has declined over time. Around 60% of the total support is provided to individual farmers (PSE).

Figure 21.2. South Africa: 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.

StatLink  http://dx.doi.org/10.1787/888933757597

Figure 21.3. South Africa: 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.

StatLink  http://dx.doi.org/10.1787/888933757616

Table 21.1. South Africa: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758699

Contextual information

South Africa is the second largest economy (after Nigeria) on the African continent and, with a largest GDP per capita of the continent, is ranked as an upper middle income country. However, income inequality is significant and poverty persists. It has a relatively moderate level of inflation around 5-6% in the most recent years but a persistently high rate of unemployment. The GDP growth rate has been declining since 2011, although a very moderate rise was recorded in 2017 (Figure 21.4).

The importance of agriculture in the economy is relatively low, accounting for around 2.4% of GDP, and 5.6% of employment (Table 21.2). South Africa has a large area of agricultural land, but only 13% is arable, and the remaining agricultural area is mostly semi-arid pastures with extensive livestock production. There is a highly dualistic farm structure, with a well-developed and market oriented sector of large scale commercial farms and a large number of smallholder and subsistence farms.

Table 21.2. South Africa: Contextual indicators
| South Africa | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 277 | 741 | 1.0% | 0.9%
Population (million) | 40 | 56 | 1.4% | 1.6%
Land area (thousand km2) | 1 213 | 1 213 | 1.6% | 1.6%
Agricultural area (AA) (thousand ha) | 97 520 | 96 841 | 3.6% | 3.6%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 35 | 46 | 38 | 45
GDP per capita (USD in PPPs) | 6 895 | 13 301 | 9 650 | 24 866
Trade as % of GDP | 18 | 25 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 3.9 | 2.4 | 3.0 | 3.1
Agriculture share in employment (%) | 15.6 | 5.6 | - | -
Agro-food exports (% of total exports) | 8.3 | 11.8 | 7.7 | 7.3
Agro-food imports (% of total imports) | 7.4 | 8.4 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  53 |  50 | - | -
Livestock in total agricultural production (%) |  47 |  50 | - | -
Share of arable land in AA (%) | 14 | 13 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759155

South Africa is a consistent net exporter of agro-food products and the values of both exports and imports are rising (Figure 21.5). The share of agro-food exports in total exports is around 12%, while the share of agro-food imports is around 8% (Table 21.2). Almost three-quarters of agro-food exports are for final consumption, both of primary and processed products. Agro-food imports are equally distributed among final consumption (45% of total imports) and for further processing in industry (55%) (Figure 21.5).

Figure 21.4. South Africa: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933757635

Figure 21.5. South Africa: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933757654

Total factor productivity (TFP) growth is driving agricultural output growth in South Africa, which is slightly above the world level (Figure 21.6). While productivity growth has slowed relative to the preceding decade, TFP growth in SA averaged 1.9% per year during 2005-14, and remains above the world average (Table 21.3). Increased use of primary factors and intermediate inputs contributed another 0.5% per year to overall output growth (Figure 21.6). Although more than 60% of abstracted water is used in agriculture, only a few regions have irrigated land and the resources are scarce in most of the agricultural areas (Table 21.3). The livestock sector is also an important user of water in agriculture. Agriculture’s share in energy use has declined, but remains above the OECD average.

Figure 21.6. South Africa: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933757673

Table 21.3. South Africa: Productivity and environmental indicators
| South Africa | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 3.37% | 1.92% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | .. | .. | 33 | 30
Phosphorus balance, kg/ha | .. | .. | 3.7 | 2.4
Agriculture share of total energy use (%) | 3.8 | 2.8 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | .. | .. | 8.5 | 8.5
Share of irrigated land in AA (%) | .. | 1.7 | - | -
Share of agriculture in water abstractions (%) | .. | 63 | 45 | 43
Water stress indicator | .. | .. | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759611

Description of policy developments

Main policy instruments

In the mid-1990s, substantial reforms reduced state intervention in agricultural markets, which led to a stronger market orientation of the sector. Under the current system, there are no domestic market support interventions and no export subsidies applied. Border measures, applied within the Southern African Customs Union (SACU), are the only price support policy. The Sugar Agreement of 2000 (between different agents in the sugar production chain) permits raw sugar to be exported only through a single-channel industry arrangement, and allocates quotas to individual producers for sugar sold on the domestic market.

Other policy instruments used are input subsidies, mainly in the form of a diesel tax rebate; programmes supporting new farmers benefiting from land reforms; and general services provided to the sector, mainly research, extension and inspection services. The National Land Care Programme (NLP) is a community-based and government-supported approach promoting sustainable management and use of natural agricultural resources.

The key Government bodies implementing these policies are the Department of Agriculture, Forestry and Fisheries (DAFF) and the Department of Rural Development and Land Reform (DRDLR). The National Agricultural Marketing Council (NAMC), a national public body, which was established through the Marketing of Agricultural Products Act. No 47 of 1996, provides DAFF with strategic advice on agricultural marketing issues; it undertakes investigations on agricultural marketing and marketing policy; and coordinates the implementation of all statutory measures implemented by the food industry.

The Land Reform, launched in 1994, is the key policy issue related to the agricultural sector. The main objectives of the Land Reform are to redress past injustices, foster reconciliation and stability, support economic growth, improve household welfare and alleviate poverty in rural areas. Land restitution, land redistribution and land tenure reform are the main elements of the Land Reform. During the process of implementing the Land Reform a range of programmes (Comprehensive Agricultural Support Programme; Illima/Letsema projects; Micro-agricultural Financial Institutions of South Africa – MAFISA) were implemented to create an enabling environment for the previously disadvantaged farmers (subsistence, smallholders and commercial), such as capacity building, provision of appropriate information services and infrastructures.

A review of the Land redistribution for agricultural development (LRAD) projects indicated that a number of projects implemented are not economically viable. The DRDLR amended the Land Reform regulation in order to rationalise the land redistribution process and to assist the vulnerable projects. The Agricultural Land Holding Account (created in 2009) is responsible for land acquisition and, through the Recapitalisation and Development Programme, for recapitalisation and development of distressed land reform projects. The beneficiaries may dispose of the land after an agreed lease period, provided the project is economically viable.

The Integrated Food Security Strategy (IFSS), introduced in 2002, is based on public and private civil society partnerships and focuses on household food security as the building block for national food security. One of the strategic approaches is to increase household food supplies by providing production support services to households’ own food production. The food security objective is further supported by Fetsa Tlala, an integrated food production initiative (introduced in 2013), which is aimed at the production of staple foods on fallow land with agricultural potential in communal areas.

The Comprehensive Rural Development Programme (CRDP), launched in 2009, is providing support for the development of rural areas through two main programmes, both of them related to the agricultural sector: the Rural Infrastructure Development (RID) programme promotes investment in rural infrastructure. Expenditure increased significantly due to the increase in funding for projects providing access to basic services, particularly sanitation, irrigation and roads; the Rural Enterprise and Industrial Development (REID) programme provides assistance in the coordination and facilitation of rural enterprise development, industrial development and support to rural communities to produce their own food.

South Africa is a founding member of the Southern African Customs Union (SACU).¹ This is a full customs union, with a common external tariff. In 1994, South Africa became a member of the Southern African Development Community (SADC).² For the implementation of the FTA, the SADC incorporated the principle of asymmetry: a phase-down (started in 2000) of SACU tariffs in five years (by 2005); and those of other SADC countries to be completed in 12 years, i.e. by 2012. Hence, from 2012, the SADC free trade agreement (FTA) has been fully implemented.

Domestic policy developments in 2017-18

Overall, policies supporting farmers have remained unchanged. Most of the policy measures continue to be targeted to the smallholder sub-sector. The DAFF and the DRDLR provide post settlement assistance, including production loans to new and upcoming farmers (mostly operating on redistributed or resituated land). Several programmes are implemented to support those farmers in order to assist them to develop commercially viable businesses:

The Comprehensive Agricultural Support Programme (CASP) focuses mainly on providing support in the following areas: On and off-farm infrastructure and production inputs; targeted training, skill development and capacity building; marketing and business development and support; information and knowledge management; technical and advisory services, regulatory services and financial services. Overall, the budgetary expenditure financing CASP was ZAR 1 565 million (USD 107 million) in 2016 (2016/17 FY³), and the sum budgeted for 2017 (2017/18 FY) is ZAR 1 507 million (USD 113 million).

The Ilima/Letsema Programme (implemented in 2008/09) has an objective to increase food production, particularly by the smallholder farming sector. Through provincial departments, it finances mostly conditional grants for specific production projects such as upgrading irrigation schemes and other infrastructure and on farm investments to support production capacity. The budget allocation to the programme was ZAR 491 million (USD 33 million) in 2016 and for 2017 the budgeted amount was increased to ZAR 522 million (USD 39 million).

Since 2016, there were several policy changes targeted to enhance the redistribution of land within the land reform. In May 2016, South Africa passed a bill that allows the compulsory purchase of land in the public interest. The bill enables the state to pay for land at a value determined by a government adjudicator⁴ and then expropriate it for the “public interest”, ending the willing-buyer, willing-seller approach to land reform. Another initiative of the government to accelerate the land reform is the policy approach called Strengthening the Relative Rights of People Working the Land. This initiative is directed towards empowerment of farm workers through a model that positions farm workers to become part owners in agricultural operations alongside the existing farm owners.

The Regulation of the Agricultural Land Holdings Bill was published on 17 March 2017. The Bill makes provision for the establishment of a Land Commission (Commission) appointed by the Minister responsible for Rural Development and Land Reform (Minister). The Commission is to establish a register of public and private agricultural land ownership. Every owner of a private agricultural land holding must lodge a notification of ownership with the Commission in the prescribed form within 12 months of the implementation of the Act. The notification is to include the race, gender and nationality of the owner, and the size and use of the agricultural holding. After the implementation of the Act, foreign persons can’t buy agricultural land and may only conclude long leases of agricultural land (30 to 50 years) and such leases must be registered in a Deeds Registry within 90 days. In March 2018, the Parliament voted a bill which allows for the expropriation without compensation of the commercial farms owned by white farmers. In order to be applied in practice, this legislation requires a change in the Constitution.

Signatory to the 2016 Paris Agreement on Climate Change, the South African Government has committed to reducing GHG emissions by 34% by 2020 and 42% by 2025 relative to the levels in 1990 (National Climate Change Response Policy 2011), through an approval of a carbon tax bill on 16 August 2017. The Carbon tax bill is noted as an integral part of the system for implementing government policy on climate change. The bill is claimed to enable South Africa to meet its nationally determined contribution (NDC) commitments, and to reduce the country's GHG emissions in line with the National Climate Change Response Policy and National Development Plan.

The Carbon tax will be implemented through a phase-in approach. The current Phase 1 period is now set for 2017 to 2020. Primary agriculture will mostly be exempted from the carbon tax during the first phase; however, this will be reassessed for Phase 2 (from 2020). Nevertheless, primary agriculture is likely to be affected in Phase 1 indirectly through increased input costs, particularly electricity, fertilisers and pesticides, as well as fuel and energy. This should create incentives to farmers to look for ways to reduce use of some inputs and switch to alternative inputs or practices. To help encourage good practices, numerous Carbon tax discounts can be obtained.

Trade policy developments in 2017-18

Import protection for agricultural and food products is based on specific and ad valorem tariffs. Tariff rate quotas (TRQs) exist for a range of agricultural products under the WTO minimum market access commitments, with tariffs at 20% of the bound rates. The zero import tariffs for maize (applied since 2007) continued in 2017-18. In September 2017, South Africa lowered its wheat import tariff to ZAR 379.34 per tonne from the previous tariff of ZAR 947.20 per tonne. The new tariff is at the lowest level since February 2015. The tariff reduction reflects the decline by 23% of wheat production (from 1.9 million tonnes to 1.4 million tonnes) as a result of the drought in the Western Cape, a major wheat producing region.

For substantially all trade, preferential tariffs are granted to imports from the European Union under the Trade, Development and Co-operation Agreement (TDCA). A Southern Africa Development Community (SADC) group consisting of the members of the South Africa Customs Union (SACU) plus Mozambique negotiated an Economic Partnership Agreement with the European Union. The agreement replaces the TDCA and provides some increased market access to South Africa. Equally, imports from SADC countries outside the SACU are duty free, with very few exceptions.

Regional integration and an increase in intra-Africa trade is a high priority for South Africa. Based on a decision by the Heads of State and Government, SACU, as part of the SADC, is engaging the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA) in the creation of the Tripartite Free Trade Area (TFTA). Building on the TFTA discussions, discussions on establishing a Continental Free Trade Area (CFTA) have commenced under a decision by the Heads of State of the African Union.

Notes

 1.  The SACU members are: Botswana, Lesotho, Namibia, Swaziland and South Africa.

 2.  The SADC member countries are: Angola, Botswana, Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe.

 3.  FY – financial year April/March.

 4.  The Property Valuation Act (act 17 of 2014) introduced the function of the Office of the Valuer-General within the structure of the Department of Rural Development and Land Reform. The intention is to introduce just and equitable valuation of land identified for restitution and provide valuations in support of offers to land purchase and expropriation.

Chapter 22.

Switzerland

Support to agriculture

Switzerland has progressively reduced its support to agriculture but the change in the level of support is relatively moderate, while the changes in the structure of support are more pronounced. Support to farms (PSE) remains high in terms of its share on gross farm receipts and is three times above the OECD average. Total support to agriculture (TSE) was around 1% of GDP in 2015-17 and is dominated by direct support to farms (PSE). Support based on output (including market price support) is the most important element of the support although its share in the total support to farms has been reduced over time in favour of area payments and other, less coupled forms of support. The main element of the General Services Support Estimate (GSSE) is to finance the agricultural knowledge and innovation system, which represents almost half of the GSSE expenditures.

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 2015-17. Switzerland also provides significant direct payments to farms (all subject to environmental cross-compliance) which were introduced to partly compensate the reduction of the MPS. The role of the direct payments has been increasing over time and while it represented around 20% of support to farmers in the 1980s, it has increased to around 50% in current years. Most of these payments are currently in the form of payments per area to secure food supplies, payments to maintain farming in less favoured conditions, and payments to farmers who voluntarily apply stricter farming practices related to environmental and animal welfare societal demand.

