food e agricoltura

8/3/2019 Food e Agricoltura

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Food and Agriculture

Current

Themesand

Results

2010


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Fwd

The remit of the OECDs Committee for Agriculture covers a vast range of topics relating to the physical,economic, market and social environment within which the agriculture and food sector has been andwill continue to evolve in coming decades.

This compilation summarises some of the most important results and policy conclusions of OECD work

on agriculture, based on pioneering studies that exploit the Organisations unique capacity to generatedialogue among countries, and countries willingness to submit to peer review.

The following papers are presented as background information for Ministers attending the Meeting ofthe Committee for Agriculture at Ministerial level at OECD headquarters in Paris, 25-26 February 2010.


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Tb F CTT

gricultures Physical nvironment

Water Resources in Agriculture: Outlook and Policy Issues ......................................................................5

Agricultures Environmental Performance: What Role for Agri-Environmental Policy ........................7

Agriculture and Climate Change: Impacts, Mitigation and Adaptation ..................................................9

Policy an justment

Farming, Farm Families and the Rural Economy ......................................................................................11

How Can Policy Underpin Farmers Risk Management Strategies? ........................................................13

Smallholder Adjustment: Getting the Policy Mix Right ............................................................................15

Trae an griculture

Liberalising Trade in Food and Agriculture: What is the Best Way Forward? ......................................17

The Challenge of Designing Non-Tariff Measures that Enhance Welfare and Trade ..........................19

eforming griculture Policy

Agricultural Policy Reform: How to Stay on the Reform Path .................................................................21

Agriculture Policies in OECD and Key Emerging Economies:Keeping the Momentum of Reform ..............................................................................................................23

The Meium an onger-Term utloo for griculture

The Financial Crisis, the Recession and the Beginnings of Recovery:Implications for Agriculture ..........................................................................................................................25

Markets, Prices and Food Security: What Will the Future Bring? ...........................................................27

References to OECD Publications and Websites .........................................................................................29

Photo credit: Cover illustrations, www.photo-libre.fr.


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water projections to 2050

OECD water use projections to 2050 highlighta number of issues that policy makers need toaddress. Among these include an increase to47% of the worlds population living under severewater stress, mostly in developing countries,compared to 44% in 2005. Agricultures quantityand share of global water use may decline,reecting improvements in water use efciency.

Many Asian, African and Middle Easterncountries will encounter the greatest pressure

on water resources, largely due to growth innon-agricultural water use. Technology andbetter resource management can help.

It is likely that OECD countries will continue to bemajor agricultural exporters to these countries,necessitating that the management of waterresources in agriculture in OECD countries beimproved, while ensuring water needs for theenvironment are met.

If rising water and energy prices lead tohigher food prices, they could stimulate more

widespread adoption of modern irrigationtechnologies, saving water and raising yields. Butthis could also result in expansion of irrigationonto fragile lands.

Various farm management and technologyapproaches are being deployed to improve waterresource management, for example, developingdrought resistant cultivars. Emphasis is alsobeing placed in establishing decision supporttools to guide water management strategies,such as the computerised linking of soil moisturemonitors to drip irrigation systems.

Climate change, agriculture an ater

The Intergovernmental Panel on Climate Change,

and many reports from OECD governmentagencies, project shifts and variability inhydrological regimes resulting from climatechange. For agriculture this implies changes inthe seasonal timing of rainfall and snow packmelt and the higher incidence and severity ofoods and droughts.

Mitigation and adaptation approaches to climatechange in agriculture need to be strengthened.These approaches are likely to be more effectiveif they are embedded in longer term strategiesclosely linked to agricultural policy reform, risk

management policy and market approaches.

wT C CT: Tk dPC

worl agriculture faces an enormous challenge over the next 40 years: to prouce almost

50% more foo up to 2030 an oule prouction y 2050. This ill proaly have to e achieve

ith less ater, mainly ecause of pressure from groing uranisation, inustrialisation an

climate change. Hence, it ill e important in future that farmers receive the right signals

to increase ater use efciency an improve agricultural ater management, especially as

agriculture is the major user of ater in most countries.

OECD Projected world water withdrawals from 2000 to 2050

By sector

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

5 5006 000

6 500

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Wateruse(km3)

Years

Agriculture

Domestic

Electricity

Manufacturing

Share of agriculture in total water withdrawals

0

10

20

30

40

50

60

70

80

90

100

OECD NorthAmerica

OECDEurope

JapanandKorea

Australiaand

New Zealand

Brazil China Indiaand

South Asia

Africa

Agricultureshareintotalwateruse

%2000 2005 2030 2050



8/36More information is available at www.oecd.org/agriculture

6

water an agricultural support policies

Given the anticipated growth in demand forfood and water and increasing pressures fromclimate change, agriculture will be a key targetfor policy makers as it consumes about 70% ofthe worlds freshwater withdrawals (45% inOECD countries).

The level of charges for water supplied tofarms has risen in OECD countries. Frequently,however, farmers are only paying the operationand maintenance costs for water supplied, withlittle or no recovery of agricultures share ofcapital costs for water infrastructure (see tablebelow).

Where countries have raised water charges tofarmers, available evidence indicates that it hasnot led to reduced agricultural output. But watercharges rarely reect scarcity and social values

or environmental costs and benets.Groundwater policies usually involve licensesand other regulatory instruments. But illegalgroundwater pumping is difcult to observe orcontrol and remains a major challenge for thesustainability of farming.

Agricultural support policies linked to productioncan encourage less efcient use of water, leadto off-farm pollution and exacerbate ooding.Isolating and quantifying the overall economicefciency and environmental effectiveness offarm support on water resources, however, is

difcult and further analysis on causation isneeded.

There has been some progress across OECDcountries in lowering support levels and indecoupling support from production and inputs(including water and energy). These reforms

are leading to more efcient use of water, betteradaptation to water scarcity, and lower off-farmpollution.

Future challenges

Future policies to address the management of

water resources in agriculture will be inuencedby many and diverse drivers. For OECD countriesfarm management and technology; climatechange and climate variability; and energy costsfor pumping water are particularly important.

In Sustainable management of water resources inagriculture, the OECD analyses the challenges ofmoving towards more efcient management ofwater resources in agriculture and respondingto growing food demands and the impacts ofclimate change. The OECD report suggests thatit will be important for policy makers to:

1. Recognise the complexity and diversity ofwater resource management in agriculture, inthe context of varying regional and nationalwater resource supply and demand balances.

2. Strengthen institutions and property rights forwater management in agriculture.

3. Ensure charges for water supplied to agricultureat least reect full supply costs.

4. Improve policy integration and coherencebetween agriculture, water, energy andenvironmental policies.

5. Enhance agricultures resilience to climatechange and climate variability impacts.

6. Address knowledge and informationdeciencies to better guide water resourcemanagement.

Full supply cost recovery1 for surface water delivered on-farm across OECD countries2: 2008

100% cost recovery of peration an Maintenance an Capital Costs:

Austria; Denmark; Finland; New Zealand; Sweden; United Kingdom

100% cost recovery of peration an Maintenance Costs, ut less than 100% recovery of Capital Costs:

Australia, Canada, France, Japan, United States

ess than 100% cost recovery of peration an Maintenance an Capital Costs:

Greece; Hungary; Ireland; Italy; Mexico; Netherlands; Poland; Portugal; Spain; Switzerland; Turkey

ess than 100% cost recovery of peration an Maintenance Costs, ith Capital Costs fully supporte:

Korea

1. Full supply costs for water deliveries to farms include: operation and maintenance costs (e.g. maintaining and repairingthe irrigation infrastructure) and capital costs, both renewal capital costs (e.g replacing irrigation canals) and new capital

costs (e.g. constructing dams).

2. No information is available on the following OECD countries: Belgium; Czech Republic; Germany; Iceland, Luxembourg,Norway, Slovak Republic.


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7

atural resources an agriculture

Agriculture is a major user of natural resourcesand its environmental performance needsto be monitored and evaluated. Many of itsenvironmental effects are either negative orpositive externalities or public goods. To a largeextent these effects are determined by farmerschoices of how and what to produce. Agri-environmental policies attempt to incorporatethese potential external effects on farmingdecisions. As indicated in the Inventory of

measures addressing environmental issues inagriculture, developed by OECD, the membercountries are using a wide set of measures.

