All this week on Table Talk, we are discussing government support and subsidies.
In our first post, we introduced agricultural subsidies and today we dive deeper into the most recent data comparing the levels of producer support in OECD countries in order to answer the question: Are Australian producers the least subsidised in the world?
OECD 2018 Report
The OECD’s ‘Agricultural Policy Monitoring and Evaluation’ report is one of the most valued and comprehensive reports for comparing agricultural subsidies. The 2018 Report is the 31st in a series of annual reports and it monitors and evaluates agricultural policies across 51 countries.
The report measures subsidies using a ‘Producer Support Estimate”. This is defined as:
The 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.
- Market Price Support: 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.
- Budgetary payments and Budget revenue foregone: transfers from consumers and taxpayers to agricultural producers from policy measures based on current output, input use, area planted etc.
What are some recent developments in agriculture policies?
The most recent development in agricultural policies (2017) outlined in the report included:
- 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.
- EU: abolished the sugar production quota
- Japan: abolished its government administered rice production quote
- Chile: implemented a new programme that targets young farmers by providing subsidies for variable and fixed inputs, finance, capacity training, and development of networks.
- Colombia: new support measures, including a subsidy to rice farmers to store grain, an income compensation payments to cotton producers, and debt rescheduling and debt relief for farmers.
- United States: authorised a program to help cover cotton ginning costs
- Australia: expanded its concessional loans programme, which is used to help producers recover from adverse events and put in place better risk management strategies.
What were the key findings of the comparison?
- Most agricultural support policies continue to be poorly aligned with the objectives they set out to achieve, and in some countries, reliance on measures that distort production and trade is even increasing.
- Progress in lowering support levels and shifting towards less distorting measures remains partial, and is not shared across all countries.
- Government support to market prices not only harms consumers, especially the less well off among them, but also reduces the competitiveness of the food industry itself.
- In most countries, support is predominately provided through measures that are most distorting to production and trade
- Support to farms represented 18% of gross farm receipts in 2015-17 across the OECD area (decline from 30% in 1995-97)
- New Zealand, Australia, South Africa, Chile and Brazil provide very low levels of support to producers, with %PSEs below 3% in 2015-17.
Are Australian producers the least subsidised in the world?
In reference to Australia, the report stated:
- 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).
What forms of producer support exists in Australia?
Agricultural subsidisation in Australia in 2017 was made up of support to producers:
- Input use (~46%): Upgrading water infrastructure, payments to deal better with droughts/natural disasters, concessional loans etc. This percentage may rise this year with the recent announcement of further drought funding and subsidies.
- Risk and environmental management (~47%): income tax averaging, farm management deposits, environmental programs.
In addition, there is general service sector support to the agricultural industry including our Rsearch and Development system through our RDCs. There has been a greater move towards general service than individual producer support.
Australia does not use any market price supports.
The OECD provides the following recommendations to Australia:
- Measures (including drought support) should be reviewed to ensure they are effective and efficient responses to challenges that are faced by the sector and do not encourage additional risk taking by producers or reduce overall sector resilience.
- Water market reforms and basin management should continue to be a policy priority, alongside efforts to better adapt to climate change.
In our final post for the week, we look at global movements on agreement to ban export subsidies, the most distorting of agricultural subsidies.