Main policy changes

The policy framework adopted for the period 2014-2017 was extended, by a decision of the Parliament, without any particular changes for the period 2018-21 (Politique agricole 2018-2021 – PA 2018-21). Overall, the spending budgeted for 2018-21 was reduced by 1.7% compared to 2014-17. The main change was a 30% reduction for the financial envelope Improving the production base and social measures, mainly by cutting support to farm investments. There were no further reforms to the border measures and the protection remains relatively high.

From 2017 on, the Ordinance on Swissness (HasLV) came into force. It defines the conditions that have to be fulfilled in order to use the Label “Swiss” and the use of the label of the Swiss cross. It is designed to better inform the consumers on the origin of the products.

Assessment and recommendations

Security of food supply should be sought through a more competitive agriculture rather than by direct payments. The removal of milk price controls and milk quotas had a potential to increase competitiveness and better allocate resources. However, the fact, that the initially private contracts setting A,B,C prices and related quantities of delivered milk are made compulsory for all producers from 2013 and will be maintained up to 2021 (with a potential to be further extended), means that the abolished production quota system was de facto replaced by a another production control mechanism.

Continued reductions of import barriers and the elimination of the export subsidies to processed products are the next steps to further reduce the burden to consumers and interference with markets.

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. For the latter a use of economy wide measures, as opposed to specific agricultural ones, could be sought.

Switzerland has made some progress in reducing environmental pressures from agriculture. However, it failed to meet some other environmental objectives and nutrient surpluses (particularly Nitrogen) remain comparatively high. For some objectives such as sustainable use of resources and animal welfare the existing regulations could be made more stringent by incorporating the current cross compliance requirements (or some of their elements) into mandatory regulation.

Switzerland has decided to maintain the system of direct payments applied in 2013-17 also for the period 2018-21. As far as payments to farmers are concerned, for developing the post 2021 policies, focus should be put on further developing a set of better targeted direct payments to meet the various societal concerns and in parallel to further reduce border protection in order to meet the declared (and sometimes conflicting) objectives at the lowest costs to consumers and taxpayers. Further development of the consumer information system related to issues such as environment and animal welfare should also contribute to address some market failures.

To meet its engagements in the Paris Agreement on Climate Change, Switzerland is developing a policy which sets also specific targets for agriculture. In December 2017, the Swiss Federal Council adopted a message to revise its climate policy for 2021-2030 to reduce its emissions in 2030 by 50% compared to the 1990 level. Reductions of agricultural emissions as currently being discussed and including both agricultural production and consumption would be an important contribution to achieving the overall abatement commitments.

Figure 22.1. Switzerland: 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.

StatLink  http://dx.doi.org/10.1787/888933757692

Support to farmers (%PSE) has declined gradually over the long term. In the 2015-17 period support has been around 55% of gross farm receipts, three times higher than the OECD average. The share of potentially most distorting support has decreased over time due to a decline in market price support (MPS) and border protection, but still stands at around half of the support (Figure 22.1). The level of support has declined from 2016 to 2017 mainly due to the reduction of MPS. The decrease in MPS results from a lower price gap as domestic prices remained stable and world prices declined mainly due to a reduction of USD border prices (Figure 22.2). Prices received by farmers were higher than world prices (by 60% on average); price support varies between commodities with the highest price gaps for poultry and eggs. MPS is the main component of Single Commodity Transfers (SCT): poultry and eggs also had the highest share of SCT in commodity gross farm receipts (Figure 22.3). Overall, SCT represent 55% of the total PSE. The expenditures for general services (GSSE), mainly on knowledge and innovation, relative to agriculture value added record an upward trend and are among the highest across the countries covered by this report. Total support to agriculture as a share of GDP has declined significantly over time. Almost 90% of the total support is provided to individual farmers (PSE).

Figure 22.2. Switzerland: 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.

StatLink  http://dx.doi.org/10.1787/888933757711

Figure 22.3. Switzerland: 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.

StatLink  http://dx.doi.org/10.1787/888933757730

Table 22.1. Switzerland: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758718

Contextual information

Switzerland is a small open economy with a high GDP per capita and relatively low inflation and unemployment (Figure 22.4.). It is a densely populated country especially in the plain areas. The relative importance of agriculture in the Swiss economy is low with its share in the GDP below 1%, while its share in employment is around 3%. This is mainly due to highly developed industrial and services sectors in the economy.

The farm structure is dominated by relatively small family farms. Hills and mountain farming areas (including the alpine summer pastures) are used for extensive milk and meat production, while more concentrated pork and poultry production, but also arable farming, milk, fruit and vegetables, vineyards are located in plains. Arable land represents 26% of total agricultural area. The long-term trend is a reduction of traditional arable crops (grains, oilseeds) production and an increase of fruit and vegetable production.

Table 22.2. Switzerland: Contextual indicators
| Switzerland | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 211 | 535 | 0.8% | 0.6%
Population (million) | 7 | 8 | 0.2% | 0.2%
Land area (thousand km2) | 40 | 40 | 0.1% | 0.1%
Agricultural area (AA) (thousand ha) | 1 582 | 1 523 | 0.1% | 0.1%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 175 | 208 | 38 | 45
GDP per capita (USD in PPPs) | 29 670 | 63 889 | 9 650 | 24 866
Trade as % of GDP | 24 | 43 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 1.5 | 0.7 | 3.0 | 3.1
Agriculture share in employment (%) | 4.5 | 3.1 | - | -
Agro-food exports (% of total exports) | 3.3 | 3.0 | 7.7 | 7.3
Agro-food imports (% of total imports) | 7.0 | 4.3 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  45 |  46 | - | -
Livestock in total agricultural production (%) |  55 |  54 | - | -
Share of arable land in AA (%) | 27 | 26 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759174

Switzerland has consistently been a net agro-food importer; its current share of agro-food imports in total imports is around 4%, while the share of agro-food exports in total exports is around 3% (Table 22.2). Swiss agro-food exports consist mostly of processed products for final consumption (84% of total agro-food exports). This category is also the most important, although less dominant, in the agro-food imports (49%), and imports for further processing in the food industry represent almost one-third of the imports.

Figure 22.4. Switzerland: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933757749

Figure 22.5. Switzerland: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933757768

Total factor productivity (TFP) growth in agriculture has substantially slowed and, at 0.7% between 2005 and 2014, was less than half of the global average. As the use of primary factors and intermediate inputs has barely changed, output growth was modest as well.

Swiss agriculture is largely rain-fed. Only 2% of the arable area is irrigated and agricultural water abstraction water is around one-fifth of the OECD average. Nutrient surpluses have declined substantially notably for phosphorus, while the reduction in GHG emissions was only marginal. Agriculture’s share in energy use has declined and is one-third of the OECD average.

Figure 22.6. Switzerland: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933757787

Table 22.3. Switzerland: Productivity and environmental indicators
| Switzerland | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 1.69% | 0.66% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | 73 | 61 | 33 | 30
Phosphorus balance, kg/ha | 7.0 | 3.0 | 3.7 | 2.4
Agriculture share of total energy use (%) | 1.3 | 0.6 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 12 | 13 | 8.5 | 8.5
Share of irrigated land in AA (%) | .. | 2.2 | - | -
Share of agriculture in water abstractions (%) | .. | 8 | 45 | 43
Water stress indicator | 4.9 | 3.8 | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759630

Description of policy developments

Main policy instruments

Most agro-food imports to Switzerland are regulated either by single tariffs or, for a number of products, by Tariff Rate Quotas (TRQ) with relatively low in-quota tariffs and high out-of-quota tariffs. TRQs in particular cover meat, milk products, potatoes, fruits, vegetables, bread cereals and wine. Since 1999, an auctioning system is partially used to allocate the TRQs to traders.

All export subsidies for primary agricultural products were eliminated by 1 January 2010. Export subsidies for some processed agricultural products are permitted to be maintained within a transitional period until 2020 to compensate for high prices of domestically produced agricultural inputs. However, a legislation abolishing these export subsidies from 1 January 2019 was adopted by Swiss parliament in December 2017.

The network of Swiss trade agreements consists of the European Free Trade Agreement (EFTA), the Free Trade Agreement with the European Union and another 30 agreements concluded with 41 countries. All these agreements were negotiated and signed within EFTA with the exception of agreements with China, Japan and the Faroe Islands.

The budgetary spending supporting agriculture consists of three broad financial envelopes. Direct payments (CHF 2 747 million in 2017): Direct payments to farms for meeting societal demand such as food security, environment (landscape, biodiversity, sustainable use of resources) and animal welfare. Production and marketing (CHF 434 million in 2017): Expenditures are mainly to support dairy producers in the form of direct payments for milk delivered for cheese processing and to milk production without silage feed. Area payments are paid for oilseeds and protein crops and, since 2008, an area payment for sugar beet replaced the system of subsidies to processors and related system of guaranteed prices to sugar beet growers (discontinued in 2008). Other expenditures finance general services to the sector as marketing promotion. Improving the production base and social measures (CHF 153 million in 2017): spending includes direct support to farm investments, but also general services to the sector through infrastructure improvement and social measures.

Switzerland has implemented a policy framework for the period 2014-2017 (Politique Agricole 2014-17). The main change to the previous system of direct payments was the replacement of general headage payments to ruminants by an area payment to pastures with a requirement for a minimal stocking density. Another important shift in the structure of payments was the suppression of general area payments and reallocation of payments more closely related to specific policy objectives complemented by transition payments to make the reform socially acceptable. Most of the animal welfare and agri-environmental payments from the previous period continue to be applied under the various main categories of the 2014-17 frameworks. The environmental cross-compliance conditions continue to be applied within the new system of payments. For the period 2014-17, the overall budgeted annual amount of these payments remained stable for the whole period around CHF 2.8 billion (USD 3.1 billion).¹

In the framework of the Paris Agreement on Climate Change, Switzerland is developing a policy which sets also specific targets for agriculture. In December 2017, the Swiss Federal Council adopted a message to revise its climate policy for 2021-2030 to reduce its emissions in 2030 by 50% compared to the 1990 level. In the current plan, strategies, targets and measures to reduce emissions were developed and set for transport, construction and industry. In the new proposal agricultural specific targets and the agro-food (both production and consumption side) would be also included.

Based on the Swiss climate strategy for agriculture, the proposed target is to reduce the emissions by one-third by 2050 in agriculture, this effort should contribute to a two-thirds reduction of emissions in the whole agro-food chain (this commitment includes reductions of emissions both at the production and consumption side). The main activities contributing to this reduction are in the reduction of emissions from livestock production, application and management of fertilisers, soil preparation, reduction of the use of fossil energies and production of renewable energies by the sector. In the whole agro-food chain the reduction of emissions is related to input industries, processing, but also in final consumption where change of diets and reduction of food waste are the main drivers.

Domestic policy developments in 2017-18

Since the abolition of the milk quotas in May 2009, all dairy farmers are obliged to conclude milk delivery contracts with their milk purchasers. The inter-branch organisation for milk (l’Interprofession du Lait – IP Lait) took responsibility for standard milk delivery contracts (setting three levels of prices and corresponding volumes for contingents A, B and C) for its members.

By a decision of the Federal Council those standard milk delivery contracts were made compulsory also to producers outside the IP Lait from 1 July 2013 to 30 June 2015. In December 2015, the Federal Council decided to apply this obligation of milk delivery contracts also for 2016 and 2017, and extended it for another four years, i.e. 2018-21. The fact, that these contracts are made compulsory for all producers from 2013 and will be maintained up to 2021 (with a potential to be further extended), means that the abolished production quota system was de facto replaced by a another production control mechanism. The effective price paid to milk producers remains on average 54% above the world market prices (producer NPC) in 2015-17.

Since the introduction of area payments for sugar beet, these payments have been gradually reduced until 2015. However, due to a reduction of sugar prices on EU markets (reflecting the reform of EU sugar policies) these payments were increased to CHF 1 800 (USD 1 827) in 2016. Since 2016, this payments scheme remains unchanged.

In March 2017, the Swiss Parliament voted a budgetary envelope to finance agricultural policies for 2018-21 (AP 18-21). Overall, the spending was reduced by 1.7% compared to 2014-17. The budget was reduced by 30% for the financial envelope Improving the production base and social measures, mainly by cutting support to farm investments. The budgetary envelopes were almost unchanged for Production and marketing (+0.5%) and Direct payments (-0.1%). The system of the Direct payments remains the same as in 2014-17.

From 2017 on, the Ordinance on Swissness (HasLV) came into force. It defines the criteria which have to be fulfilled in order to use the Label “Swiss” and the use of the label of the Swiss cross. For food and beverages two requirements have to be met: i) 80% of the raw material or ingredients (by value) have to originate from Switzerland (100% for milk and milk products); ii) the processing of the products has to take place in Switzerland (e.g. milk processing into cheese).

On 24 September 2017, the Swiss electorate adopted in a referendum a new article on food security in the Swiss Constitution. In order to guarantee the supply of food to the population, the Confederation shall create the required conditions for: a) safeguarding the basis for agricultural production, and agricultural land in particular; b) food production that is adapted to local conditions and which uses natural resources efficiently; c) an agriculture and food sector that responds to market requirements; d) cross-border trade relations that contribute to the sustainable development of the agriculture and food sector; and e) using food in a way that conserves natural resources. The new article in the Constitution supports the general thrust of current agricultural policy. It sets out how to guarantee proper food supplies to the Swiss population in the long term. In doing so, it takes account of the entire process from farmers to consumers. Food supplies should be guaranteed by exploiting both domestic production and imported foodstuffs.

Trade policy developments in 2017-18

As a member of the European Free Trade Association (EFTA), Switzerland participates in ongoing free trade negotiations between the EFTA and, respectively, Ecuador, India, Indonesia, Malaysia and Viet Nam. Negotiations with Algeria, Thailand, and the Customs union of the Russian Federation, Belarus and Kazakhstan are on hold for the moment. Negotiations with Georgia and the Philippines have been concluded and signed in 2016. Free Trade Agreements with Chile, Mexico and SACU are currently facing a renegotiation. These Free Trade Agreements and the ongoing negotiations also cover agriculture including processed agricultural products and a range of basic agricultural products.