Policy approaches

Regulatory requirements are the core of policiesaddressing environmental issues in agriculture.All OECD countries impose a complex set ofregulations to prevent negative impacts on theenvironment. These include limits on the storage

and application of chemicals and pesticides,prohibitions and requirements on waste andnutrient management, limits on the intensity ofproduction, and buffer strips and green coveragerequirements. Stricter regulations are applied inareas with higher environmental or resourceconservation values. Over time, regulatoryrequirements have broadened in scope and havebecome more stringent.

Cross compliance mechanisms require farmersto full specic environmental requirements

in order to be eligible for specic agriculturalsupport payments. In the European Union,United States and Switzerland, cross-complianceis signicant.

Agri-environmental payments. Some OECDcountries (EU countries, Norway, Switzerlandand United States) have also developed a widerange of agri-environmental payments undervoluntary programmes providing payments tofarmers to adopt specic farming practices, with

CT MT PFMC:wHT F -MT PC

griculture has signicant impacts on the environment, using on average over 40% of ater an

lan resources in Cd countries. mpacts occur on an off farm, an inclue oth pollution

an egraation of soil, ater an air, ut also the provision of environmental services, such

as ioiversity, oo an rought control, an a sin for greenhouse gases. Cd countries

use ifferent mixes of policy instruments to achieve their environmental ojectives, incluing

regulations, cross-compliance, agri-environmental payments, taxes, traale rights an technical

assistance. The evelopment an follo-up of inicators that are consistent over time an across

countries, ut hich acnolege the iversity of agri-environmenal conitions in the Cd, is a

poerful tool for policy evaluation. verall, environmental performance of agriculture across Cd

has improve, ith a ecrease in agricultural nutrient alance surpluses an a ecline in pesticie

use, ut ith signicant variations across countries an increasing pressure on ater.

Importance of the policy measures adressing environmental issues in agriculture

Measure/Country C JP k MX Z w T

egulatory equirements XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

nvironmental cross-compliance NA NA XXX X X NA NA XX XXX NA XXX

Payments ase on farming practices X X XXX X X X X XX XXX X XX

Payments ase on lan retirement NA X X NA NA X NA NA X NA XXX

Payment ase on farm xe assets X X X X X X X X X X X

nvironmental taxes/charges NA NA X NA NA NA NA X NA NA X

Traale rights/permits X NA X NA NA NA NA NA NA NA X

Technical assistance/extension XX XX X X X X XX X X X XX

Community ase measures X X NA NA NA NA X NA NA NA NA

Note: NA not applied or marginal; X low importance; XX medium importance; XXX high importance. The importanceof the policy instruments in this table is related to the mix of the specic country. It is not designed to compare theimportance of specic measures across countries.



8

positive environmental effects and/or providingpublic goods (such as landscape, biodiversity).

Most payments support extensive forms offarming (extensive management of grassland,extensive pastures). Some measures go beyondoffsetting environmental damage caused byagriculture and provide voluntary payments

for additional environmental services (more orless precisely dened and targeted). Targets aretypically dened in the form of a specic farmingpractice rather than specic (measurable)environmental outcomes that in many cases arenot feasible or involve high transaction costs.

Other economic instruments, such as tradablerights and quotas, are used in a limited numberof countries. These include tradable rights for thedevelopment of wetlands in the United States,tradable water extraction rights (implementedon a state/regional basis in the United States),

and improving market mechanisms to free uptrade in water rights under implementation oftradable water rights in Australia. Tradable rightsbased on environmental quotas, permits andrestrictions do not yet play a signicant role inagri-environmental policy, despite the growinguse of such measures for environmental policyin other sectors.

In the broader context, however, where agri-environmental policies offset the damagingenvironmental effects of input-linked andproduction-linked support policies, the

opportunity costs of improving the environmentare higher than they need to be.

Methos an inicators

There is growing awareness of the need formethods and indicators to evaluate agri-environmental policies. This is complex dueto the site specicity of many environmentalissues, difculties in valuing and measuringenvironmental outcomes, and factors outsidethe control of farmers (e.g. weather).

Recent OECD reports have shown that OECDcountries have also directed greater attention

towards improving the knowledge-base relatingto environmental issues in agriculture in the pasttwo decades, through increased spending on agri-environmental research, often undertaken in co-operation with private sector. A number of OECDcountries have developed agri-environmentalindicators to track environmental performance.

Greater emphasis has also been placed oncommunication to farmers on environmentalissues via technical assistance and extension,in order to induce voluntary changes in farmingpractices to improve environmental outcomes.

According to the OECDs EnvironmentalPerformance of Agriculture at a Glance (2008),the overall performance of agriculture acrossthe OECD has improved due to the responsefrom farmers, agro-industry and policy makers.Agricultural nutrient balance surpluses havedecreased since the early 1990s, pesticide use has

declined and soil erosion stabilised. Agriculturalwater use has grown more rapidly than totalwater use, mainly driven by an expansion in thetotal OECD irrigated area. However differencesamong countries are wide across all indicators.

Policy challenges

With rising food demand and the necessity toprotect the environment, including biodiversityat local and global levels, and natural resources,OECD policy makers need to:

1. Recognise the complexity of the links ofagricultural production to environmentalissues, including their spatial dimension.

2. Internalise agricultural externalities (positiveor negative) as much as possible to achieveexpected environmental outcomes at thelowest cost to public nances.

3. Address knowledge and informationdeciencies of farmers on environmentalissues in order to induce voluntary changes infarming practices to improve environmentaloutcomes and resource management.

Gross nitrogen balance per hectare of total agricuturalland (kg N/ha) 2002-2004

0 50 100 150 200 250

Iceland

AustraliaMexico

Turkey

Canada

United States

New Zealand

OECD

Switzerland

Norway

EU15

Japan

Korea

kg N/ha

Change in irrigated areapercentage change 1990-92 / 2002-04

-15 -10 -5 0 5 10 15 20 25 30

Korea

Japan

Mexico

Turkey

Greece

EU15

Spain

OECD

United States

Australia

France

%


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9

Global GHG Emissions by Sector

Energy Supply

26%

Transport

13%

Residential and

commercial

buildings

8%

Industry

19%

Agriculture

14%

Forestry

17%

Waste and

wastewater

3%

In 2004 agriculture directly contributed about 14%of global anthropogenic greenhouse gas (GHG)emissions according to the IntergovernmentalPanel on Climate Change (IPCC), althoughscientic uncertainty suggests it could be muchhigher. Land use, land use change and forestryaccount for a further 17%.

Impact of Climate Change on OECD agriculture

Temperature

changeImpact

+1 to +2 Some increase in yield

Cold limitation alleviatedYield reduction in some latitudes (without adaptation)

Seasonal increase in heat-stress for livestock

+2 to +3 Potential increase in yield due to CO2 fertilisation (but

likely offset by other factors)

Moderate production losses of pigs and conned cattle

Increased heat stress

Yields of all crops fall in low latitudes (without

adaptation)

+3 to +5 Maize and wheat yields fall regardless of adaptation in

low latitudes

High production losses of pigs and conned cattle

Increased heat stress and mortality in livestock

Source: Adapted from IPCC AR4 Working Group II.

Agriculture is particularly vulnerable to climatechange. Projections to 2050 suggest both anincrease in global mean temperatures andincreased weather variability, with implications

for the type and distribution of agriculturalproduction worldwide. Climate change will alsoworsen the living conditions for many who arealready vulnerable, particularly in developingcountries because of lack of assets and adequateinsurance coverage. These impacts highlight keypolicy issues, including the need to produce morefood for an increasing population. Projections ofmore than 9 billion people in 2050 suggest thatfood production will need to double from currentlevels.

At the same time, in order to limit future

global warming to a 2C temperature increaseas recommended by IPCC, anthropogenic GHGemissions will have to decrease globally by atleast 50% by 2050 from 1990 levels. Agricultureis not currently subject to emissions caps,although several OECD countries are alreadyimplementing mitigation action plans. Inaddition to reducing its own emissions, carbonsequestration in agricultural soils can play animportant role in offsetting emissions fromother sectors. Some agricultural GHG mitigationoptions are cost competitive with a number ofnon-agricultural options in achieving long-termclimate objectives.

