The Hindu Business Line : EU’s domestic support to farmers still high: OECD

“This was despite the slight decline in support to EU farmers over the past five years when such support has become less production-distorting by moving away from market support.”

G. Srinivasan

New Delhi, Sept. 21 The Organisation for Economic Cooperation and Development (OECD) has said that domestic support to farmers in the European Union (EU) continues to remain above the average for the rest of the industrial countries and well above the most free-trading countries.

In its economic survey of the 28-member EU, released in Paris, the inter-governmental think tank of 30 rich industrial countries said that this was despite the slight decline in support to EU farmers over the past five years when such support has become less production-distorting by moving away from market support.

Hence from the focus of the economic effects of agricultural policy, as is the case for many countries, “further reform is desirable because of the economic benefits resulting for Europeans”, it said.

Stating that the EU’s Common Agricultural Policy (CAP) has many objectives including competitiveness of food production, protection of the environment, maintenance of the population in rural areas and underpinning farm incomes, the survey said that it had also some “negative side-effects”.

Thus even as it has liberalised imports from the poorest countries, import tariffs continue to reduce export opportunities for other countries and consumers pay more for certain types of foods, trapping resources in a low productivity sector.

It further said that there were many factors that contribute to more intensive farming and to the extent that the CAP encourages intensification it could cause environmental harm – though the CAP also includes policies that aim to mitigate the adverse environmental consequences.

The survey said the most significant reform was the advent of the single farm payment in 2003, replacing a plethora of the previous payments that were tied to production, herd size or planted area.

The CAP, however, still includes elements that provide spurs to produce. Decoupling is only partial for some commodities while several countries have chosen to keep significant portions of payments tided to production.

Second, support for certain products in particular through import tariffs still remains outside the single farm payment.

While de-linked payments are substantially less distorting than the pre-2003 system, they do not completely eliminate the incentive to produce.

Moreover, market price support remains high for some commodities through high tariffs, especially meat, milk and sugar and about half of the estimated aid to farmers (based on the Producer Support Estimate) is still the most market- distorting type.

Export subsidies have been reduced considerably but remain “extensive” by global standards, it said adding that the EU accounts for 90 per cent of all WTO member states’ notified export subsidies, although this measure captures only limited portion of total export support throughout the world and EU export subsidies amount to 5 per cent of the value of agricultural exports.

However, the EU has conditionally proposed phasing out all export support, including export subsidies, in its offer to the Doha trade round, the OECD said.

Needs to be broadened

It argues that the benefits of recent reforms would be significantly enhanced if all payments were decoupled from production and if the level of support were reduced further.

Some non-ad valorem tariffs for agricultural goods applicable to processed agricultural goods incorporating several inputs are complex and could benefit from simplification.

This has been conditionally proposed by the EU in its offer to the Doha trade round.

And because tariff protection on processed food is also high, reform needs to be broader than just tackling support to farmers.

Noting that EU’s farm subsidies should be reduced and market access improved, the OECD survey said the EU’s policies would influence, together with those of the other main trade majors, whether the Doha trade round succeeds or whether the world trade would splinter into regional agreements.

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