Preferential tariff rates are unilaterally applied to imports from developing countries under the general system of preferences. In the context of the initiative of the Swiss government to grant zero tariffs on all products originating in Least Developed Countries (LDC), since September 2009 all agricultural imports from LDC countries are duty and quota free.

Due to a low harvest in 2016 wheat tariff quotas were increased from 70 000 tonnes to 100 000 tonnes for 2017.

In 2016, export subsidies for processed products amounted to CHF 94.6 million (CHF 81.6 million spent on dairy products and CHF 13 million on grain based products). The same level of export subsidies was maintained in 2017.

References

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

OECD (2015), OECD Review of Agricultural Policies: Switzerland 2015, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264168039-en.

Note

 1.  The OECD Review of Agricultural Policies: Switzerland provides more detailed information on the programmes providing payments in the main categories of the PA 14-17 and discusses expected economic and environmental effects (OECD, 2015).

Chapter 23.

Turkey

Support to agriculture

Despite a series of ambitious reforms since the late 1990s, the level of farm support in Turkey, while varying from year to year, has remained higher than the average for the OECD area and stood at 25% during 2015-17. Most distorting forms of support dominate as Market Price Support (MPS) accounts for 81% of the producer support in 2015-17. The level of price distortions has remained higher than the OECD average: domestic prices remain on average 28% above world prices in 2015-17.

The other important elements of producer support are payments based on output and variable input use, which account for 9% of producer support. Payments based on commodity output have increased since the decoupled direct payments were abolished in 2009. The main instrument of direct payments to farms in Turkey is deficiency payments (“premium payments”), which is designed to cover the difference between the target price and market price of the product. The target price is calculated based on production and marketing costs. These payments are provided for the products that are in short domestic supply, such as oilseeds and grains. Payments based on current area and animal number, such as agricultural insurance programmes, have increased in recent years and the share of such payments reached 8% of producer support in 2015-17.

As for the General Services Support Estimate (GSSE) the main element is financing the development and maintenance of infrastructure, which accounts for approximately 72% of the GSSE expenditure. While expenditure for the agricultural knowledge and innovation system grew in the last decade, the share in GSSE expenditure remains around 5% in 2015-17. Total support estimate to agriculture (TSE) averaged 2% of GDP in those most recent years.

Main policy changes

Among the four state owned marketing boards for agricultural products, the former Sugar Authority and the Tobacco and Alcohol Market Regulatory Authority were closed and the Ministry of Food, Agriculture and Livestock (MoFAL) took over the responsibility to administer the marketing regulations in 2017.

The “basin-based support programme” differentiated the payment rates in 941 basins, as opposed to 30 basins in the former programme. Each county with agricultural production is identified as a separate basin now. Eligible crops are determined by basin based on ecological and production conditions. In total, 21 eligible products are expected to be defined under the support programme including grains, pulses, some oilseeds and feed crops. Contrary to the initial plan to convert former output based payments to area based payments, the payments continue to be based on output under the new system due to technical difficulties of implementation. The government aims to change crop production patterns to follow ecological conditions and to increase the production of crops that are short in supply, while decreasing excess supply in some other crops.

The coverage of the support to agricultural insurance has been extended to more products and risks. In 2018, the coverage of the programme is extended to the production loss of barley, rye, oat and triticale due to drought, frost, hot winds, heat waves, excess moisture and excessive precipitation in addition to currently covered wheat. The coverage is also extended to orchards and vineyards from 2018. In addition, as of 2018, a 5% discount under all branches of agricultural insurance has been provided to female and young farmers. In 2017, 1.64 million agricultural insurance policies were issued with TRY 864 million (USD 237 million) of government support to the insurance premium.

Assessment and recommendations

Turkey has made progress in the last decade towards strengthening the agricultural sector’s legal and institutional framework. Among the four state owned marketing boards for agricultural products, the former Sugar Authority and the Tobacco and Alcohol Market Regulatory Authority are closed in 2017. However, the reform to reduce the role of state owned marketing boards should continue.

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 2015-17 remained at around 25%, which is higher than the OECD average.

Reorientation of agricultural policy from supporting production towards improving agricultural productivity and adding more value should continue while considering sustainable use of natural resources.

A re-orientation of agricultural policies should allow producers to react flexibly to market conditions. Producer support is granted mainly through the most market distorting measures, altering the prices farmers face on output and input markets. Further efforts are required to reduce the share of the most distorting types of support.

Programmes such as payments for supporting organic agriculture, good farming practices and land conservation are more targeted to the policy objective to develop an environmentally-friendly agricultural sector. The role of policies targeted to environmental policy objective should be increased.

Turkey should increase investments on education and skills, critical physical infrastructure and the innovation system. The support directed to the agricultural knowledge and innovation system has increased in recent years, but still accounts for less than 1% of total support to agriculture.

Figure 23.1. Turkey: 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.

StatLink  http://dx.doi.org/10.1787/888933757806

Support to farmers (%PSE) has been fluctuating with no clear long-term trend. In 2015-17, support has been around 25% of gross farm receipts, which is above the OECD average. The share of potentially most distorting support has decreased slightly over time due to decline in market price support (MPS) and border protection, but still accounts for more than 90% of producer support (Figure 23.1). In 2017, the level of support has decreased due to lower MPS. The decrease in MPS results from a smaller price gap as domestic prices increased less than world prices (Figure 23.2). Effective prices received by farmers, on average, were 28% higher than world prices; large differences between commodities persist with domestic prices for beef and veal, potatoes, sunflower, and poultry meat being more than 50% above world prices. MPS is the main component of Single Commodity Transfers (SCT): beef and veal, potatoes, sunflower, and poultry meat, but also cotton and barley had the high share of SCT in commodity gross farm receipts (Figure 23.3). Overall, SCT represent 90% of the total PSE. The expenditures for general services (GSSE), mainly on development and maintenance of infrastructure, relative to agriculture value added were similar to the OECD average. Total support to agriculture as a share of GDP has declined significantly since the mid-1990s. More than 85% of the total support is provided to individual farmers (PSE).

Figure 23.2. Turkey: 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.

StatLink  http://dx.doi.org/10.1787/888933757825

Figure 23.3. Turkey: 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.

StatLink  http://dx.doi.org/10.1787/888933757844

Table 23.1. Turkey: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758737

Contextual information

Primary agriculture accounts for 7% of GDP and employs 20% of the workforce, making agriculture one of the most important sectors of the country’s economy. Turkey is a net exporter of agricultural products, which account for more than 11% of total exports, and market access to export markets is a significant issue for the sector. Notwithstanding various structural bottlenecks, such as the predominance of small-sized, subsistence and semi-subsistence farms, Turkey ranks as a significant agricultural exporter of nuts, dried fruits, and some fresh vegetables; main export destinations include the European Union, Iraq, the Russian Federation and the United States.

Table 23.2. Turkey: Contextual indicators
| Turkey | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 603 | 2 007 | 2.2% | 2.4%
Population (million) | 60 | 78 | 2.1% | 2.3%
Land area (thousand km2) | 770 | 770 | 1.0% | 1.0%
Agricultural area (AA) (thousand ha) | 39 493 | 38 561 | 1.5% | 1.4%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 80 | 102 | 38 | 45
GDP per capita (USD in PPPs) | 10 087 | 25 655 | 9 650 | 24 866
Trade as % of GDP | 12 | 20 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 16.3 | 7.0 | 3.0 | 3.1
Agriculture share in employment (%) | 44.1 | 19.5 | - | -
Agro-food exports (% of total exports) | 19.9 | 11.0 | 7.7 | 7.3
Agro-food imports (% of total imports) | 9.9 | 6.3 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  68 | 54 | - | -
Livestock in total agricultural production (%) |  32 |  46 | - | -
Share of arable land in AA (%) | 62 | 54 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759193

Turkey has maintained a strong economic growth at more than 4% of annual growth of real GDP in recent years. However, inflation and unemployment rates remain high. Turkey’s agro-food imports are dominated by primary and processed products for further processing by the domestic industry. These accounted for 75% of total agro-food imports in 2016. In turn, processed and primary products for consumption are key export categories, accounting for 77% of total agro-food exports.

Figure 23.4. Turkey: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933757863

Figure 23.5. Turkey: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933757882

During 2005-14, the agricultural output in Turkey grew slightly faster than globally. Turkey achieved higher total factor productivity (TFP) growth than the world average, while the primary factor use declined overall. Re-allocation of labour resources from lower- to higher-productivity uses within the agricultural sector was the driver of the high agricultural productivity growth. The intensity of input use per ha of agricultural land is, in general, lower than many other OECD countries, but the phosphorus balance is particularly high in Turkey due to intensive livestock production. Agriculture accounts for more than 80% of water use. The expansion of irrigated area, combined with decrease in precipitation due to climate change, may have contributed to the increased water stress.

Figure 23.6. Turkey: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933757901

Table 23.3. Turkey: Productivity and environmental indicators
| Turkey | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 1.29% | 2.43% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | 28 | 23 | 33 | 30
Phosphorus balance, kg/ha | 9.0 | 7.0 | 3.7 | 2.4
Agriculture share of total energy use (%) | 5.6 | 4.0 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 18 | 12 | 8.5 | 8.5
Share of irrigated land in AA (%) | 7.9 | 10.1 | - | -
Share of agriculture in water abstractions (%) | 87 | 84 | 45 | 43
Water stress indicator | 14.3 | 22.2 | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759649

Description of policy developments

Main policy instruments

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, and to provide sufficient and balanced nutrition to Turkish people. Particular emphasis is given to R&D, innovation, productivity growth, improving and strengthening of the food safety infrastructure and increasing efficiency of water use in agriculture. Turkey is currently in the process of preparing the 11th Development Plan (2019-23).

Replacing the former five-year plan, the 2018-2022 Strategic Plan of the Ministry of Food, Agriculture and Livestock (MoFAL) has been prepared with the objectives to develop a globally competitive and environmentally-friendly agricultural sector, which provides sufficient and balanced nutrition to the population. Particular emphasis is given to R&D, innovation, productivity growth, improvement and strengthening of the food safety infrastructure and increased efficiency of water use in agriculture.

The 2018-22 Strategic Plan defines seven strategic areas in the agricultural sector: i) agricultural production and supply security; ii) food safety; iii) phytosanitary and animal health; iv) agricultural infrastructure and rural development; v) fisheries and aquaculture resource management; vi) research and development; and vii) institutional capacity building. In addition to these seven areas, improvement of agricultural statistics is also included, which is also a part of harmonization process with the European Union

Import tariffs, complemented by purchasing prices fixed for cereals and sugar beet, provide support for domestic production. Export subsidies are applied to a number of products including processed fruit and vegetables, poultry meat and eggs. Export subsidies are granted in the form of reductions of the exporters’ debts vis-à-vis public corporations (for example, for taxes, and telecommunications or energy costs) (WTO, 2016). Production quotas are applied at the farm level for sugar beet.

Deficiency payments (“premium payments”) are provided for the products that are in short domestic supply. The payment covers the difference between the market price and the target price that is calculated based on production and marketing cost. Deficiency payments were first introduced in 2002 for oilseeds, olive oil and cotton and later for tea (2004), grains and paddy (2005) and pulses (2008).

Hazelnut producers receive payments based on area. Area payments are also provided for fodder crops, organic farming, good agricultural practices, certified seeds, gasoline and fertiliser use. Most farmers’ incomes are below the minimum taxable income threshold and are hence not subject to income taxes.

Payments based on input use are provided mainly in the form of interest rate concessions and payments to improve animal breeds and farm production capacity (e.g. field levelling, drainage, soil improvement and protection and land consolidation). Farmers and agricultural enterprises benefit from concessional loans offered by the Ziraat Bank (TCZB) and Agricultural Credit Co-operatives (ACC). Interest rate concessions vary by type of agricultural operation (livestock breeding, irrigation, organic agriculture and good farming practices).

A number of regulations control water and soil pollution, and provide protection to wetlands. Land conservation payments protect the quality and ensure sustainability of natural resources in agricultural lands. The government plays a major role in providing infrastructure investment, especially for irrigation, including within the South-Eastern Anatolia and Konya Plain Projects.

After the close of two state-owned marketing boards (see below), Turkey continues to maintain two others for agricultural products: the Turkish Grain Board, and the Meat and Milk Board. Although the importance of their role in agricultural marketing has declined, marketing boards provide price support through commodity purchasing and stockpiling. They also disburse subsidies, procure and supply inputs to farmers, and are involved in the importing and exporting of agricultural commodities (OECD, 2011).

The Action Plan for the Program on Enhancing Efficiency of Water Use in Agriculture, introduced in 2015, prioritizes modernizing irrigation infrastructure, extending water saving practice for agricultural producers through training and extension programmes, revising support policies based on water scarcity and improving the governance of water policies. The plan aims to decrease the use of underground water and increase the use of water-saving irrigation technologies.

On rural development, a new National Rural Development Strategy was issued in 2014. The ongoing support on rural development projects involves co-financing with the beneficiaries to mobilise private-sector resources. Public investments to improve the agricultural infrastructure have been accelerated to boost the agricultural production and increase the competitiveness of the sector. MoFAL also increased funding to IT projects, to improve data collection and the monitoring network and its efficient use, and to develop traceability in the sector.

Since the mid-2000s, specific rural development policy frameworks have emerged in the context of Turkey’s efforts to comply with the EU acquis. The first national Rural Development Strategy for 2007-13 was adopted in 2006 as the basis of the EU Instrument for Pre-Accession Assistance Rural Development (IPARD-I). IPARD is intended to address the country’s needs in the pre-accession period in the area of rural development. In the framework of the IPARD-1, in total EUR 1.2 billion (USD 1.3 billion) of public contribution was allocated to the rural development projects by the end of December 2016. Turkey has launched its IPARD-II for 2014-20 with a budget of EUR 1.04 billion (USD 1.27 billion).

Domestic policy developments in 2017-18

Among the four state owned marketing boards for agricultural products, the former Sugar Authority and the Tobacco and Alcohol Market Regulatory Authority are closed and MoFAL took over the responsibility to administer the marketing regulations in 2017.