Quantifying GHG emissions from agriculturalactivities is complex. First, the atomistic natureof production (many individual farmers) in awide range of geographic and climatic conditionsmeans that emissions are not only highlyvariable but also difcult and costly to measureprecisely. Second, there continues to be a greatdeal of scientic uncertainty as GHG emissionsfrom agriculture are subject to a complexinterplay of many factors such as climate, soil

type, slope, and production practices.Accounting for the indirect land use changesarising from agricultural production is anotherimportant challenge. The recent global surge

CT d CMT CH:MPCT, MTT d dPTT

griculture is having to aapt to signicant impacts of climate change, hile at the same time

proviing foo for a groing population. Meeting climate change, foo security an trae

commitments presents oth challenges an opportunities for the agri-foo sector. griculture is

one of the fe sectors that can oth contriute to mitigation an sequestration of caron emissions

an accounting for agricultures caron footprint is necessary, particularly if agriculture is inclue

in greenhouse gas reuction commitments. Hoever, the range an variaility of estimates, an the

complexity an uncertainty of accounting for inirect lan use change remain to e resolve. Policies

ill play a role in enhancing the aility of agriculture to aapt to climate change, hile also contriuting

to other environmental goals. wor in the Cd ill continue to support the process folloing the

Copenhagen Climate Change Conference in decemer 2009.



10

in food prices highlighted the importance ofagricultural policies for world food and energymarkets. In particular, the links betweenproduction of biofuels from feedstock (in manycases subsidised), consequent land use changes,and food prices demonstrate the importance offoreseeing the range of consequences.

Mitigation

Of the options to reduce GHG emissionsin agriculture using currently availabletechnologies, signicant mitigation can beachieved through improved cropland andgrazing land management, restoration ofdegraded lands, and land use change (e.g. agro-forestry). Emissions from livestock productioncan be reduced through improved nutritionand better management of manure. In addition,crop and pasture lands can sequester signicant

amounts of carbon, and therefore contribute tooffsetting emissions from other sources, whileimproving soil quality and health.

More research is needed, notably to determine:

The technical and the economic potential ofvarious mitigation and sequestration options,including through life cycle analysis

How the pressure of indirect land use can beaddressed with second generation biofuels

How emissions of GHG from crop and livestock

production can be reduced.

aptation

While some regions of the world may benetfrom improved conditions, the overall effect ofclimate change is nonetheless expected to benegative for global agricultural production ifno action is taken. Increased concentrations ofGHGs in the atmosphere already lock-in a certainamount of climate change. Moreover, given thelong time-lags that will be required for GHGmitigation efforts to have an impact, adaptationwill have to occur. This may range from alteringfarm management practices to adoption ofnew varieties, crops, and animal breeds moreappropriate to future climate conditions.

As agricultural production increases, resourceconstraints, particularly water, will becometighter. Agriculture globally accounts for about70% of the worlds freshwater withdrawals (45%in OECD countries). Climate change is expectedto alter the seasonal timing of rainfall and snowpack melt and result in a higher incidence andseverity of oods and droughts. Both rain-fed andirrigated agriculture will need to be managedmore sustainably to reduce resulting productionrisks.

Policy response

Government policy can play an important rolein maintaining a viable agriculture in the face ofclimate change. Reforms of agricultural policies,in particular the shift to decoupling, havereduced specic commodity-related productiondistortions. Future reforms might better target

specic environmental outcomes, such asencouraging production techniques with lowGHG emissions or that minimise them.

Mitigation and adaptation approaches will needto be strengthened. These are likely to be moreeffective if they are embedded in longer-termstrategies linked to agricultural policy reform,risk management, research and development,and market-based approaches. Examples includecrop and disaster insurance, research into cropvarieties and breeds better adapted to changingclimatic conditions, and incentives for more

efcient use of water.

In responding to the future challenges foragriculture of addressing climate change andincreasing food demand, a coherent policyapproach is needed that:

1. Ensures a stable policy environment that sendsclear signals to consumers and producersabout the costs and benets of GHG mitigating/sequestering activities.

2. Provides a real or implicit price of carbon tocreate incentives for producers and consumers

to invest in low-GHG products, technologiesand processes.

3. Fosters the application of existing technologiesand invest in R&D for new technologiesto reduce GHG emissions and increaseproductivity.

4. Builds capacity to better understand andmeasure the GHG impact of agriculture formonitoring progress relative to national andinternational climate change goals.

5. Facilitates adaptation by increasing producerresilience to climate change, and thatcompensate the most vulnerable groups.

Following Copenhagen, the OECD will continueto examine the role of land use change inagriculture (and the links with forestry), developtools to analyse the design and implementationof cost effective policies so that agriculturecan adapt to and mitigate climate change, andfacilitate the sharing of experiences amongstcountries on policies to address climate changein agriculture.


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11

Policy an justment

FM, FM FM d TH CM

The complex, multifacete role of farm househols emerges inImpact o agricultural policies

on rural community well-being an other Cd analyses. while the average share of agriculture

in rural employment an dP is lo an ecreasing in Cd countries, agriculture is a large

lan user an plays an important role in many environmental an other lan use issues. Farm

househols provie agricultural an relate proucts an services, participate in local laour

marets, use local services, an purchase an consume local proucts. signicant share of

farm househol incomes comes from non-agricultural sources, hich means that for many farm

househols, a virant, iversie rural economy is crucial to survival on the farm. ural an farm

policy has to reect these realities.

The OECD denes three regional types:predominantly urban, intermediate, andpredominantly rural regions.

multiple role for agriculture in the rural

economy

In general, primary agriculture plays a small anddeclining role in employment and GDP, whateverthe type of region, and farm households accountfor a modest share of the population. Theimportance of the agri-food system as a whole

may be greater, but cannot be measured ingeneral for lack of data.

In regions dened as predominantly rural,primary agriculture usually accounts for alarger, though still mostly modest, share ofemployment and GDP. Nevertheless, there aresome regions where a signicant proportion ofthe population is dependent on agriculture. Atthe same time, a signicant share of farmingtakes place in regions that are not dened asrural. For example, less than half of the farmsand half of the farmland is in predominantly

rural areas, as dened by OECD.Agriculture is an important land user andprovider of rural amenities in rural and otherareas. Land used in agriculture has decreased

in a majority of OECD countries over the lastdecade (by 2.5% on average), with declines over10% in some Central European countries, Italyand Korea.

The importance of farm-based environmentalservices, pressures for land conversion, andwhether conversion relates to afforestation,conservation or urban sprawl, vary by region,notably with distance to urban areas. In someregions where farmland use has declined ormay do so, there are concerns about impactson environmental and socio-economic viability

from:

Under-provision of land-based amenities wherethey are instrumental in regional developmentor in some high-value-nature rural areas.

Alternative uses of farmland and water andalternative sources of income and employment.

Urban sprawl in peri-urban areas.

Farm househol iversication

A range of economic and social factors

and policies, such as nancial motivation,education, and family status affect the attitudeof farm households towards diversication. Theincreasing participation of women in the work

Share of agriculture in the economy

0

10

20

30

40

50

60

Population Land use Employment GDP

in

%o

fthetotal

OECD average, 1995

OECD average, 2005

OECD rural regions, 2005

OECD intermediate regions, 2005

OECD urban regions, 2005

Regional spread in the share of agriculturein rural employment

0

10

20

30

40

50

60

70

80

%

Turkey

Korea

Polan

d

Mexic

o

Greece

Spain

Japan

CzechR

epublic

Unite

dKing

dom

Finlan

dItaly

France

Switzerlan

d

Cana

da

Australia

Denm

ark

Germ

any

Norw

ay

Sweden

Unite

dStat

es



12

force, or the wish to be more integrated in thelocal community, are also important.

Data on the extent to which farm households are

engaged in diversication activities, the natureof those activities, whether they are located inrural areas, and on the income they generate arescarce, often incomplete and out-of date.

Generally, however, we know that farm householdsderive a signicant share of their income fromnon agricultural sources, mainly off-farm labouractivities, and that the importance of their non-farm income tends to increase over time in mostcountries. This is important information for thosedeciding on the proper balance of agricultural,rural and regional policies.

Ho can farm an rural policies reect these

realities?

The role of farm households in the rural economygoes far beyond the supply of agriculturalgoods. They also provide environmental andrecreational services, participate in the off-farmlabour force and sustain demand for consumer

goods and services locally. Thus viable farms,with or without diversied sources of income,contribute to rural development.

But a healthy and diversied rural economywhich provides off-farm work opportunities andservices is essential to the survival and welfare

of a large proportion of farm households. Therole of agricultural policy in contributing to ruraldevelopment has to be seen in this light.

With the share of primary agriculture inemployment low and decreasing the extent to

which agricultural policies can foster generaleconomic development in rural areas is oftenlimited, but varies by region and needs to beconsidered for each specic case.

