OECD points its finger at high EU farm subsidies that 'distort markets'

Government support to agriculture in OECD countries fell to 18% of total farm receipts in 2010, a record low linked to high commodity prices, according to a new OECD report.

Support to producers stood at US$227 billion in OECD countries in 2010, confirming a longstanding trend toward falling farm support.

The OECD report, Agricultural Policy Monitoring and Evaluation 2011 points out that most government support is still given in ways that distort production and trade while doing relatively little to improve productivity and competitiveness, ensure sustainable resource use or help farmers cope with risk.

“With tighter government budgets and farmers getting top prices for their crops, governments should begin to shift from payments that further support farm incomes and move to policies that have long-term benefits for the global food economy,” said OECD Director for Trade and Agriculture Ken Ash. “The time is ripe for reforming farm support.”

Support levels vary enormously among OECD countries. Over the 2008-10 period, New Zealand had the lowest level of support to farm receipts (PSE%), at just 1% of farm income, followed by Australia (3%), and Chile (4%). The United States (9%), Israel and Mexico (12%), and Canada (16%) were also below the OECD average.

Even though the European Union has reduced its level of support to 22% of farm income, but remains very high and well above the OECD average.

At the other end of the scale, support to farmers remains relatively high in Korea (47%), Iceland (48%), Japan (49%), Switzerland (56%) and Norway (60%).

Farm support in emerging countries is generally well below OECD levels, but also varies over time and across countries.

Brazil, South Africa and Ukraine generally support agriculture at levels well below the OECD average, while support in China is approaching the OECD average.

In Russia, farm support now exceeds the OECD average.

The OECD says that growing global food demand, higher prices, more volatile markets and increasing resource pressures are arguments for moving beyond “status quo” policies.

Countries should focus on improving farm productivity, sustainability and long-term competitiveness, rather than policies that distort markets. Farm policy should also offer greater support to research, innovation and education.

With volatility expected to remain high and growing concerns about climate change, farmers will need comprehensive risk management systems that best address their specific needs. Governments should support the development of market-based tools while steering clear of actions that interfere with farmers’ management of normal business risk.

While high farm prices create opportunities for farmers, the OECD recognises that high and volatile food prices have particularly severe impacts on the poorest people on the planet, who spend a large proportion of their available income on food. For this group of consumers, improved safety nets can help with immediate needs, but policies that improve agricultural productivity and long-term resilience will provide the long-term solution.