The “basin-based support programme” differentiated the payment rates in 941 basins, as opposed to 30 basins in the former programme. Each county with agricultural production is identified as a separate basin now. Eligible crops are determined by basin based on ecological and production conditions. In total 21 eligible products are expected to be defined under the support programme including grains, pulses, some oilseeds and feed crops. Contrary to the initial plan to convert former output based payments to area based payments, the payments continue to be based on output under the new system due to technical difficulties of implementation. The government aims to change crop production patterns to follow ecological conditions and to increase the production of crops that are short in supply, while decreasing excess supply in some other crops.

Each farmer registered under the National Farmer Registration System (NFRS) receive a so-called “diesel payment” and a “fertiliser payment” separately. Additional support for soil analyses that were a perquisite for receiving fertiliser payments was re-introduced again in 2017, as a support to the authorized laboratories.

The coverage of the support to agricultural insurance has been extended to more products and risks. In 2018, the coverage of the programme is extended to the production loss of barley, rye, oat and triticale due to drought, frost, hot winds, heat waves, excess moisture and excessive precipitation in addition to currently covered wheat. The coverage is also extended to orchards and vineyards from 2018. In addition, as of 2018, a 5% discount under all branches of agricultural insurance has been provided to female and young farmers. In 2017, 1.64 million agricultural insurance policies were issued with TRY 864 million (USD 237 million) of government support to the insurance premium.

Trade policy developments in 2017-18

The average rate of customs duties applied in 2017 for basic agricultural products, which are not a part of the Customs Union Common External Tariff, was 56.9%. Throughout the year customs duties on live slaughter and fattening cattle, carcass meat, some pulses, wheat, barley, maize, bran, oil-cake and other residues were decreased, whereas the customs duty applied for ethyl alcohol obtained from agricultural products were increased.

Export subsidies for agricultural products were announced in the Official Gazette on 28 December 2016 and were applied on exports during the 2017 calendar year. In 2017, 16 commodity groups, out of the 44 groups eligible under Turkey’s WTO commitments, received export subsidies.

In 2017, the Free Trade Agreement (FTA) with Singapore and Faroe Islands entered into force. FTA negotiations are still going on with 13 countries, which are Ukraine, Japan, Mexico, Colombia, Peru, Ecuador, Thailand, Venezuela, Indonesia, the Democratic Republic of the Congo, Djibouti, Qatar and Pakistan.

References

OECD (2016), Innovation, Agricultural Productivity and Sustainability in Turkey, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264261198-en.

OECD (2011), Evaluation of Agricultural Policy Reform in Turkey, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264113220-en.

WTO (2016), Trade Policy Review of Turkey, WT/TPR/S/331, WTO.

Chapter 24.

Ukraine

Support to agriculture

Support to agriculture has been quite variable over the past three decades, largely reflecting changes in market price support (MPS). Since 2013, support to farmers has been negative as budgetary payments in the form of tax benefits and input support, and price protection for imported commodities, only partly offset the implicit taxation through negative MPS on exported ones. On average, producer prices are below world price levels, but price protection differs significantly across commodities, with prices for most meat commodities, and until recently for sugar, above reference price levels.

Since 2012, Ukraine has significantly cut its expenditures on general services both in absolute terms and relative to the size of the sector; general services expenditures are now equivalent to 1.1% of agricultural value added, less than a quarter of the level during the mid-1990s. Support to general services is mainly used for agricultural schools and for inspection and control services.

Main policy changes

Most of Ukraine’s domestic policies have remained unchanged in 2017, but a major shift was undertaken by abolishing the VAT accumulation system. This system had allowed agricultural producers to accumulate a share of VAT from product sales for the purpose of purchasing agricultural inputs. In 2017, it was temporarily replaced by a “development subsidy” proportional to the VAT for a subset of agricultural commodities, which also could be used for the purchase of agricultural production inputs. However, the amount of support provided through the development subsidy was much smaller than that provided through the previous system.

Specific support was also provided to the livestock and fruits, wine and berry sectors. These subsidies were given for breeding animals, planting material, machinery, equipment and storage capacity, but also as debt repayments under different programmes of previous years.

The budget of the new State Service for Food Safety and Consumer Protection, established and operational since 2016, was increased by more than half, but funding for the country’s veterinary and phytosanitary services remains low compared to expenditures before 2015.

In the context of the European Union-Ukraine Deep and Comprehensive Free Trade Area, additional EU autonomous trade preferences for Ukraine came into effect in 2017. For a duration of up to three years, these preferences increase duty-free import quotas for agricultural products from Ukraine to the European Union. The Canada-Ukraine Free Trade Agreement came into force in 2017 and provides for an eventual elimination of import tariffs on the vast majority of bilateral trade, including agro-food trade.

Assessment and recommendations

Producer prices in most of Ukraine’s export oriented crop sectors, as well as for milk, are maintained substantially below world price levels. While formal export restrictions and levies are no longer applied, Memoranda of Understandings between the Government and main associations of grain exporters on maximum export volumes continue to reduce domestic producers’ opportunities to participate in international markets. Such restrictions are trade distorting and reduce the profitability and international competitiveness of the country’s most efficient agricultural sectors. While the EU-Ukraine DCFTA should reduce the resulting negative market price support to some degree, Ukraine should take additional steps to facilitate exports, including continued investments into the logistics and transportation system in line with growing export volumes.

Abolishing the VAT accumulation system, which indirectly supported the purchase of production inputs, should increase the efficiency in the sector. While its temporary replacement by the “development subsidy” is little more efficient than its predecessor as it is equally linked to VAT receipts and also used by farmers for various production inputs, it is limited in the sectoral coverage and smaller in size. Ensuring well-functioning input markets, including for agricultural credits, remains key for improving farmers’ access to agricultural inputs.

Land market rigidities continue to be in place with the extension of the moratorium on the sale of agricultural land. Overcoming these rigidities will be important for improving the economic viability and efficiency of the sector.

Over the last decade, Ukrainian agriculture has benefited from an impressive growth in total productivity, but capital stocks continue to deteriorate, likely caused by economic and political uncertainties. A return to macroeconomic and political stability will be critically important for maintaining and developing a productive agricultural sector.

Signatory to the 2015 Paris Agreement on Climate Change, Ukraine’s Nationally-Determined Contribution (NDC) commits the country to GHG emissions in 2030 not exceeding 60% of its 1990 levels, including from agriculture and other land use sectors. No specific net-emission target has yet been set for the agricultural sector. With agriculture responsible for 12% of national GHG emissions, specific targets and related policy action will be important for achieving the overall target.

Financial constraints following the economic depression of 2014-15 continue to limit Ukraine’s expenditures for general services, which are among the lowest across the set of countries covered by this report. Sanitary and phytosanitary inspection and control is a key service to the export-oriented sector, and progress towards compliance with EU SPS requirements remains a priority.

Ukraine’s exposure to high weather variability is likely to be exacerbated by climate change. The sector therefore also requires both a well-functioning and sufficiently funded knowledge and innovation system, including an extension service providing location-specific information and advice, and an effective risk management system which should involve all relevant stakeholders.

Figure 24.1. Ukraine: 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

StatLink  http://dx.doi.org/10.1787/888933757920

Support to farmers (%PSE) has been continuously negative for five years at levels similar to those observed on average during the 1995-97 period. This implicit taxation of the sector is caused by negative market price support for most exported products. As a consequence, the average level of producer prices is almost 10% below that of the reference prices: the Nominal Rate of Protection (NRP) was 0.9 for the 2015-17 average (Figure 24.1). The level of support has increased (i.e. has become less negative) in 2017 despite lower budgetary support: on average, prices received by farmers have come closer to the reference prices due to both higher world market prices and the continued devaluation of the Hryvnya, even though producer prices have increased as well (Figure 24.2). Single Commodity Transfers mirror the MPS across commodities, with grains, sunflower seed, sugar and milk being implicitly taxed while meat and eggs show SCTs of between 4% and 13% of their commodity gross farm receipts (Figure 24.3). The expenditures for general services (GSSE) have significantly fallen and represented a mere 1.1% of agriculture value added, well below the values of most other countries represented in this report and much lower than two decades earlier. Consequently, total support to agriculture is dominated by the negative PSE and was worth -2% of GDP during 2015-17.

Figure 24.2. Ukraine: 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.

StatLink  http://dx.doi.org/10.1787/888933757939

Figure 24.3. Ukraine: Transfer to specific commodities (SCT), 2015-2017

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

StatLink  http://dx.doi.org/10.1787/888933757958

Table 24.1. Ukraine: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758756

Contextual information

Ukraine is classified as an upper middle income country. Thanks to its large area of fertile arable land, agriculture continues to play a major role in the economy and counts for 14% of the country’s GDP, 15% of its employment and close to 40% of its total exports. Crops represent some three-quarters of agricultural output, a share that has increased significantly from the mid-1990s.

Table 24.2. Ukraine: Contextual indicators
| Ukraine | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 190 | 354 | 0.7% | 0.4%
Population (million) | 51 | 44 | 1.8% | 1.3%
Land area (thousand km2) | 579 | 579 | 0.8% | 0.8%
Agricultural area (AA) (thousand ha) | 41 853 | 41 272 | 1.5% | 1.5%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 88 | 77 | 38 | 45
GDP per capita (USD in PPPs) | 3 689 | 8 272 | 9 650 | 24 866
Trade as % of GDP | 36 | 42 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 15.4 | 13.7 | 3.0 | 3.1
Agriculture share in employment (%) | 22.5 | 15.3 | - | -
Agro-food exports (% of total exports) | 21.6 | 38.4 | 7.7 | 7.3
Agro-food imports (% of total imports) | 7.6 | 8.6 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  66 | 78 | - | -
Livestock in total agricultural production (%) |  34 |  22 | - | -
Share of arable land in AA (%) | 80 | 79 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759212

Real GDP in Ukraine has fallen by 16% between 2013 and 2015 while inflation rates have risen to almost 50%, due to adverse political circumstances. The economy has recovered since, and grown in both 2016 and 2017. Still, unemployment has continued to rise in these years.

Ukraine is one of the world’s leading exporters of grains and vegetable oils and has seen rapid growth in its agro-food exports between the late 1990s and 2012. Most of the country’s agro-food exports are intermediary, mostly primary products for further processing. Imports are more mixed, with primary and processed products for final consumption representing 60% of imports.

Figure 24.4. Ukraine: Main economic indicators, 1996 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933757977

Figure 24.5. Ukraine: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933757996

Agricultural output growth, as well as its growth in total factor productivity (TFP), significantly outpaced global averages. Production grew by an average 4% p.a. in the decade ending 2014, with more than half of that coming from TFP, while the use of primary factors, notably of capital, shrank – a reduction that could threaten continued high productivity growth in the future.

Consistent with the importance of agriculture in the economy, agriculture’s shares in the country’s energy use and GHG emissions are comparatively high; while the economic importance of agriculture has declined, both its shares in energy use and emissions have increased over the last two decades.

Figure 24.6. Ukraine: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933758015

Table 24.3. Ukraine: Productivity and environmental indicators
| Ukraine | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 0.23% | 2.26% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | .. | .. | 33 | 30
Phosphorus balance, kg/ha | .. | .. | 3.7 | 2.4
Agriculture share of total energy use (%) | 2.9 | 3.9 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 12 | 14 | 8.5 | 8.5
Share of irrigated land in AA (%) | .. | 5.2 | - | -
Share of agriculture in water abstractions (%) | .. | .. | 45 | 43
Water stress indicator | .. | .. | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759668

Description of policy developments

Main policy instruments

Ukraine’s agricultural policy measures are formulated in a number of major laws and decisions. The law “On State Support of Agriculture in Ukraine” defines priorities and measures of agricultural policy. The “Concept of Rural Development in Ukraine”, approved in 2015, provides priorities for the development of rural areas in Ukraine until 2025. Ukraine’s policies are also influenced by the Association Agreement with the European Union, ratified by Ukraine in 2014. Finally, the financial scope of agricultural policies is defined in the annual law “On State Budget of Ukraine”.

The “Comprehensive Strategy of Implementing Legislation on Sanitary and Phytosanitary Measures” was approved in 2016 and provides for a process of harmonization of Ukraine’s SPS legislation with EU requirements, and stipulates the objective to recreate in Ukraine a system of food quality control similar to the European one by 2019.

Ukraine uses a range of market price support instruments. These include tariff protection, non-tariff trade regulation, and various forms of domestic price measures. The state agency Agrarian Fund implements domestic price interventions through the operation of a state intervention fund. Initially dealing only with grain, the Agrarian Fund has become progressively involved in other activities, such as sugar commodity interventions, state purchases and sales of a broad range of agricultural and food products, forward-contracting, flour processing and wholesaling.

For purchases by the Agrarian Fund, official minimum and maximum intervention prices are set and cover commodities that are “objects of state regulation”. The exact list of such products and the periods during which these administered prices will be in effect are defined by specific government decrees. Minimum prices do not play a role of guaranteed prices but are regarded as a floor-price reference for private market operators. Minimum intervention prices should not exceed domestic market price levels to comply with the Ukraine’s WTO domestic support commitment.

The sugar quota regime was developed as another element of price support policy. Reflecting domestic beet production, a national marketing quota for sugar produced from sugar beet and sold on the domestic market is set annually, together with the minimum in-quota prices for sugar beet and sugar. This quota, allocated to individual sugar plants, does not account for sugar processed from imported raw cane sugar, which is subject to a Tariff Rate Quota (TRQ).

Since 1999, and until 1 January 2017, significant support to farms was provided through unpaid VAT by agricultural producers, which was accumulated on special accounts and used for input purchases (see domestic policy developments below). In contrast, budget-based forms of input subsidies were gradually reduced in recent years due to the country’s budgetary deficits. In 2017, the abolishment of the VAT accumulation and the payment of a Development Subsidy reversed both trends.