Regional multi-sectoral approaches thatrespond to specic problems and build on

specic attributes and assets of individualrural areas are needed. A panoply of policiescovering domains such as mobile telephoneand internet access, infrastructure, training,and information is required to foster businessin rural areas.

Farm tourism can provide an opportunityto diversify for some farm households andsuccessful initiatives can also promote localproducts, preserve the natural and agriculturalenvironment, and enhance a regions

reputation, but these positive outcomes will belimited to specic regions attractive to touristsand will not be possible everywhere.

Grants, training and facilitation and othertargeted measures are more likely to be helpfulin enabling farm households to diversify thanbroad agricultural support.

Removing unintended obstacles todiversication is important. Some policiesmay be inadvertently creating obstacles tofarm household diversication and rural

development generally, for example, if part-time farmers lose entitlement to certaintypes of farm-based subsidies. In other cases,however, this may reect government concernsthat certain forms of diversication could alsohave negative implications, for instance on theprovision of public goods.

Tax, social security, land zoning, and labourmarket regulations may also complicatediversication if agriculture is treateddifferently from other sectors, for exampleif the social security regime is specic to

farming. Governments should try to ensurethat all rural actors are able to participate fullyin the development of rural areas on an equalbasis.

0%

10%

20%

30%

40%

50%

60%70%

80%

90%

100%

Germ

any

Neth

erlan

ds

Austr

alia

Switz

erlan

d

Polan

d

Austria

Fran

ce

Mexic

o

Farm Property Transfers OtherOff-farm labour

0%10%20%30%40%50%60%70%

80%90%

100%

Unite

dKing

dom

Kore

a

Ireland

Norw

ay

Denm

ark

Finl

and

Japa

n

Unite

dSt

ates

Cana

da

Farm Property Transfers OtherOff-farm labour

Diversication of income sources among farm households

Narrow denition of farm households Broad denition of farm household

Share in total farm household income of income from:

Average o the three most recent years available. Data are not comparable across country as defnitions o arm households dier.


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Policy an justment

13

The role of government

Risk management policies should be targeted at

specic market failures and well-dened equityconcerns. Some risk management markets areincomplete and therefore not all agriculturalrisks can be insured, pooled or transferredthrough market instruments. This is not aproof of market failure, and the appropriaterole of government depends on the whole riskmanagement system .

Normal risk is frequent but not too damaging,and is typically managed at the farm orhousehold level. General tax, health and socialsystems help to manage such risks.

Catastrophic risks are infrequent, but cause greatdamage for many farmers. The signicantuncertainties associated with these eventsand the possibility of substantial losses makeit difcult to nd market solutions, and marketfailure is more likely.

Between these two extremes, there is acategory of risk that, because of its intermediatefrequency of occurrence and magnitude oflosses, is potentially insurable.

If policies responding to catastrophic or normalrisks are broad, they occupy part of the insurablefringe and may crowd out market and on-farm

strategies. Dening the boundaries betweentypes of risk is thus a major policy challenge.

is relate policies in Cd countries

Agricultural policy measures have an impact onrisk management. In several OECD countries,agricultural support is high. This additionalrevenue helps to manage farming risk and needs

to be taken into account before implementingany new risk-related policies. Some measuresare designed to prevent the occurrence of risks(risk reduction) or to limit their effect on income

or consumption (risk mitigation and coping).

To reduce risk, most OECD countries offer marketprice support through border measures thattypically stabilise domestic prices. They mayalso offer technical or investment support, such

as water management and inspection services.

Ex ante measures for risk mitigation, in particularincome tax smoothing systems for agriculture,are also used. Some countries go further by

providing payments that are countercyclicalwith respect to prices or revenue, and providesubsidies for insurance policies or future

contracts. Support for income diversicationstrategies is rare.

Hw C PC dP FM k MMTTT?

is management is part of farmers usiness strategy since prouction is suject to many

uncertainties that coul threaten returns or even the viaility of farms. The prevalence of

sources of ris that affect many farmers at once, such as eather-relate hazars, is specic

to agriculture. Managing these riss typically inclues the use of a range of instruments such

as prouction iversication, irrigation, futures marets, insurance an prouction/mareting

contracts, as ell as off-farm activities an assets. s argue inManaging Risk in agriculture: a

holistic approach, governments have a role to play in facilitating access to maret an non-maret

strategies, hile empoering farmers to tae responsiility for managing their on usiness ris.

Risk layers and the potential role of government

Catastrophic nsurale ormal

Type of isLow frequencyHigh damage

Medium frequencyMedium damage

High frequencyLow damage

xamplesSignicant losses for manyfarmers, e.g. due to climaticevents or contagious disease

Signicant falls in returns ofsome farmers, e.g. due tohail, non-contagious disease

Normal uctuations ofprices and production

ole of Policy

Equity * Disaster/social relief * Progressive tax system. Health and social protectionEfciency * Compensate if externalities * Facilitate the creation of

markets by targeting potentialmarket failures



14

Ex post risk-related measures, such as disasterrelief, social policy, and other ad hoc assistancelike debt relief and labour replacement are alsoavailable in most countries. Typically countrieswith lower levels of price support have largershares of r isk-related payments.

Cds holistic approach to ris management

A great diversity of sectoral and non sectoralpolicies, sometimes addressing part of the risk,affects agricultural risk management. Thismay have unintended effects due to importantcorrelations between different sources of risk,policy instruments and risk managementstrategies.

Countercyclical payments may discourage farmersfrom taking advantage of natural hedgingdue to negative production/price correlations;

make market instruments less attractive; andcontribute to the incompleteness of markets.

Insurance subsidies may discourage farmersdiversication strategies.

Generous disaster assistance may displace otherrisk management strategies.

Good risk management policies for theagricultural sector need good risk governancethrough:

Creation of markets by addressing market

failures such as missing /asymmetricinformation.

Avoidance of rent seeking incentives in supportand disaster assistance.

Accounting for trade-offs between differentgovernment objectives:

- Policies that most reduce risk may not havethe largest positive impact on farmerswelfare.

- Risk-related measures tend to havesignicant impacts of production, conicting

with the objective of minimising tradeeffects.

Recent price volatility: a role for policy?

Since 2007, agricultural commodity markets have experienced increasing volatility, particularly in daily quotations of

futures markets. This may be linked to increased participation of non-commercial investors, but the evidence is unclear. In

the last two years, volatility of monthly wheat cash prices has been high but lower than after the economic crises of 1929

and 1973 that implied adjustments to lower and higher prices, respectively. In both cases volatility remained high for some

years until a new, less volatile price level was found.

With high volatility, prices may not capture good information on costs, and market outcomes are more likely to be

inefcient. Is there a role for government? Existing studies cannot conrm that price stabilisation is welfare enhancing,

while there is evidence that domestic price stability is purchased at the expense of larger international price instability.

But the major economic costs of price stabilisation are due to the political economy of picking a wrong price that does

not reect economic opportunity costs, particularly in a period of high volatility. This is part of the experience of the

international commodity agreements developed in the 1970s and that have gradually abandoned price stabilisation. The

economic implications of price stabilisation are far reaching, depend on the nature of the institutional arrangements, and

require in-depth analysis of costs and benets in a holistic framework.

Wheat prices: level and volatility 1908-2009

Monthly data of All Wheat, US season average price from 1908-09 to 2008-09 from USDA/ERS data

0

50

100

150

200

250

300

0%

10%

20%

30%

40%

50%

60%

70%

80%

190

8/09

1918

/19

192

8/29

193

8/39

194

8/49

195

8/59

196

8/69

197

8/79

198

8/89

199

8/99

200

8/09

USD/t.Annualized volatility in % (monthly data) Price level (USD/t.)