Agricultural producers are eligible for a Single Tax (the Fixed Agricultural Tax before 2015), which is set as a percentage of agricultural land value, established on 1 July 1995 and adjusted with the general price index. Introduced in 1998, the Single Tax originally replaced twelve taxes for which agricultural enterprises were liable as business entities. The preferences incorporated in this tax have been narrowing since then. At present, the Single Tax replaces only three taxes – profit tax, land tax (for land used in agricultural production), and special water use fee – with agricultural producers liable to all other taxes due on agricultural businesses.

On 27 June 2014, the European Union and Ukraine signed the Deep and Comprehensive Free Trade Area (DCFTA) as part of their Association Agreement. It became provisionally applied from 1 January 2016 and formally entered into force on 1 September 2017. The liberalisation of trade between the European Union and Ukraine is to be implemented within a transition period of seven to ten years. The European Union opens zero-tariff rate quotas for Ukraine’s principal agro-food products, such as grain, meat and milk products, and sugar, and grants free access for the others. Ukraine reduced import duties for a number of goods imported from the European Union. About 40% of agriculture-related import duties were reduced to zero immediately after the Agreement entered into force, and around a half of import duties will be eliminated during the transition period. However, about 10% of tariff lines covering selected products in such product categories as dairy and eggs, sugar, miscellaneous edible products, animal oils and fats, feeding stuff for animals will preserve non-zero tariffs. Since 1 January 2016, Ukraine applies three TRQs with zero in-quota tariffs for EU exports of pig meat, poultry meat and poultry meat preparations, and sugar, respectively. Ukraine has secured the right to use safeguard measures and additional trading conditions (e.g. to apply entry prices for a certain number of tariff lines). The parties committed to apply no export subsidies for mutually traded agricultural goods.

The DCFTA incorporates fundamental WTO rules on non-tariff barriers, such as prohibition of import and export restrictions, disciplines on state trading etc. The main barrier for trade integration remains Ukraine’s ability to comply with EU food safety, veterinary and phytosanitary requirements. Thus, the DCFTA contains provisions for technical regulations, standards and conformity assessments to harmonise with those of the European Union, as well as for technical co-operation in the field of technical regulations, standards and related issues between Ukraine and the European Union.

Ukraine signed the Paris Agreement of the United Nations Framework Convention on Climate Change in April 2016, and ratified it in September 2016. Through its Nationally Determined Contribution, Ukraine committed to total emissions across sectors, including agriculture, not exceeding 60% of those in 1990 (equivalent to 140% of those in 2012). In December 2016, the Cabinet of Ministers of Ukraine (CMU) adopted the National Concept of State Policy in the Field of Climate Change Up To 2030. A draft agriculture part of the Action Plan for the implementation of this Concept is currently under review with the CMU. Ukraine is currently working towards its Strategy for Low Carbon Development. The country still needs to create a national system for monitoring, reporting and verification of greenhouse gases with a view to develop and implement a national carbon market.

Public extension to farmers for information and advice specific to local conditions on the risks related to climate change are pending the adoption of the National Action Plan for the implementation of the above-mentioned Concept and a corresponding allocation of state budget funds.

In addition to an action plan for implementing this Concept, the Ministry of Agrarian Policy and Food is developing measures to improve environmental practices in line with the obligations under the Association Agreement with the European Union.

Domestic policy developments in 2017-18

After substantial reductions in the scope and the extent of budget-based government support to agriculture in recent years due to the growing debt burden of the public sector, direct support to Ukrainian agriculture from the government’s budget increased in 2017. Based on the Law of Ukraine No. 1800 “On the State Budget of Ukraine for 2017” of 21 December 2016, the total budget allocation for all budget lines of the Ministry of Agrarian Policy and Food of Ukraine was UAH 9.04 billion (USD 340 million), more than quadrupling the allocation in the previous year.

In contrast to the preceding years, no public grain intervention purchases were carried out in 2016/17 and 2017/18. However, in 2017 the Agrarian Fund sold 67 400 tonnes of sugar stored as part of the state intervention fund.

The domestic sugar quota continued to be reduced, from 1.72 million tonnes in 2015/16 and 1.67 million tonnes in 2016/17 to 1.64 million tonnes in 2017/18. At the same time, the (indicative) minimum sugar price was changed from UAH 6 455 per tonne in 2015/16 and UAH 9 079 per tonne in 2016/17 to UAH 9 173 per tonne in 2017/18 (USD 295, USD 355 and USD 345 per tonne, respectively).

The programme “Partial compensation of interest on commercial bank credit”, re-activated in 2015, continued to be applied. Funds allocated to interest rate concessions on commercial bank credit to agricultural producers had declined from UAH 291 million (USD 13.3 million) in 2015 to UAH 280 million (USD 11.0 million) in 2016; for 2017, UAH 295 million (USD 11.1 million) were allocated from the general state budget. Priority was to be given to small agricultural enterprises (with annual revenues not exceeding UAH 10 million or USD 376 000) and enterprises engaged in cattle husbandry and breeding.

No support was provided for the purchases of variable inputs such as fertilisers, other chemicals, or electricity. However, in 2016 and 2017, UAH 30 million and UAH 11.7 million were allocated to partially (up to 50%) compensate the costs of purchasing high breeding animals, respectively (USD 1.2 million and USD 0.44 million). In addition, UAH 158 million (USD 5.9 million) were spent in 2017 on debt repayment under the “State support of animal husbandry” programme of previous years.

UAH 134 million (USD 5.0 million) were allocated in 2017 to partially compensate the costs of purchasing agricultural machinery and equipment.

The purchasing of production inputs, including planting material, machinery, equipment, and storage, for orchards, vineyards and berry fields was supported with UAH 299 million (USD 11.2 million) in 2017. In addition, UAH 183 million (USD 6.9 million) were spent on debt repayment under horticultural programmes of previous years.

With effect from 1 January 2017, Ukraine abolished its special VAT regime for agricultural producers. The so-called VAT accumulation mechanism allowed agricultural producers to accumulate the VAT due on their sales of primary and processed products on special accounts, and to use the funds for purchasing inputs. In spite of earlier intentions to end it, the mechanism has remained in effect in 2016; however, the shares of VAT that can be accumulated were reduced to 15% for grains, oil seeds and fibre crops, 80% for milk and beef meat, and 50% for all other agricultural products. As a consequence, VAT amounts accumulated under the mechanism have declined from UAH 20 billion (USD 916 million) in 2015 to UAH 13 billion (USD 509 million) in 2016. For 2017, the state budget included a specific “development subsidy” which effectively replaced the VAT accumulation mechanism to the tune of UAH 4 billion (USD 150 million). This subsidy was distributed proportionally to the amount of value-added tax paid based on the sale of certain agricultural products, including animal products, grapes, fruits, berries, nuts, vegetables, tobacco and sugar beet. Recipients used the subsidy for purchases of different production inputs. The “development subsidy” is planned to be discontinued in 2018.

In May 2017, the Verkhovna Rada of Ukraine (the Ukrainian Parliament) adopted the Law of Ukraine No. 2042 “On the state control for conformity with legislations on the safety and quality of food and feed, animal health and wellbeing”, which will be in force from April 2018. The Law regulates the general organisation and management of state control at the national and sub-national levels, the exercise of state control of certain production facilities, which aims at contributing to ensuring a high level of protection of human health and consumer interests.

The Law provides for reduction of physical inspections of these products imported into the customs territory of Ukraine if they meet the following requirements: (1) they originate from the country/capacity entered in the register of countries/capacities for that are allowed to import/transfer goods to the customs territory of Ukraine; (2) goods are accompanied by originals of the international certificate and other documents required by the Law. The Article 45 of the Law stipulates that laboratory test of samples taken during physical inspection of cargo are carried out in exceptional cases.

The Parliament of Ukraine has extended by another year, to 1 January 2019, the moratorium on the sale of agricultural land which was introduced in 2002. The lift of the moratorium is conditioned by the coming into force of a law on agricultural land markets. Development of a modern land cadaster has been viewed as a necessary condition to reform the agricultural land market.

In 2017, steps were undertaken by the Government of Ukraine towards simplicity and transparency of land services. These steps include a simplified land registration procedure; the provision of an electronic system to obtain extracts from the land cadaster; electronic requests for land parcel valuations; and open and public access to cadastral records, including for notaries. In March 2017, different agencies of the Government have jointly presented an updated State Land Cadaster which uses the Blockchain technology, in order to fight fraud and enhance transparency. The budget of the “land reform” programme was increased from UAH 44 million in 2016 to UAH 105 million in 2017 (USD 1.7 million and USD 3.9 million, respectively).

A draft of Law No 2845 On Feed and On Feed Safety and Hygiene was adopted after the first reading by the Parliament on 4 November 2017. It sets legal and organisational principles for production, circulation, labelling and presentation of feedstuff, and regulates the relations between executive authorities and feed market operators.

In 2017, the budget for the State Service for Food Safety and Consumer Protection was increased to UAH 1.45 billion in 2017, compared to UAH 0.9 billion in 2016 (USD 55 million and USD 35 million, respectively). Most of the additional funds were used for pest and disease inspection and control. Among others, improved inspection and control is expected to contribute to improving the exportability of Ukraine’s agro-food products. For instance, in 2017, a number of poultry and dairy plants and other enterprises of the Ukrainian food industry received permission from the EU veterinary services to ship agricultural products to the European Union.

Trade policy developments in 2017-18

During 2016/17, the Ministry of Agrarian Policy and Food and main associations of grain exporters agreed, by way of a non-binding Memorandum of Understanding, to exports of wheat and meslin not to exceed 16.5 million tonnes. This is similar to memoranda agreed for 2015/16 and for 2017/18, and quantities are subject to revisions during the respective marketing years (July-June). In contrast to 2015/16, no such agreements were signed on maize for the 2016/17 and 2017/18 seasons.

In response to a suspension by the Russian Federation of its free trade regime with Ukraine under the Agreement on Free Trade in the Commonwealth of Independent States (CIS) Area and the implementation of a ban on imports by the Russian Federation of agro-food products from Ukraine, Ukraine abolished zero-tariff import preferences for goods from the Russian Federation, effective until the end of 2018. Ukraine also maintains an import ban for agricultural goods from the Russian Federation.

Anti-dumping duties for chocolate and other cocoa-based food products produced in the Russian Federation were introduced for five years, effective from 20 June 2017.

As a result of further negotiations within the DCFTA, the EU autonomous trade preferences for Ukraine came into effect on 1 October 2017. These preferences increase the volume of zero-tariff import tariff rate quotas for agricultural products from Ukraine to the European Union and are applied for a duration of up to three years.

The Canada-Ukraine Free Trade Agreement (CUFTA), signed in 2016, came into force on 1 August 2017. As a consequence, Ukrainian import duties on agricultural goods are either eliminated immediately, phased out over seven years, or subject to reductions (to reach between 20% and 50% of their MFN rates). In addition, a duty-free tariff quota was established for frozen pork, certain pork offal and pork fat, set to reach 20 000 tonnes after the seven-year transition period. In turn, upon entry into force of the agreement, Canada has lifted its import duties for all fish and other marine products, and for most agricultural goods imported from Ukraine. Agricultural goods subject to Canada’s supply management system (i.e. dairy, poultry and eggs) are excluded from CUFTA.

Chapter 25.

United States

Support to agriculture

The level of support provided to agricultural producers in the United States has been consistently below the OECD average. Market price support (MPS) has become a progressively smaller share of US support to agriculture. Budgetary support has increased in importance over time, mainly due to increases in payments that require production and, to a lesser extent, increases in input payments. Reflecting the fact that many agricultural policies are counter-cyclical to market prices, the level of budgetary support is inversely related to market price developments. As a result, support has peaked when world commodity prices were depressed (in terms of USD), while high commodity prices after 2007-08 contributed to lower levels of support.

The United States’ producer support estimate (PSE) declined from 12% of gross farm receipts in 1995-97 to below 10% in 2015-17, although producer support increased in the late 1990s to early 2000s. The share of potentially most distorting support has fallen to 32% in 2015-17, and is well below the OECD average. On average, prices received by farmers in 2015-17 were 3% higher than those observed in world markets, largely as a result of MPS for milk, sugar, and to a lesser extent sheep meat. Producer prices of other commodities are mostly aligned with border prices. Payments requiring production are important because of the emphasis on farm insurance and risk management. Support to consumers accounts for close to half of total support to US agriculture as a result of US domestic food assistance programmes. Expenditures for general services (GSSE) have increased and were equivalent to 4.4% of agricultural value added in 2015-17, slightly below the OECD average.

Main policy changes

The Bipartisan Budget Act (BBA), enacted on 9 February 2018, included significant revisions to cotton and dairy programmes that take effect with the 2018 crop year. Seed cotton base acres will be established and eligible for payments under the Agriculture Risk Coverage and Price Loss Coverage programmes after the BBA authorised seed cotton as a covered commodity. The BBA revised the Margin Protection Program for Dairy Producers (MPP-Dairy) by reducing lower tier premiums and increasing the production history eligible for those premiums as well as calculating payments on a monthly rather than a bimonthly basis. The BBA also implemented a number of measures to provide disaster assistance to producers affected by hurricanes and wildfires in 2017.

Other policy changes were made to programmes that make direct payments to cotton and dairy producers. A second Cotton Ginning Cost Share programme was authorised to provide assistance to cotton producers to help cover cotton ginning costs for the 2017 crop year. USDA announced a revision to the implementation of MPP-Dairy, which allows producers previously enrolled in the programme to opt out for the 2018 coverage year.

The 2017 Tax Cuts and Jobs Act, enacted on 22 December 2017, reformed the US corporate and individual income tax structure. A number of provisions will affect agricultural producers, beginning 2018. For farmers, few of whom have organised their businesses as corporations, the most significant change will be the increased deduction for business income reported as individual income (pass-through businesses) and the provisions for income from co-operatives.

Most provisions of the 2014 Farm Act are scheduled to expire with the end of the 2018 programme year. The House and Senate Agriculture committees began work on a new farm bill as early as 2016 in some cases and continued with listening sessions in field locations and hearings in Washington, DC, throughout 2017. Development of legislation and floor debate is expected to take place in 2018.

Assessment and recommendations

Levels of producer support and border protection have decreased substantially since 1986-88. However, low levels of support since 2002 have been primarily due to higher world commodity prices, as many of the agricultural support programmes are counter-cyclical to market prices.

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, insurance programmes remain commodity-specific. Moving to an all farm-revenue approach would exploit differences in price and yield variability across products, reducing government costs for a given objective, and also remove distortions across commodity sectors. As a first step, it will be necessary to ensure that information is available to develop actuarially fair and competitive premiums. Risk management instruments should also be evaluated to ensure that they do not transfer risk to the public budget which should be borne by farmers.

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.

Farm programmes continue to support farm incomes. The long-term effects of these programmes on incentives to make sustainable improvements in agricultural productivity and efficiency should be assessed to guide changes to US farm programmes in future farm bills.

Figure 25.1. United States: 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.

StatLink  http://dx.doi.org/10.1787/888933758034

Support to farmers (%PSE) has declined from 11.9% of gross farm receipts in 1995-97 to 9.6% in 2015-17, although support levels were as high as 25% in the late 1990s to early 2000s. The share of potentially most distorting support has fallen to 32% in 2015-17, well below the OECD average and lower than levels in 1995-97 (Figure 25.1). Expenditures for general services (GSSE) are increasing and were equivalent to 4.4% of agricultural value added in 2015-17, up from 3.3% in 1995-97. Total support to agriculture as a share of GDP represented 0.5% of GDP in 2015-17. In 2017, the level of support increased due to higher budgetary payments and MPS. The increase in MPS results from a larger price gap as domestic prices increased by more than world prices (Figure 25.2). On average, prices received by farmers were 3% higher in 2015-17 than those observed in world markets. This largely results from market price support for milk, sugar, and sheep meat, as producer prices of other commodities are mostly aligned with border prices (Figure 25.3). Single commodity transfers (SCT) accounted for 46% of producer support in 2015-17. SCTs account for the highest share of farm receipts for sugar, milk, cotton, and sheep meat.

Figure 25.2. United States: 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.

StatLink  http://dx.doi.org/10.1787/888933758053

Figure 25.3. United States: 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.

StatLink  http://dx.doi.org/10.1787/888933758072

Table 25.1. United States: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758775

Contextual information

The United States is the world's second largest economy and the third largest by land area and population. US GDP per capita is more than double the average of all countries analysed in this report. Primary agriculture accounts for a small part of the economy – around 1.1% of GDP and 1.6% of employment – but agro-food exports account for over 11% of total exports. The US agricultural sector benefits from a large domestic consumer market, as well as abundant arable and pasture land and diverse climatic conditions that support production of a wide range of commodities. In recent years, total agricultural production has been divided relatively equally between crops and livestock, although their shares vary over time. Key industries include grains (maize and wheat), oilseeds (soybeans), cotton, cattle, dairy, poultry, and fruits and vegetables.

Table 25.2. United States: Contextual indicators
| United States | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 7 664 | 18 624 | 27.8% | 21.9%
Population (million) | 267 | 323 | 9.3% | 9.4%
Land area (thousand km2) | 9 159 | 9 147 | 12.3% | 12.1%
Agricultural area (AA) (thousand ha) | 420 139 | 408 205 | 15.6% | 15.2%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 29 | 35 | 38 | 45
GDP per capita (USD in PPPs) | 28 749 | 57 591 | 9 650 | 24 866
Trade as % of GDP | 9 | 9 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 1.6 | 1.1 | 3.0 | 3.1
Agriculture share in employment (%) | 2.8 | 1.6 | - | -
Agro-food exports (% of total exports) | 11.4 | 11.3 | 7.7 | 7.3
Agro-food imports (% of total imports) | 4.4 | 5.6 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  61 |  58 | - | -
Livestock in total agricultural production (%) |  39 |  42 | - | -
Share of arable land in AA (%) | 43 | 38 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759231

US economic growth increased in 2017, and unemployment is at its lowest level since 2000. The United States is a net exporter of agro-food products and the world’s largest agricultural exporter. In recent years, the US agro-food trade surplus has narrowed as exports declined in 2015 and 2016. Exports to China, Canada and Mexico accounted for around 44% of US agro-food exports in 2016, while over half of US agro-food imports are sourced from Mexico, Canada and the European Union. Exports are dominated by primary products for further processing and processed products for final consumers, while almost half of agro-food imports are processed products for final consumption.

Figure 25.4. United States: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933758091

Figure 25.5. United States: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933758110

Total factor productivity (TFP) growth has driven agricultural output growth of 1% a year on average over the recent decade, offsetting declining use of primary factors and intermediate inputs. TFP growth averaged 1.7% a year between 2005 and 2014, driven by farm consolidation and the adoption of innovations in crop and livestock breeding, nutrient use and pest management, farm practices, and farm equipment and structures. The high productivity growth realised by US agriculture has been achieved with an overall reduction in environmental pressures from the sector. Nutrient surplus intensities at the national level have declined and are at similar levels to the average for OECD countries. Agriculture’s share in energy use is below the OECD average, as are GHG emissions. However, water stress in the United States is above the OECD average.

Figure 25.6. United States: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933758129

Table 25.3. United States: Productivity and environmental indicators
| United States | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 2.24% | 1.67% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | 37 | 28 | 33 | 30
Phosphorus balance, kg/ha | 4.0 | 2.7 | 3.7 | 2.4
Agriculture share of total energy use (%) | 1.1 | 1.5 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 8 | 8 | 8.5 | 8.5
Share of irrigated land in AA (%) | 5.3 | 5.3 | - | -
Share of agriculture in water abstractions (%) | 41 | 36 | 45 | 43
Water stress indicator | 18.8 | 19.8 | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759687

Description of policy developments

Main policy instruments

The Agricultural Act of 2014 (2014 Farm Bill) provides the basic legislation governing farm programmes for the period 2014 to 2018. The 12 titles of the 2014 Farm Bill authorise policies for commodity programmes, crop insurance, conservation on agricultural land, domestic food assistance, agricultural trade promotion and international food aid, farm credit, rural development, agricultural research, forestry on private lands, horticulture and organic agriculture, and bioenergy, among others. Almost 80% of budgetary spending under the 2014 Farm Bill is allocated to domestic food assistance programmes – primarily, the Supplemental Nutrition Assistance Program (SNAP) – with farm programmes accounting for just over 20% of the projected budgetary outlays.

Agriculture in the United States is also affected by a wide range of other legislation, at both Federal and local levels, including trade measures, food safety regulation, commodity trading and finance, tax policy, energy, and transportation.

The primary crop commodity programmes under the 2014 Farm Bill include programmes that make payments to producers with historical base acres of programme crops (wheat, feed grains, rice, oilseeds, peanuts and pulses) when prices fall below statutory minimums or when crop revenue is low relative to recent levels. Producers are not required to produce the covered commodity to receive payments on their historical base. Price Loss Coverage (PLC), a counter-cyclical price programme, makes a payment when market prices for covered crops fall below their fixed reference prices. Agriculture Risk Coverage (ARC), a revenue-based programme, makes a payment when actual revenue at the county level falls below rolling average benchmark revenues. For both programmes, payments are made on 85% of base acres. Participating producers were required to make a choice between the PLC and ARC programmes on a commodity-by-commodity basis, which then remains in place through 2018.

Sugar is supported by a tariff rate quota (TRQ), together with provisions for non-recourse loans and marketing allotments. Milk and dairy products are no longer supported by minimum prices with government purchases of butter, skim milk powder and cheddar cheese, but tariffs and TRQs continue. A programme for dairy producers, the Margin Protection Program for Dairy Producers (MPP-Dairy), insures the margin between milk price and feed costs for a premium, with payments made on enrolled on historical milk production. The related Dairy Product Donation Program (DPDP) makes purchases of dairy products for feeding programmes under certain conditions. Marketing assistance loans continue for wheat, feed grains, cotton, rice, oilseeds, pulses, wool, mohair and honey, as do border measures (including TRQs) for beef and sheep meat and some other products, although US agricultural tariffs are generally low.

The crop insurance programme offers coverage options for both yield and revenue losses. Traditional crop insurance makes available subsidised crop insurance to producers who purchase a policy to protect against losses in yield, crop revenue, or whole farm revenue. In addition, the Supplementary Coverage Option (SCO) offers producers additional area-based insurance coverage in combination with traditional crop insurance policies (but excluding crops for which producers have elected to participate in the ARC programme). The Stacked Income Protection Plan (STAX) provides premium subsidies to upland cotton producers to purchase area-based revenue insurance policies (cotton is not a covered commodity under the PLC and ARC programmes). Participants in the STAX programme may not purchase SCO policies for the same upland cotton acreage.

At the federal level, agri-environmental programmes focus on measures to: convert environmentally fragile cropland to approved conservation uses (including long-term retirement); and encourage crop and livestock producers to adopt practices that reduce environmental pressures. Since the enactment of the 1985 Farm Act, eligibility for most federal commodity programme payments is subject to the recipients having established an individual farm-based conservation plan to protect highly erodible cropland and wetlands. The 2014 Farm Act restored the conservation compliance eligibility requirement for crop insurance premium subsidies that was removed in 1996.

Other farm programmes include direct and guaranteed loans – including microloans – for farmland purchase and for operating credit, which are designed to assist producers who face difficulty obtaining credit on their own in the private market, particularly beginning, military veteran, and socially disadvantaged farmers. Farm Bill programmes also support public agricultural research and technical assistance, including programmes targeted specifically to specialty crops, organic production, and pest and disease prevention, as well as promotion of sustainable farming practices.

Ethanol and other biofuels production are mainly supported in the form of mandated blending for fuel use, and loan and grant programmes.

The United States is continually working to enhance agricultural productivity, even under increasing climate variability and extreme weather events. On climate adaptation, USDA continues to operate its network of Regional Climate Hubs. These link USDA research and programme agencies in order to develop and deliver science-based, region-specific information and technologies to agricultural producers and professionals to enable climate-informed decision-making, and provide access to assistance to implement those decisions. USDA also helps producers mitigate GHG emissions and adapt to a changing climate, while improving the natural resource base, by providing technical and financial assistance to land owners through various conservation practices and programmes. The United States signed the Paris Agreement on Climate Change on 22 April 2016, but has since announced its intention to withdraw from the Paris Agreement.

Domestic policy developments in 2017-18

The main policy developments in 2017-18 focused on modifications to existing Farm Bill programmes, disaster relief and regulatory reform. The Bipartisan Budget Act (BBA), enacted on 9 February 2018, included revisions to cotton and dairy programmes that take effect with the 2018 crop year. In response to the hurricanes and wildfires that occurred in 2017, a number of policy changes were enacted with the BBA but applied retroactively to 1 January 2017. The other major legislative change was the 2017 Tax Cuts and Jobs Act, which includes a number of provisions that will affect agricultural producers beginning 2018.

Most provisions of the 2014 Farm Act are scheduled to expire with the end of the 2018 programme year. The House and Senate Agriculture committees began work on a new farm bill as early as 2016 in some cases and continued with listening sessions in field locations and hearings in Washington, DC, throughout 2017. Development of legislation and floor debate is expected to take place in 2018.

A number of changes were made to programmes that make direct payments to producers. Seed cotton base acres will be eligible for payments under the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programmes for the 2018 crop year, after the BBA established seed cotton as a covered commodity. Generic acres under the 2014 Farm Bill will be reallocated to either seed cotton or other covered commodities, based on plantings during 2009-2012.

A second Cotton Ginning Cost Share (CGCS) programme was authorised to provide assistance to cotton producers to help cover cotton ginning costs for the 2017 crop year. Payments were based on a producer’s 2016 cotton planted acres, multiplied by 20% of the average ginning cost for each production region. Producers were required to meet eligibility requirements, including active engagement in farming, conservation compliance, and adjusted gross income limits. Payments were limited to USD 40 000 per producer.

Several changes were made to the Margin Protection Program for dairy producers (MPP-Dairy). In August 2017, USDA announced a revision to the implementation of MPP-Dairy, which allows producers previously enrolled in the programme to opt out for the 2018 coverage year. The BBA also revised the programme by reducing lower tier premiums (i.e. for covered production history of up to the legislated threshold) and increasing the production history threshold for those premiums from 4 million to 5 million pounds. In addition, the payment calculation frequency was increased from bi-monthly to monthly.

On insurance, the BBA repealed the USD 20 million spending cap on livestock insurance products for premium subsidies to producers and administrative and operating reimbursements to insurance companies. As noted above, the BBA established seed cotton as a covered commodity under the Agriculture Risk Coverage and Price Loss Coverage (ARC/PLC) programmes. A provision of the new programme limits access to the Stacked Income Protection Plan (STAX) under Federal crop insurance. Beginning with the 2019 crop year, a farm enrolled in ARC or PLC for seed cotton in any crop year is not eligible to purchase STAX coverage in that crop year.

A number of measures were implemented to provide disaster assistance to producers affected by hurricanes and wildfires in 2017. In October 2017, the Dairy Assistance Program for Puerto Rico made up to USD 12 million available in assistance to licensed dairy operations to purchase feed to maintain their cattle following heavy damages sustained from Hurricane Maria. Eligible producers could receive vouchers worth the estimated costs of a one-month supply of feed based on the number of cows in the operation.

The BBA provided USD 2.36 billion in disaster assistance for crop, tree, bush, and vine losses caused by hurricanes and wildfires during 2017. Producers with crop insurance or Noninsured Crop Disaster Assistance Program (NAP) policies were limited to combined payments covering 85% of losses, while producers without crop insurance or NAP policies were limited to payments covering 65% of losses. NAP provides financial assistance to producers of non-insurable crops when low yields, loss of inventory, or prevented planting occur due to natural disasters.

The BBA also made adjustments to Supplemental Disaster Assistance programmes, applied retroactively to 1 January 2017. Under the Tree Assistance Program, the area limit was increased from 500 to 1 000 acres and payment limitations were removed. Eligible losses under the Livestock Indemnity Program were expanded to include value losses for livestock injured during eligible disasters and payment limitations were removed. The spending cap of USD 20 million was lifted for the Emergency Assistance Program for Livestock, Honeybees, and Farm-Raised Fish.