2007 -09

1973 -75

1929-35

1940-49

1965-69


17/36

Policy an justment

15

griculture in the overall economy

The importance of agriculture to the overalleconomy tends to diminish over time. Theexperience of agricultural adjustment variesfrom one country to the next, but has someuniversal aspects. For countries with a per capita

GDP of USD 2000 or less, it is not uncommon foragriculture to account for 30% or more of GDP,whereas the share is typically no more than2%-3% in high income OECD countries. Thisrelative decline is associated with a substantialrelease of labour from the agricultural sector.Over the past 50 years, all emerging countrieshave shed labour from farming. Moreover, thepace of adjustment is speeding up. In Korea,agricultures share of employment fell from 40%to 16% in just 14 years a transition which took53 years in the United States and 68 years in the

United Kingdom.Why do these changes occur? Income elasticitiesof demand for food tend to be less than for otherconsumption, so that the demand for food does

not grow as fast as demand for other goods. Onthe supply side, total factor productivity typicallyrises faster in agriculture than in other sectorsof the economy. Moreover, technical innovationassociated with agricultural productivity growthhas tended to be labour saving. These combineddevelopments permit the release of resources,especially labour, to other sectors. In most cases,the agricultural sector nevertheless continuesto expand. Pressures for farm resources toshift into other sectors may be lessened by thescope for increased exports in countries with acomparative advantage in agricultural activities,or reinforced by pressure from imports in the caseof countries with a comparative disadvantage.

Pressure on mallholers

These changes put pressure on resource-poor

smallholders who cannot compete with efcientdomestic agricultural businesses or withimports. With technology improving, and moreefcient use being made of scarce resources,

MHd dJTMT: TTTH PC MX HT

gricultures share of output an employment tens to iminish ith economic evelopment.

mallholers ith limite resource enoments often struggle to compete, or n that they have

improve income prospects in other sectors. strategic frameor for smallholer ajustment

nees to acnolege that the long-term future for the majority of smallholers cannot lie

exclusively in farming. The most important policies for improving oth agricultural competitiveness

an income prospects outsie the sector may not in fact e agricultural policies. t is therefore

important that smallholer policies are frame in an economy-ie context, ith agricultural

policies a component of the overall policy mix.

Recent price volatility: a role for policy?

India Indonesia

China

Brazil

South Africa

Uruguay

Turkey

Argentina

Mexico

Russia

Chile

Poland

Korea

Israel New Zealand

Spain

ItalyJapan

Germany

Finland

France

UK

AustraliaBelgium

Austria

Netherlands

CanadaSwitzerland

USA

0

10

20

30

40

50

60

70

80

% AGRICULTURAL EMPLOYMENT (%) 1961 AGRICULTURAL EMPLOYMENT (%) 2005

USD 2 000 USD 42 000

GDP per capita P PP Current USD, 2005



16

including the exploitation of scale economies,smallholders who do not participate in sectoralcost improvements will inevitably be subjectto pressures on their incomes. Faced with thispressure, there are two options: join the ranksof efcient commercial producers, or seek tobridge the gap by obtaining additional income

from other sources either by diversifyingthe households income sources or by exitingthe sector altogether. Policymakers need toacknowledge that the rst option is not a realisticone for many smallholders.

A framework which acknowledges two thingsis needed. First, the long-term, i.e. inter-generational, future for the majority ofsmallholders cannot lie exclusively in farming,hence there is a need for policies that enhancehouseholds opportunities outside the sector aswell as within it. Second, in order to improve

both agricultural competitiveness and theprospects for earning more outside the sector,the most important policies may not in factbe agricultural. It is therefore important thatsmallholder policies are framed in an economy-wide context, with agricultural policies acomponent of the overall policy mix. Differenttypes of agriculture-dependent households willhave different potential pathways to improvedincomes over the long term and correspondinglydifferent policy requirements.

Improving arm households competitiveness.

Farm support, such as price guarantees or inputsubsidies, pre-supposes a development pathwaywithin agriculture and treats the symptoms ofuncompetitiveness rather than the causes. Bycontrast, investment in public goods does notbias the choice of development pathway. Policiesto improve competitiveness need to be targetedat those smallholders with a realistic chance ofsucceeding within the sector.

Income diversifcation is a very importantstrategy for many farm households, particularlythe poorest, for which it is likely to provide some

insurance. For other farm households, having afamily member drawing income from outsideagriculture may be the start of a successful moveto more remunerative activities. Key policies fordiversication are the improvement of humancapital and the development of regional andrural infrastructure.

Leaving the sector will ultimately be the beststrategy for the majority of households. Labourmarket policies have an important role inensuring that core standards of employmentare met inside and outside agriculture and inreducing informality. Regional developmentprogrammes may also have a role in stimulatingbalanced development. Social policies can liftthose households that are unable to adjustout of poverty, even if they cannot deliverdevelopment.

Policy Challenges

The main challenge is to establish targetedpolicies that correspond to viable adjustmentpathways for different types of household. Forinstance, policies to improve competitivenesscould target potentially competitive regions, andfarmers could be required to apply for assistance,rather than just receive it.

Policymakers need to have a realistic viewof which smallholders are potentially viable(competitive) within the farm sector.

Policies to improve productivity stimulate thetransformation and need to be accompaniedby broader investments that create wideropportunities in non-agricultural sectors.

Rural development needs to be balanced inorder to avoid the social tensions associatedwith the release of labour from agriculture.

Getting the policy mix right is not easy: thereare trade-offs and complementarities betweengovernment spending in different areas.

development pathays Potential policy instruments

Help farmers become more competitive within agriculture

Diversify income sources

Within agriculture

Outside agriculture

Leave the sector for off-farm work

Social protection for those unable to adjust

Price policies

Input subsidies

Credit polices

Investment in human capital

Investment in infrastructure

Research & development and extension

Labour market reforms

Cash transfers (possibly conditional)

Regional Policies

Develop Producers associations

Land policies and property rights


19/36

17

Trae an griculture

Multilateralism versus regionalism

Trade is an important contributor to globalisationwhich has spurred world-wide economic growth,raising incomes and living standards. Throughmultilateralism and successive negotiations rstat the GATT and now the WTO, average tariffs onmanufacturing products have fallen drastically,contributing to large increases in internationaltrade. Extensive analyses, both inside andoutside the OECD, have shown that multilateraltrade liberalisation offers the prospect of globaleconomic benets that go well beyond the scope

of any regional trade accord. These resultsunderpin the advantages of enhancing a solidrules-based multilateral trading system.

Tariffs and subsidies to agriculture began to bedisciplined for the rst time in the Uruguay Roundconcluded in 1994, but are still high relative tomanufacturing. OECD work nds that a further50% reduction in all tariffs and domestic supportcould increase global welfare by some USD 44billion per annum, although some countries maynot gain. Most of the gains would be a result oftariff reductions in agriculture.

Annual Global welfare gains from multilateral50% reduction in tariffs and domestic support

0

5

10

15

20

25

30

35

40

45

CAN

EU-15

JPN

MEX TU

RUS

ABR

ACHN

IND

IDN

THL

ZAF

OCDE

NON-

OCDE W

LD

AUS-NZ

L

Furthermore, the scale of these gains dependson the fact that the liberalisation is multilateral

with all countries moving together. In contrastto multilateral liberalisation the global welfareeffects of a potential RTA between OECDcountries and any of the BRIICs (Brazil, Russia,India, Indonesia and China) tend to be muchsmaller.

If countries are active in seeking and concludingRTAs it is because they potentially generatewelfare gains for the countries that participatein them. There are 421 RTAs and 230 of thesewere in force as of the end of 2008. Most of themare Free Trade Agreements or non-reciprocalagreements, Custom Unions account for lessthan 10%. About 35% to 50% of total trade isamong countries belonging to RTAs.

mpact of Ts

Although these agreements can provide deeperand broader liberalisation among participatingcountries, by nature they are discriminatoryagainst other countries. The non-discriminatorymost favoured nation clause is a major argumentfor multilateralism as a rst best approach forefcient allocation of resources and freer trade

in the world economy. In contrast, RTAs canreduce global welfare through trade diversion:while new or increased trade ows are generatedwithin the regions covered, trade with non-participants may be hampered.

Other concerns have been raised about RTAs:lack of transparency (e.g. RTAs are not alwaysnotied to WTO or are not always well-publicisedto traders); poor implementation and lack ofpredictability because agreements are not wellunderstood or conditions are too burdensome(e.g. rules of origin may be very complex); lack

of consistency due to overlapping membershipsand rules; and power asymmetries that mayresult in developing or small countries being ata disadvantage.

b Td Fd d CT: wHT TH bT w Fwd?

The 153 memers of the wT have not yet manage to reach an agreement in the on-going

negotiations of the doha development gena (dd) espite iesprea evience of its potential

to contriute to gloal ell-eing. Trae in agriculture has een at the heart of the negotiations

an one of the stumling locs that has proven ifcult to overcome. Meanhile there has een

a proliferation of egional Trae greements (Ts). whether such agreements ultimately help or

hiner the multilateral traing system an ho to harness them to promote multilaterism is hotly

eate. Many evelope countries grant preferential access to eveloping countries to facilitate

expansion of the eveloping countries export sectors an increase their elfare. lthough the

ojective is lauale, there are questions aout the effectiveness of preferential agreements in

helping eveloping countries.