Finally, the BBA provided USD 24 million for emergency food assistance under the Commodity Assistance Program in jurisdictions with Presidential Disaster designations following hurricanes or wildfires in 2017, including Puerto Rico, the US Virgin Islands, and affected states. The funds were intended to provide additional emergency food allocations to affected families and individuals in those areas.

On tax concessions, the 2017 Tax Cuts and Jobs Act, enacted on 22 December 2017, reformed the US corporate and individual income tax structure beginning 1 January 2018. A number of provisions affect agricultural producers, including changes to: individual tax brackets; the corporate tax rate; Federal Estate, Gift, and Generation Skipping Transfer Tax; expensing provisions; deduction for pass-through cooperative income; interest deduction; and like-kind exchanges (Box 25.1).

The BBA provided USD 400 million in additional funds for the Emergency Conservation Program (ECP) to address damages resulting from hurricanes and wildfires in 2017. The ECP provides financial and technical assistance to producers for repairing damage to farmlands caused by natural disasters.

On food safety, the US Food and Drug Administration announced its intention to extend compliance dates for meeting agricultural water requirements established by the Food Safety Modernization Act’s (FSMA) produce safety rule (PSR). The FSMA PSR sets microbial quality standards for agricultural water, including irrigation water that comes into contact with produce. The length of the extension is under consideration and is intended to provide additional time to develop rules that will be workable across diverse agricultural conditions.

On rural development, in April 2017, the President established the Interagency Task Force on Agriculture and Rural Prosperity to identify legislative, regulatory and policy changes that could promote agriculture and prosperity in rural communities. The Task Force produced a report in January 2018 with 31 recommendations to guide the administration’s rural initiatives. The recommendations focused on aligning Federal government initiatives with state, local and tribal government priorities for addressing rural needs.

On biofuels, the BBA retroactively extended the second-generation biofuel producer credit, the blender’s tax credit for biodiesel and renewable diesel, the tax credit for alternative fuel vehicle refuelling property and the special allowance for second generation biofuel plant property until the end of 2017. The credits were not extended beyond 2017.

Box 25.1. US tax reform

The 2017 Tax Cuts and Jobs Act (TCJA), enacted on 22 December 2017, reformed the US corporate and individual income tax structure beginning 1 January 2018. Provisions affecting agricultural producers include:

Individual tax brackets: Individuals will be able to deduct 20% of qualified business income earned through a pass-through business (partnership, S-Corporation or sole proprietorship). Most farms are pass-through businesses, with income taxed at individual rates. Individual tax brackets are reduced. The changes in individual taxes, including the 20% deduction on business income for pass-through businesses, expire at the end of 2025.

Corporate tax rate: The corporate tax rate will be 21%, a reduction for most corporations from 35%. At current rates of incorporation, 6% of family farms and 17% of non-family farms that are incorporated will benefit from this tax reduction. The corporate tax reduction is permanent.

Federal Estate, Gift, and Generation Skipping Transfer Tax: the lifetime exemption from these taxes is increased to USD 11.2 million from the previous USD 5.5 million per individual. Less than 0.5% of farm estates owe estate tax, although closer to 2% meet the threshold to file estate tax returns. The change will further reduce those shares. The estate tax changes are temporary, and expire at the end of 2025.

Expensing provisions: The limit on deductions allowed for purchases of financed or leased agricultural equipment will increase from USD 500 000 to USD 1 million, with the amount of expenses at which deductions begin to decline increasing from USD 2 million to USD 2.5 million. In addition, citrus producers will be allowed to immediately deduct replanting expenses incurred or paid after the enactment of the legislation.

Deduction for pass-through cooperative income: In the TCJA, specified agricultural or horticultural co-operatives were allowed to take a deduction of up to 20% of their gross income minus dividends distributed to co-operative members. Individual co-operative members were allowed a 20% deduction on their gross sales to their co-operative. As a result of provisions in the Consolidated Appropriations Act, enacted 23 March 2018, those original provisions were repealed. New provisions allow co-operatives to receive a deduction of up to 9% on income, which may be passed on to their members. There will be no separate deduction for co-operative members. These deductions for co-operatives and co-operative members expire at the end of 2025.

Interest deduction: The deduction for business interest income will be limited for producers with USD 25 million or more in gross receipts. Farm businesses with gross receipts larger than USD 25 million may be exempted from the limit, but they are then required to depreciate property in the business using the alternative depreciation system with a recovery period of 10 years or more.

Like-kind exchanges: Like-kind exchanges allow taxpayers to forego recognition of a gain or loss if property for productive use in a business or for investment is exchanged for property of a “like kind” to be held for productive use or investment. The new tax law limits like-kind exchanges to real property not held primarily for sale. Since most farmers use like-kind exchanges for exchanges of land, the new limit will affect only the small number of farms who have used like-kind exchanges for purchases of machinery or livestock.

Trade policy developments in 2017-18

On 18 May 2017, US President notified Congress of the Administration’s intent to renegotiate the North American Free Trade Agreement (NAFTA). Five rounds of negotiations were held in 2017 and negotiations continue in 2018.

On 13 September 2016, the United States initiated WTO dispute proceedings against China regarding its domestic support measures for agricultural producers of, among other crops, wheat, Indica rice, Japonica rice, and maize. The WTO Dispute Settlement Board (DSB) established a panel on 25 January 2017, which was composed on 24 June 2017. The panel has informed the DSB that it expects to issue a final report in late 2018 (WTO, 2017). On 15 December 2016, the United States filed a complaint against China’s administration of tariff rate quotas for rice, wheat, and maize. The DSB established a panel on 22 September 2017, which was composed on 12 February 2018 (WTO, 2018a).

In November 2017, the WTO Appellate Body ruled in favour of the United States in the case of Indonesia’s licensing regimes affecting importation of certain agricultural products (WTO, 2018b).

The United States proceeded with arbitration to determine the level of countermeasures against India in relation to its restrictions on imported US poultry and other products (WTO, 2018c).

In January 2017, China imposed antidumping and countervailing duties on imports of US distiller's dried grains with solubles (DGGS). In June 2017, the United States and Mexico reached agreement on revised agreements to suspend antidumping and countervailing duties on imports of Mexican sugar into the United States.

References

WTO (World Trade Organization) (2018a), “DS517: China — Tariff Rate Quotas for Certain Agricultural Products”, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds517_e.htm, viewed 5 March 2018.

WTO (World Trade Organization) (2018b), “DS478: Indonesia — Importation of Horticultural Products, Animals and Animal Products”, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds478_e.htm, viewed 16 March 2018.

WTO (World Trade Organization) (2018c), “DS430: India — Measures Concerning the Importation of Certain Agricultural Products”, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds430_e.htm, viewed 16 March 2018.

WTO (2017), “DS511: China — Domestic Support for Agricultural Producers”, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds511_e.htm, viewed 5 March.

Chapter 26.

Viet Nam

Support to agriculture

The level of support provided to Viet Nam’s agriculture sector fluctuates at very low levels, largely driven by changes in market price support (MPS). Producer support as a share of receipts varies across commodities. While producers of import-competing commodities, such as maize, sugar cane and beef, benefit from tariff protection, producers of several exported commodities are implicitly taxed. This results in a negative overall producer support estimate (PSE) in some years. Budgetary transfers are relatively small and include payments based on variable input use, primarily expenditure to subsidise an irrigation fee exemption, and direct payments to rice producers that are tied to maintaining land in rice production. Rice producers also benefit from a price support system based on target prices designed to provide farmers with a profit of 30% above production cost. In some years this price support system results in implicit taxation of rice producers when domestic prices are below international levels.

In 2015-17, Viet Nam’s producer support estimate (PSE) was slightly negative at –0.9%, despite a return to positive support in 2017. Support for general services for the agricultural sector is dominated by expenditure on the development and maintenance of infrastructure, in particular irrigation. Total support to agriculture (TSE) varies between positive and negative values, as in some years budgetary transfers to producers and expenditure on general services do not compensate for negative MPS. In 2017, the TSE was positive at 0.7% of GDP.

Main policy changes

In 2018, Viet Nam will introduce a fee for irrigation services under a new Law on Irrigation. According to the new law, irrigation service fees should include management costs, operation and maintenance expenses, depreciation charges, and other reasonable actual costs, and allow for profits matching those of the market. Decrees and circulars are currently under development that will outline the rate and type of fees.

The Government introduced a number of incentives and policies to promote the development of high-tech agriculture. In particular, state-owned commercial banks were directed to allocate at least VND 100 trillion (USD 4.4 billion) to a lending programme for high-tech, clean agriculture that offers interest rates 0.5% to 1.5% lower than market interest rates.

In June 2017, the Prime Minister approved a rice export development strategy for 2017-2020, with a vision to 2030, which aims to develop new markets and asks the rice industry to reorganise production and focus on improving quality. Also in 2017, the Ministry of Industry and Trade (MOIT) began drafting a new decree on rice export activities to replace Decree No. 109/2010/ND-CP on rice export business. The revision is expected to remove bottlenecks for rice traders, especially small-and medium-sized enterprises.

Assessment and recommendations

In the last two years, Viet Nam has implemented a number of reforms that will enable improvements in the competitiveness and sustainability of the agro-food sector. In particular, the easing of restrictions on rice exporters will help to improve the competitiveness and quality of rice exports. Introducing a fee for irrigation services will encourage greater water use efficiency.

However, domestic and international conditions should become more challenging going forward. Agriculture is affected by Viet Nam’s deeper integration into the global economy, for example, as tariffs within preferential trade agreements are reduced. Moreover, most of the easy sources of lifting production – expanding the agricultural land area and using higher rates of fertilisers – have been fully exploited, and negative environmental impacts are increasingly seen. While these conditions are challenges for Viet Nam, they also open opportunities to adopt new technologies, create incentives for larger farms and to focus attention on quality and higher value products.

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.

To improve the competitiveness and quality of Viet Nam’s rice exports, additional reforms could be considered to further ease restrictions on rice exporters, in particular, deregulating the export floor price. The current system risks cutting-off potentially profitable rice exports and creates uncertainty in engaging in export transactions if the minimum export price is likely to be changed.

Water overuse is exacerbated by the low cost of water, and increases the agricultural sector’s vulnerability to drought. While introducing a fee for irrigation services is a positive step, a fee based on a per unit of water charge – rather than on area or crop type as previously applied – would encourage greater water use efficiency.

Figure 26.1. Viet Nam: 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.

StatLink  http://dx.doi.org/10.1787/888933758148

Support to farmers (%PSE) was -0.9% in 2015-17, implying an implicit overall taxation, compared to a relatively low, but positive level of support in 2000-02. Due to a negative market price support for the majority of commodities, the value of potentially most distorting support was also negative in 2015-17. Therefore, its share in total PSE is not shown (Figure 26.1). Expenditures for general services (GSSE), which focus largely on irrigation systems, were equivalent to 1.7% of agricultural value added in 2015-17, among the lowest across countries covered by this report, and down from 2.9% in 2000-02. Total support to agriculture as a share of GDP has declined significantly over time. The level of support increased significantly in 2017, as positive MPS for some commodities offset negative MPS for others. This increase in MPS resulted from a larger price gap, as domestic prices increased by more than world prices (Figure 26.2). On average during 2015-17, effective prices received by farmers (including output payments) were 2% higher than world prices, though this hides large differences between commodities. Transfers to single commodities vary widely, with maize, sugar, beef and veal, and eggs receiving positive MPS, while cashew nuts, pig and poultry meats, coffee, tea and rubber are implicitly taxed (Figure 26.3).

Figure 26.2. Viet Nam: 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.

StatLink  http://dx.doi.org/10.1787/888933758167

Figure 26.3. Viet Nam: 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.

StatLink  http://dx.doi.org/10.1787/888933758186

Table 26.1. Viet Nam: Estimates of support to agriculture

StatLink  http://dx.doi.org/10.1787/888933758794

Contextual information

Viet Nam is a mid-size country in terms of area, but its population of 95 million makes it the 15th most populous country in the world. Around two-thirds of the population live in rural areas. Since the mid-1980s a long series of reforms have moved the economy, including the agricultural sector, in the direction of open markets for trade and investment. The economy boomed and agricultural production more than tripled in volume terms between 1990 and 2015. Strong economic growth lifted real incomes in both urban and rural areas, and poverty was alleviated as much as in any other country in the world, with the exception of China. The incidence of undernourishment fell from 46% in 1990-92 to 11% in 2014-16.

The agriculture sector in Viet Nam has undergone significant structural changes in recent decades, reflecting a shift away from staple foods to other commodities, in particular perennial crops such as coffee and rubber, and to livestock production, in particular pig meat. Nevertheless, crops dominate with rice accounting for around 35% of the value of agricultural production. While the relative importance of agriculture in the economy has declined over time, agriculture remains an important sector, contributing 18% to Viet Nam’s GDP and employing 44% of the labour force.

Table 26.2. Viet Nam: Contextual indicators
| Viet Nam | International comparison
| 1995 | 2016* | 1995 | 2016*
Economic context |  |  | Share in total of all countries
GDP (billion USD in PPPs) | 107 | 597 | 0.4% | 0.7%
Population (million) | 75 | 95 | 2.6% | 2.8%
Land area (thousand km2) | 310 | 310 | 0.4% | 0.4%
Agricultural area (AA) (thousand ha) | 7 079 | 10 874 | 0.3% | 0.4%
|  |  | All countries analysed1
Population density (inhabitants/km2) | 243 | 302 | 38 | 45
GDP per capita (USD in PPPs) | 1 489 | 6 435 | 9 650 | 24 866
Trade as % of GDP | 46 | 86 | 10.2 | 14.3
Agriculture in the economy |  |  | All countries analysed1
Agriculture in GDP (%) | 27.2 | 18.1 | 3.0 | 3.1
Agriculture share in employment (%) | 70.0 | 43.6 | - | -
Agro-food exports (% of total exports) | 15.8 | 9.6 | 7.7 | 7.3
Agro-food imports (% of total imports) | 6.0 | 9.3 | 7.8 | 6.7
Characteristics of the agricultural sector |  |  | All countries analysed1
Crop in total agricultural production (%) |  80 |  70 | - | -
Livestock in total agricultural production (%) |  20 |  30 | - | -
Share of arable land in AA (%) | 76 | 59 | 30 | 30
Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.
Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759250

The agro-food sector is well integrated with international markets. Agro-food exports have increased eight-fold since the early 2000s, and Viet Nam is now one of the world’s largest exporters of a wide range of agricultural commodities, including cashews, black pepper, coffee, cassava and rice. Two-thirds of Viet Nam’s agro-food exports are delivered to foreign consumers and not used for further processing. Agro-food imports have also increased significantly. The majority of agro-food imports form intermediate inputs into Viet Nam’s processing sectors.