18

On the other hand, RTAs may, in addition to theirprimary effect of increasing market access forthe participating countries, help to promote orlock-in domestic reforms. They can also lay theground for further liberalisation and improvedregulatory co-operation in ways that go beyondWTO provisions, and they may constitute testing

grounds for international progress in new policyareas such as services or the environment.

Agricultures treatment in RTAs differssignicantly depending on the countriesinvolved. In some instances agriculture iseffectively omitted or very long transition periodsare built in, and RTAs have the same difculty inovercoming deeply entrenched sensitivities asthe multilateral system. In other cases, RTAs haveprovided some impetus to market opening effortsin agriculture or to reducing tariff escalation.

In agriculture as well as more generally, thechallenge is to identify those aspects of RTAdesign and implementation that have opened theway for further liberalisation, and to investigatehow these features can be generalised to thebenet of the multilateral trading system.

Preference an preference erosion

Preference erosion has been raised as an issueduring the DDA negotiations because somedeveloping countries that have benettedsignicantly from preferences fear the

consequences when general tariff cuts erode thevalue of their preferential margins.

Canada, Japan, the European Union, and theUnited States are the largest providers ofpreferential schemes to developing countries.Least developed countries (LDCs) receive thelargest preferential margins. An OECD studyshows that at the beginning of the decade thesepreferences were worth almost USD 1.4 billion,80% of which originated in preferences grantedby the EU.

Problems with programme implementationthat prevent developing countries from fullybenetting from these schemes includeinconsistent rules of origin, and uncertaintyabout programme eligibility. Some programmesmay have encouraged countries to specialisein products for which they may not have

comparative advantage.How big a problem is preference erosion likelyto be when the DDA is concluded? According toOECD studies, overall average tariff rates suggestthat preference erosion could be a considerableproblem. But much of agricultural imports (30%to 46%) into Canada, Japan, the EU and the UnitedStates are duty-free on an MFN basis anywayso preference erosion is not an issue for thisgroup of products. At the other extreme, somesensitive products with relatively large tariffrates are excluded from many of the preferentialschemes, hence for these products preferenceerosion is again not an issue, and multilateralliberalisation would benet all exporters.

In fact, serious loss from preference erosionwould be conned to a relatively small numberof countries exporting a narrow basket ofcommodities such as sugar, bananas andtobacco. Specic targeted efforts to help theseeconomies diversify and adjust is an alternativethat may be preferred to the negotiation ofcomplex exemptions and exceptions, which may

in the end not be in the long-term developmentinterests of the countries in question.

A way forward could include:

1. A speedy conclusion to the DDA, locking inreforms that are non-discriminatory thusmaximizing global welfare.

2. Utilise the Aid for Trade Initiative to providetargeted aid to improve the competitivenessof the export sector of developing countriesharmed by preference erosion.

Value of preferential margins to developing countries

Rent Quad

EUJapanCanada US

EBA

ACP

GSPGSP Drug

Mauritius

Top product Top country

of which sugar 99%SugarMauritius, Guyana, Fiji,

Swaziland

USD 44.8 Million

3.1% of total rent

USD 24.4 Million

1.7% of total rent

USD 219.2 Million

15% of total rent

USD 3.2 MillionUSD 268.6 MillionUSD 102.6 Million

USD 766 MillionUSD 440 Million

0.3% of EU rent24% of EU rent9% of EU rent

67% of EU rent57% of ACP rent

USD158 Million

21% of ACP rent

USD 1 429 Million

USD 1140.5 Million

80% of total rent

Three-year average 01-03


21/36

Trae an griculture

19

ationale ehin TMs

Growing societal concerns with implicationsfor agriculture such as environment protection,animal welfare and food safety are leadinggovernments to respond in a variety of ways.Regulatory, subsidy or tax-based responsesoffer countries wide scope to address theseconcerns. The response may be a purely localor national matter with little or no incidence on

trade or trade policy. But for societal concernsrelated to traded goods, NTMs are becoming anincreasingly important policy tool, particularlyagainst the background of continued tradeintegration and the lowering of classical barriersto trade, such as tariffs and quotas.

Protection of human, plant and animal healthmotivates most non-tariff measures. Importscan carry invasive species such as pathogens,pests, or weeds, foreign to a countrys ecology.Different trade partners may have differentfood safety standards and institutional capacity

to enforce these standards. This may lead toimports of food that do not meet domesticrequirements. Imperfect monitoring at the bordercan compound the health or environmental risk.

Comprehensive data on NTMs are lacking butavailable UNCTAD data show that only 8 out of777 agri-food products traded in the OECD arenot subject to any NTM, and individual productsare faced with many overlapping measures, sothat half of the products are subject to between9 and 12 different measures. The measures arevery heterogeneous, with labelling and productcharacteristics requirements among the most

common.Many NTMs associated with domesticregulations are a consequence of differencesamong national regulatory frameworks, such asin monitoring and enforcement of compliance.These differences often lead to trade frictions.Concerns about the appropriateness of certainNTMs, particularly sanitary and phytosanitary(SPS) measures, are frequently brought to WTO,and developing countries have increasinglybeen active in raising concerns about the traderestrictiveness of NTMs.

However, developing country concerns do notonly apply to their exports to OECD markets.About one third of the specic trade concernsraised by developing countries at the WTO SPS

TH CH F d -TFF MTHT HC wF d Td

overnments are increasingly calle upon to respon to a variety of concerns raise y society

in many areas, incluing some relate to agriculture such as the environment, animal elfare an

foo safety. Corrective actions are expecte hen marets either o not exist or fail an hence

result in inefcient outcomes. f maret solution is not satisfactory, governments have a numer

of options availale to intervene, an these polices often have implications for international trae.

iven the loering of classical import arriers such as tariffs, non-tariff measures (TMs) are

ecoming an increasingly important instrument governments use to safeguar omestic societal

concerns. Many technical measures may restrict trae ut improve elfare in the presence of

maret failures. ther measures can expan trae as they enhance eman for a goo through

etter information aout the goo or y enhancing the goos characteristics. despite the

challenges involve, systematic quantication an analysis of cost an enets for all ifferent

economic actors through an evience-ase approach can yiel a soli asis for ientication of

least-cost solutions.

Distribution of NTMs by purpose

45.18

19.62

18.4

10.56.29

Protection of human health

Protection of plant health

Protection of animal health and life

Protection of wildlife

Protection of environment

Distribution of number of different NTMsby number of affected products

0

20

40

60

80

100

120

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Numberofaffectedproducts(HS6)

Number of different NTMs



20

committee since 1995 relate to trade amongdeveloping countries, while two-thirds relate toexports to OECD countries.

conomic impacts of TMs

Preliminary OECD analyses show that assessing

the economic effects of NTMs poses signicantchallenges. Many technical measures mayrestrict trade but improve welfare throughreduction in negative externalities (e.g. throughreduced risk of importing pests or diseases) orinformation asymmetries (e.g. through productlabelling). Other measures can expand trade asthey enhance demand for a good through betterinformation about the good or by enhancing thegoods characteristics.

The efciency costs of NTMs are hence muchless evident than the welfare losses associated

with tariffs and quotas. They do not necessarilyembody the economic inefciencies that areassociated with classical trade barriers, unlessthey discriminate between sources of supply, andthey may be the least trade-restricting policiesavailable in the face of market imperfections.

It is therefore not clear apriori that less stringentNTMs would always lead to efciency gainsthat would exceed the losses from weakerregulation. However, higher xed and variablecosts related to compliance with standards may

create barriers to market entry, and may thusexclude foreign producers from competing inthe market.

Analysis of measures put in place by governmentsis complicated further by the increasing use ofprivate standards in the food supply chain (seeBox).

Ongoing OECD work on NTMs in agri-food aimsat systematic analysis of the different costs andbenets of NTMs for consumers, producers andgovernments, domestically as well as abroad.Through a comparative analysis of different policiesto address the same issue, this work provides anevidence-based approach for identifying least-costand most trade-friendly policy options. Availabilityof good information represents a key challenge forthis comparative analysis.

Overall, responding to the challenges of designing

NTMs will require OECD policy makers to:

1. Recognise the important role NTMs play inaddressing a wide array of societal concerns.

2. Recognise the complexity of the economicimpacts of NTMs.

3. Recognise that NTMs can potentially be tradeenhancing as well as trade restrictive.

4. Identify the least-cost and most trade-friendlypolicy options.

Trade and Private Standard Schemes

Private standards can be viewed as a key management tool that permits rms to ensure that a wide range of consumer

demands are met and government regulations satised, whether sourcing domestically or globally. Lead retailers have

harmonised private standards through collectively dening core attributes and procedures in order to facilitate global sourcing.

Compliance with these private standard schemes has become a requirement for doing business with lead retailers, making

them important instruments in determining the what, how, where and by whom of food production. These schemes

impose specic procedures for compliance which can make them more demanding than those of the government, as

retailers themselves attest in the gure below.

The switch from purely product standards (e.g. a given maximum residue level, MRL) to combined process and product

standards (e.g. MRL plus requirements on the storage facilities of agro-chemicals) along with quality management systems

presents new challenges for public and private governance of the food system at the local and global levels. While

harmonised standards can promote trade ows, suppliers differ in their capacity to meet these standards. Satisfying

these requirements may weigh more heavily on the small and medium sized farms/rms that lack the management skills

or physical and human capital to meet stringent technical conditions. They can also be exclusionary for producers in

developing countries, which lack the well-developed infrastructures in telecommunications, testing facilities, energy and

transport to support implementation of the standards. These factors have given rise to discussions in international arenas

about the legitimacy of the use private standards schemes by retailers as requirements in sourcing products and what the

role of governments might be.

Retailers view of own standard compared to government standards in %

0

1020

30

40

50

60

Food safety Environmental Animal welfare Labour

The same as

Slightly higher

Significantly higher


23/36

21


1. Formulate ojectives: Mae policy

ojectives explicit an quantiale,

an sequence them right

Policy objectives have evolved greatly in the pastdecade. While farm income is still a prominentissue, agricultural policies today explicitlyaddress issues related to society at large, suchas environmental quality, landscape, animalwelfare and food safety.

Despite the diversity of policy objectives,in general they relate to equity and incomedistribution, or to correcting market failures.

Market failures should be addressed rst, thushaving an effect on incomes, and only thenshould the remaining income issues be tackled.

Greater precision in formulating policyobjectives allows for better targeted policiesand helps to measure progress. For example, therelatively straightforward objective to achievean acceptable level of farm household incomeis imprecise. A better approach would be toachieve within a given number of years averagefarm household income levels that are at leastas high as the average in the national economy.

2. Chec performance of current policies: do

current policies meet ojectives?

It is essential to assess the degree to whichexisting policies achieve their objectives andidentify their desired or undesired side-effects.OECD analyses such as those inAgricultural policydesign and implementation suggest that policieswhich currently prevail in OECD countries are notalways the most effective in achieving the statedpolicy objectives, as the following examples show.

Farm income objectives: price support is inefcientin transferring income to farmers, distortsproduction, and may increase world pricevolatility. In addition, the majority of support in

OECD countries continues to be captured by thelarge producers.

Policy cycle

1. Formulate objectives

5. Evaluate/monitor

3. Dene characteristics

of new policies

2. Check performance

of current policies

4. Implement/enforce

Improving competitiveness: broad-based productivityimprovements may be inconsistent with existingpolicies to maintain farming where it might notcontinue otherwise; long-standing governmentinvolvement in R&D is more justied.

Objectives related to consumers: agricultural policiesin OECD countries have been successful inassuring the provision of abundant, safe andhigh quality food, but generally, at prices aboveprevailing world market levels.

Societal demands: markets may fail to providenon-commodity outputs, such as cultivatedlandscapes, and to limit negative externalities,such as environmental costs, but pricesupport and unconditional income support areinstruments that are not well-suited to addressthese issues, as shown by recent OECD studies.

3. dene characteristics of ne policies:

decouple an target support, an loo for

maret solutions

Once the policy objectives have been wellestablished, there may be a need to look foralternative policies. Which features shouldthese new policies have? Agricultural support

CT PC FM: Hw T T THFM PTH

n 1987 an 1992, Cd agriculture ministers mae a commitment to policy reform that oul

allo for a greater inuence of maret signals. The asis for reform as further evelope in 1998,

hen it as agree that the est policies to achieve share policy ojectives oul e: transparent,

having easily ientiale ojectives, costs, enets an eneciaries; targetedto specic

outcomes an as far as possile decoupled; tailored, to provie transfers only as necessary in orer

to achieve ientie outcomes; an fexible an equitable. Progress has een uneven. while for

some countries the issue toay is ho to move from ecouple to targete policies, other countries

have arely egun to ecouple support. move aay from roa-ase maret interventions to

policies that irectly aress economic, social an environmental ojectives is a ig step. taying

on the path to etter policies requires evience-ase actions at each stage of the policy cycle.



22

coupled to production is known to have manyundesirable side-effects and a new policy setmight want to minimise these by decouplingand targeting support, as well as through greaterreliance on market solutions (see Box).

4. mplement/enforce: Prepare the groun

an esign ajustment an compensationmeasures

Policy reform and adjustment may haveadverse effects on some households, sectors,or regions. Moving towards targeted policieshas distributional consequences, both interms of income and wealth. This may justifydesigning accompanying adjustment policiesand compensation packages that should be timelimited and should not impede adjustment.

The costs of these policies should not outweigh the

potential benets of the reform. Compensationshould be fully portable, allowing the recipient(and the farm assets) to leave the sector.

Adjustment and compensation measures couldnot only prepare the ground for reform, but alsofacilitate its implementation. For local publicgoods, both decision-making and nancingshould be devolved to regional or local bodies.

In any reform process, governments shouldtake into account the potential of stakeholdersto adjust. There is a natural tendency for thoserepresenting vested interests to exaggerate thecosts for their constituents. But governmentshave often underestimated the dynamismof this sector and its capacity to adjust. They

should ensure that any obstacles that mightget in the way of the sectors own adjustmentefforts be removed. These obstacles might relateto regulations affecting land use, transfers orsales, tax provisions, the availability of credit,or any other legal or institutional impediment tothe adjustment process.

5. valuate/monitor: Monitor an assess

policies to ensure they are on the right trac

The effectiveness of policies relative to their

objectives, and their efciency, need to bemonitored. Implementation and evaluation oftargeted policies is particularly demanding interms of information. Information systems shouldbe embedded in the policy design cycle from thestart, so that information is generated at eachstep. Economic analysis can help to disentanglethe effects of policy from other factors.

How to move to less distortive, less costly and more effective policies?

Shift to decoupled support

Policies that are more decoupled from production or prices interfere less with production decisions and markets. They aregenerally preferable to commodity programmes because they are economically more efcient.

It should be clear though that any agricultural support has some impact on production and trade. Usually, the

implementation of decoupled payments is linked to farm assets, such as land, with a xed historical base. If, however,

commodity production is required, or the payment is determined by current land use, instead of the historical base,

policies become less decoupled.

A problem associated with all area-based payments is that they tend to be capitalised into existing farm assets, making

it more costly for new entrants to acquire agricultural assets and discouraging exit. If based on historical entitlements,

decoupling can maintain any inequities associated with production-linked support rewarding larger farms more than

smaller ones.

and target policies better

Decoupling is certainly not the end of the story. After agricultural support has been at least partially decoupled from

production, additional gains can be reaped by directly targeting the specic objective and tailoring the amount of outlayto the problem at hand.

An optimal policy response to a specic problem, which may be of a local nature or conned to a specic portion of

the population, requires appropriate intervention with targets that are as close to the desired outcome as possible.

Targeting reduces leakages compared to broad market interventions and also has the potential to increase economic

efciency.

Targeted policies may lead to larger and more visible implementation costs. The challenge is to balance the

economy-wide efciency gains against the implementation costs associated with targeted and tailor-made policies.

Implementation costs can be reduced by targeting variables and eligible recipients; use of information revealing

mechanisms, such as auctions, in obtaining information about the private costs of compliance; or reliance on modern

administrative techniques and technologies for managing information.

Tap into the potential of non-agricultural policies and look for market solutions.

Not all objectives can best be met by agricultural policies. Income objectives could be pursued also through general tax

and social policies already in place. Problems of rural areas would be better addressed through multi-sector policies,

embracing areas such as transport, education and training, while market-based mechanisms may be used to reward

positive or penalise negative environmental externalities of agriculture.