Figure 26.4. Viet Nam: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

StatLink  http://dx.doi.org/10.1787/888933758205

Figure 26.5. Viet Nam: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

StatLink  http://dx.doi.org/10.1787/888933758224

Agricultural production increased by 3.5% p.a. on average between 2005 and 2014, driven by total factor productivity growth of 2.5% p.a. and greater use of primary factors and intermediate inputs. However, agriculture exerts significant and growing pressure on natural resources. As a result of excessive use of fertilisers, pesticides and other chemicals, the sector has contributed to a gradual degradation of water and land quality. Together with climate change, this poses a significant risk to agricultural production and the capacity of the sector to maintain current, strong rates of productivity growth. The sector accounts for around a third of Viet Nam’s greenhouse gas emissions.

Figure 26.6. Viet Nam: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

StatLink  http://dx.doi.org/10.1787/888933758243

Table 26.3. Viet Nam: Productivity and environmental indicators
| Viet Nam | International comparison
| 1991-2000 | 2005-2014 | 1991-2000 | 2005-2014
|  |  | World
TFP annual growth rate (%) | 2.48% | 2.46% | 1.60% | 1.63%
|  | OECD average
Environmental indicators | 1995 | 2016* | 1995 | 2016*
Nitrogen balance, kg/ha | .. | .. | 33 | 30
Phosphorus balance, kg/ha | .. | .. | 3.7 | 2.4
Agriculture share of total energy use (%) | 1.9 | 1.1 | 1.8 | 1.9
Agriculture share of GHG emissions (%) | 48 | 33 | 8.5 | 8.5
Share of irrigated land in AA (%) | .. | .. | - | -
Share of agriculture in water abstractions (%) | .. | .. | 45 | 43
Water stress indicator | .. | .. | 10 | 10
Note: * or latest available year. EU treated as one.
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.
StatLink  http://dx.doi.org/10.1787/888933759706

Description of policy developments

Main policy instruments

Market price support is the dominant form of support provided to Vietnamese producers with border protection being the main tool used to support prices. In particular, producers of import-competing commodities such as beef and veal, and sugar cane, are protected by tariffs. Farm gate rice prices are supported by a subsidy to rice purchasing enterprises for the temporary storage of rice during harvest and establishment of target prices which vary between regions and crop season with the objective of providing farmers with a profit of 30% above production cost. Producers of export-competing commodities such as natural rubber, coffee, cashew nuts and tea are implicitly taxed, in that they are paid prices for their outputs that are lower than world prices.

The simple average MFN applied tariff on agricultural imports decreased from around 25% in the mid-2000s to 16% in 2013. Applied tariffs are much lower on imports originating from countries or regions with which Viet Nam signed free trade agreements. For example, the average tariff is just 3.4% on agricultural imports from ASEAN members and 5.4% from China.

Until 2016, the government maintained a large degree of control over rice exports. Exporters had to meet specific milling and storage requirements, the minimum export price had to be respected, and certain administrative functions were given to the Viet Nam Food Association (VFA). However, in January 2017, in line with the Investment Law of 2014, Viet Nam’s Ministry of Industry and Trade (MOIT) abolished Decision No. 6139/2013/QD-BCT, which had stipulated strict conditions for becoming a rice exporter.

Budgetary transfers to producers are relatively small. Expenditure associated with subsidising the irrigation fee exemption is the dominant payment. An area payment with the objective of keeping about 4 million ha in paddy rice production has been provided since 2012. In 2016, direct payments for rice growers were doubled to VND 1 million (USD 44)/ha/year for land under paddy cultivation, and increased fivefold to VND 500 000 (USD 22)/ha/year for other rice land, except upland fields not under paddy land-use plans. The decree also provides support for land reclamation for rice cultivation at VND 10 million (USD 440)/ha/year, except for upland fields, and VND 5 million (USD 220)/ha/year for wet paddy land reclaimed from one-crop paddy land or other crop land.

Other programmes that provide payments based on input use include programmes that provide plant genetic and animal breeding material to farmers at subsidised rates. At the national level, these are often provided as part of the package for farmers recovering from natural disasters or disease outbreaks. Since 2009, a number of policy packages have been introduced to provide farmers with subsidised credit to purchase machinery, facilities and materials. Since 2003, most farming households and organisations have been exempt from paying agricultural land use tax or benefited from tax reduction.

General services for the agricultural sector are dominated by expenditures on irrigation systems. Expenditures on some general services such as extension services, research and development, inspection and control and marketing and promotion are relatively limited.

All land is owned by the state and administered by it on behalf of the people. Farmers have land user rights, and benefit from a wide range of rights, including the right to rent, buy, sell and bequeath land and to use land as collateral with financial institutions for mortgages.

Since joining the World Trade Organisation (WTO) in 2007, Viet Nam has made some progress towards implementing the requirements of the Sanitary and Phytosanitary Agreement. However, the regulatory regime still suffers from limited enforcement capacity, poor co-ordination and a large number of overlapping documents.

Viet Nam implements trade liberalisation through multilateral, regional and bilateral trade agreements. It is a member of the WTO, Association of Southeast Asian Nations (ASEAN) and Asia-Pacific Economic Cooperation (APEC), and supports trade liberalisation between ASEAN members and their major trading partners in the region, including China, Japan, India, Korea, Australia and New Zealand.

Viet Nam ratified the Paris Agreement on Climate Change in 2016. Viet Nam’s Nationally-Determined Contribution (NDC) includes the commitment to reduce greenhouse gas (GHG) emissions by 8% between 2021 and 2030 compared to Business-as-Usual (BAU) levels using domestic resources, and up to 25% conditional on receiving international support. The Action Plan to Implement the Paris Agreement on Climate Change is outlined in Decision 2053/QD-TTg dated 28 October 2016, and includes activities for adaptation and mitigation in the agricultural sector.

Viet Nam’s 2011 National Strategy on Climate Change tasks the agricultural sector with reducing GHG emissions by 20% every ten years, while increasing gross production by 20% and reducing the poverty rate by 20% (Decision 2139/QD-TTg). MARD subsequently issued an action plan to adapt to climate change in the agricultural sector, most recently in Decision No. 819/QD-BNN-KHCN. The action plan prioritises research on, selection and production of plant varieties and animal breeds able to minimise GHG emissions and adapt to climate change; minimum tillage and techniques for reducing the use of water and fertilisers to minimise methane gas emissions in rice fields; the reduction of plants contributing to GHG emissions; and an increase in the production of bioenergy crops.

The commitment to reduce agricultural GHG emissions has also been affirmed in more recent decisions. In 2017, MARD issued Decision No. 932/QD-BNN-KH approving the Green Growth Action Plan of the agriculture and rural development sector for the period 2016-2020. This plan outlines 10 prioritised tasks and policy measures to reduce GHG by 20% in 2020, compared with the BAU scenario. Key activities include applying: organic farming; efficient use of agricultural inputs; short duration, high quality rice varieties; water saving practices (AWD); climate smart agriculture (CSA) practices; integrated crop management practices to reduce GHG emissions from rice and crop production; and enhancing animal feed mixing and animal waste (biogas) and crop residues management to reduce CH4 and other GHG emissions.

Domestic policy developments in 2017-18

On land use, in January 2017 the government issued Decree No. 01/2017/ND-CP, which amends the procedure that applies when land use is converted from rice to a perennial crop. Households require the permission of the People's Committee of the commune, which decides on the types of perennial crops that can be grown, in conformity with its plan for converting land use from rice to perennial crops. Land that is converted to a perennial crop must stay in a condition that allows rice to be grown in the future, e.g. irrigation systems for rice production cannot be damaged and soil cannot be degraded. In September 2017, the Ministry of Natural Resources and Environment (MONRE) issued further guidelines on changes to land use. Circular No. 33/2017/TT-BTNMT adds cases in which a change of land use requires registration only (rather than permission from the relevant state agencies), including: conversion from land for planting annual crops into other types of agricultural land; conversion from other land for planting annual crops and land for aquaculture into land for planting perennial crops; and conversion from land for planting perennial crops into land for aquaculture or land for planting annual crops.

In June 2017, Viet Nam issued a new Law on Irrigation (Law No. 08/2017/QH14) that reintroduces a fee for irrigation services, including for irrigation products or services under the jurisdiction of the Minister of Agriculture and Rural Development. According to this new Law, which comes into force on 1 July 2018, fees should cover management costs, operation and maintenance expenses, depreciation charges, and other reasonable actual costs, and allow for profits matching those of the market. Decrees and circulars are currently under development that will outline the rate and type of fees, although for agriculture this will likely vary according to crops grown and surface area (OECD, 2017). The Law also outlines the funding sources for small-scale and inter-field irrigation projects, which includes government support.

Also in January 2017, the Government issued Decree No. 02/2017/ND-CP on the support mechanism and policies for restoring agricultural production in areas suffering damage from natural disasters and epidemics. The Decree regulates support for plant varieties, livestock and aquaculture products, and support for part of the initial cost for restoring agricultural production lost due to natural disasters and epidemics, where the level of support depends on the extent of damage and on the commodity.

In March 2017, the Government issued Resolution No. 30/2017/NQ-CP, which includes a number of incentives and policies to promote the development of high-tech agriculture. On credit policy, state-owned commercial banks were directed to allocate at least VND 100 trillion (USD 4.4 billion) to a lending programme for high-tech, clean agriculture that offers interest rates 0.5% to 1.5% lower than market interest rates. On land policy, the Government assigned MONRE to coordinate with MARD and the Ministry of Justice (MOJ) to review and propose amendments to land policies in order to create favourable conditions for land consolidation and accumulation for large-scale agricultural production.

The Government continued to implement its two rural development programmes for the period 2016-2020. Under the National Target Program for New Rural Construction (Decision No. 1600/QD-TTg), the State provides partial support for infrastructure investments, including roads leading to commune centres, intra-field irrigation systems, investments to improve the rural environment, markets and rural commercial infrastructure, and to support the development of co-operatives. The maximum support available for communes in poor districts, listed under the National Target Program for Rapid and Sustainable Poverty Reduction, will be 100%.

Viet Nam continued to implement Decision No. 1956/QD-TTg approving the scheme on vocational training for rural workers labourers up to 2020. The budget for vocational training over the period 2016-2020 is VND 12 723 billion. This scheme also supports 100% of the cost to communes of implementing some measures for the National Target Program for New Rural Construction (above).

In 2017, Viet Nam launched the National Adaptation Plan in Agriculture (NAP-Ag). As part of the NAP-Ag, a climate change vulnerability assessment was carried out in the agricultural sector (crop, livestock and aquaculture production) together with a stocktake of climate change adaptation measures and CSA practices in use in the sector. A salinity monitoring and early warning system was also piloted in some provinces of the Mekong River Delta to keep farmers informed about salinity levels. Moreover, a pilot mapping of land slide disaster risk was carried out in 13 mountainous provinces of Viet Nam, to be scaled-out to the whole country in 2018.

Viet Nam is developing a unified climate change adaptation policy framework as part of the NAP-Ag to guide the identification, prioritisation and scaling-out of an enabling policy environment for NAP-Ag, in line with the tasks assigned to MARD in the Prime Minister’s Decision No. 2053/QD-TTg.

Trade policy developments in 2017-18

Viet Nam and ten other countries reached agreement on the Comprehensive and Progressive Agreement for a Trans-Pacific Partnership (CPTPP). The CPTPP was signed in March 2018 but remains to be ratified before entering into force. Negotiations on the EU-Vietnam Free Trade Agreement (EVFTA) concluded on 2 December 2015. EVFTA is expected to be signed in 2018 and take effect from 2019.

In June 2017, the Prime Minister approved a rice export development strategy for 2017-2020, with a vision to 2030. The strategy lays out an annual export target of 4.5-5.0 million tonnes of rice for the period 2017 to 2020, valued at USD 2.2-2.3 billion. Between 2021 and 2030, Viet Nam will increase the annual value of rice exports to USD 2.5 billion while gradually reducing volumes shipped to 4 million tonnes a year by focusing on high value rice. The strategy also aims to reduce the share of Asian shipments in overall exports to 50% by 2030, while raising its market share in all other regions, especially the Americas, Africa and the Near East (FAO, 2018). The strategy asks the rice industry to reorganise production and focus on improving quality, to improve export competitiveness (News VietNamNet, 2018).

In 2017, Viet Nam’s Government, Ministries and localities increased support for trade promotion in agriculture, to help farmers and enterprises find new export markets. The National Trade Promotion Programme (Decision No 137/QD-BCT) provides support for enterprises and co-operatives to participate in domestic and international trade fairs. Under this programme, the State supports 50% of the cost of a stand for enterprises that register for this programme, to a maximum of VND 10 million/enterprise.

In March 2017, Viet Nam renewed a bilateral agreement with Cambodia under which 300 000 tonnes of paddy or husked rice may be imported annually duty free, effective until 31 December 2017.

References

FAO (2018), FAO policy developments website:  http://www.fao.org/economic/est/est-commodities/commodity-policy-archive/en/ (accessed 20 March 2018).

Government of the Socialist Republic of Viet Nam (2016), Intended Nationally Determined Contribution of Viet Nam, Submission to the UN Framework Convention on Climate Change by the Socialist Republic of Vietnam, Hanoi, Viet Nam.

News VietNamNet (2018), “Vietnamese rice earns high export in 2017”, 8 January 2018, http://english.vietnamnet.vn/fms/business/193509/vietnamese-rice-earns-high-export-in-2017.html (accessed 21 March 2018).

OECD (2017), “Policy approaches to droughts, floods and typhoons in Southeast Asia”, TAD/CA/APM/WP(2017)17/FINAL.

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