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23

Cd governments have mae a commitment

to agricultural policy reform

Reforms have been driven by a sharedunderstanding that domestic policy objectivesneed to be achieved more effectively, at a lessercost and with fewer distortions to world markets(1998 Communiqu of OECD AgricultureMinisters).

Undesired spillovers of OECD agriculture policieson world markets, in particular on developingcountries, have marked the on-going round ofmultilateral trade negotiations and providedmuch of the impetus to advance agriculturalpolicy reform across the OECD area.

The level of support to farmers in OECD countrieshas declined. As measured by the ProducerSupport Estimate (PSE), policy transfers fellfrom 37% of farmers total receipts in 1986-88on average to 23% in 2006-08. Nevertheless, the

pace of reform has been relatively slow. In themost recent years, the reduction of support levelsresulted more from high world prices than fromexplicit policy changes decided by governments.

Policies that interfere less ith proucer

incentives gain importance

The ways in which support is provided havealso changed. OECD governments are graduallyshifting to support that is more decoupled fromcurrent production and which gives greaterfreedom to farmers in their production choices.

Support is increasingly being tied to parametersother than commodity output, such as areaor animal numbers, and with respect to non-current levels of these parameters. Some recentnew programmes (e.g. US Direct Payments andthe EUs Single Payment Scheme) go even furtherin that they do not oblige farmers to produce inorder to receive the support.

Support is becoming increasingly conditional.Producers, if they want to receive support,are now more often obliged to contributeto improvements in the environment, rural

amenities, or better treatment of animals. In2006-08, nearly one third of support to OECDfarmers had some such conditions attached,whereas in 1986-88 this share was only 4%.

CT PC Cd d k MCM: kP TH MMTM F FM

Cd an emerging economies have graually reforme their agriculture policies over the past

to ecaes. gricultural support levels in Cd countries have ecline an governments

have shifte to more ecouple programmes, although progress iffers across countries. key

emerging economies have eliminate many policy istortions, ut current lo support levels

isguise taxation of some sectors an protection of others. Much remains to e accomplishe

an the recent foo price uctuations an economic crisis may ecome a challenge for further

policy reform. The Cd continuously monitors these evelopments an evaluates progress in

policy reform using its internationally comparale agricultural support inicators, pulishe in the

regular reportsAgricultural Policies: Monitoring and Evaluation for oth Cd an ey emerging

economies.

Producer support estimate

OECD total PSE as % of gross farm receipts PSEs as % of gross farm receipts, 2006-08 average

0

5

10

15

20

25

30

35

40

1986

198

8

1990

1992

199

4

1996

199

8

2000

2002

200

4

2006

200

8

Most distorting support

0

10

20

30

40

50

60

70

Norw

ay

Kore

a

Switze

rland

Icelan

d

Japan

E

U27

Turke

y

Cana

da

Mexico

UnitedS

tates

Australia

NewZea

land

OECD

Chil

e*

Brazil*

SouthAf

rica*

Chin

a*

Ukrain

e*

Russia*

* 2005-07 averageOther support in the PSE



24

despite notale progress, policy istortions in

the Cd area remain large

In 2006-08, around 44% of total supporttransfers to producers (PSE) in OECD countrieswere provided in relatively less distortive forms,i.e. they were not based on production or non-constrained use of inputs. 24% of transfers

imposed no requirement for recipients toproduce agricultural commodities. However,56% of support in OECD countries continues tobe provided in ways shown to create substantialdistortions to producer incentives, and also leastefcient in transferring income to producers.

n emerging economies, reforms in agriculture

folloe roaer economic reforms

Emerging economies have also changed theiragricultural policies, with the strongest impetus

coming from their own broad economic reforms.These reforms often meant changes in the wholenational development paradigm from importsubstitution industrialisation to free market.Economic liberalisation implemented in the1990s in key emerging economies involved largeprivatisations, and deregulation of domesticmarkets, trade, and exchange rate regimes.Liberalisation of agricultural policies was largelya corollary of these broader reforms, with theresult that much of the earlier policy distortionsin the agricultural sector were eliminated.

Sustained growth in the 2000s has strengthenedagricultural prices and increased scalresources available to governments. The levelsof agricultural support in emerging economiesmonitored by the OECD have tended to rise, butthey remain far below those observed in themajority of OECD countries, varying from 4%of producer receipts in Chile to 14% in Russia.

Nevertheless, these aggregate low support levelsdisguise in many cases negative support to somesub-sectors and high protection to others.

The momentum for reform shoul e

maintaine

According to OECD analysis, in the long-runperspective, OECD and emerging economies havetaken important steps towards less distortivepolicies. However, recent food price instabilityhas revived protectionist pressures, which isbeing reinforced by the current economic crisis.Advancing towards less distorted agriculturalpolicies should not be undermined, and themomentum for reform should be maintained by:

1. Continuing to reduce policy interventions inmarkets; for emerging economies this alsomeans the elimination of policy disincentives

to production where these still exist.

2. Development of the policy frameworks andinstruments to facilitate farmers managementof risks, as well as safety nets, in the context ofincreased levels of instability.

3. Changes in the delivery of support to farmersby decoupling support from productionand targeting it to well-dened objectives,outcomes and constituencies.

4. For the emerging economies, a change in the

delivery of support also involves focussingsupport to development and long-term growth,rather than interfering in prices received andpaid by producers.

5. Emerging economies also face the difcult taskof making agricultural growth inclusive for therural poor, while also helping the poor reapeconomic opportunities outside agriculture.

Agricultural indicators (2006-2008 average)

Agriculture in % of Nominal Protection

Coefcient2PSE in % of gross farm

receipts

Total support3 to agriculture

in % of GDPGDP1 Employment1

Australia 3 3 1.00 6 0.33Canada 2 2 1.11 18 0.66

European Union 2 5 1.15 27 0.95

Iceland 6 6 2.14 58 1.28

Japan 1 4 1.87 49 1.06

Korea 3 7 2.44 61 2.92

Mexico 4 13 1.05 13 0.73

New Zealand 5 7 1.01 1 0.24

Norway 1 3 1.97 62 0.96

Switzerland 1 4 1.83 60 1.30

Turkey 9 25 1.21 21 2.17

United States 1 1 1.03 10 0.72

Brazil4 6 18 1.03 6 0.67

Chile4 4 12 1.01 4 0.31

China4 11 41 1.04 9 2.23

Russia4 5 10 1.10 14 0.99

South Africa4

3 9 1.05 6 0.59Ukraine4 7 17 1.04 10 2.47

1. Average of last three available years; 2. Ratio of domestic-to-border prices.3. Includes PSE, nancing for research, education, infrastructure and other general serv ices to agriculture, and subsidies to

consumers.4. For Brazil, Chile, China, Russia, South Africa and Ukraine support indicators are the averages for 2005-2007.


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25

The Meium an onger-Term utloofor griculture

conomic onturn less severe for agriculture

The 2008 nancial crisis broke out at a time

when many nominal commodity prices hadreached historical highs. As a result of a strongglobal supply response, prices of these productsdeclined rapidly in 2008, a trend reinforced by theglobal economic downturn and the associatedslowdown in demand and contraction in trade.

The OECD Interim Economic Report for March 2009concluded that the world economy was in themidst of its deepest and most synchronisedrecession in the post-war period. To a largeextent, the impact of the economic crisison specic sectors varied according to their

exposure to tighter credit conditions and tofalling demand.

Agriculture in OECD countries is likely to havefared better than other sectors for a numberof reasons. It has a relatively smaller nancialexposure; demand is less sensitive to falls inincome; the existing set of support policiescushioned the blow; and revenue had beenaccumulated during the recent period of highprices, despite important differences across sub-sectors and farms.

The recovery that began in a number of non-OECD economies in 2009 has now spread to theOECD area (OECD Economic Outlook November2009) and should be sustained this year andnext. However, the slow recovery in consumerspending means that growth in the OECD area islikely to uctuate around 1.9% in 2010, althoughgrowth is expected to rise to 2.5% in 2011.

Demand for agricultural goods and trade isexpected to mirror the performance of the globaleconomy. The resulting changes in consumptionare likely to be less for high-income consumerswith a low income elasticity of demand formost agricultural products, than for low-income consumers. The impact can also differ

signicantly among the various agriculturalcommodities. Specic meat and dairy productswhich have a higher income elasticity may seemore variation in demand.

Agriculture may have fared relatively well inthe recession, but it is

food e agricoltura

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