The Hindu Business Line : OECD in favour of continuing farm reforms

Highlights
Benefits worth $44 billion projected if the trade protection is halved worldwide.
The largest part of the gain is likely to flow from agricultural reform.
For many developing economies, the immediate benefits would be from manufacturing.

New Delhi , June 9

Even as the Doha Round of trade talks under the auspices of the WTO remains inconclusive on the sensitive issue of slashing domestic support for farm sector in industrial countries and tariff reduction for non-agricultural (industrial goods) in the developing countries, the case for continuing farm policy and trade reform is "compelling", says the Organisation for Economic Co-operation and Development (OECD).

In its new agriculture report, released on Friday, the Paris-based inter-governmental think tank of 30 rich industrial countries contend that if current levels of trade protection and domestic support for farm and manufactured goods were halved worldwide, the potential benefits — through higher incomes for consumers and producers — could total around $44 billion a year. It said the largest part of the gain is likely to flow from agricultural reform and 80 per cent of the benefits in agriculture would emanate from cutting tariffs and export subsidies.

Reform benefits

Stating that almost all countries gain overall, the report said those with the highest levels of support and protection would benefit most from such reforms. The most efficient agricultural exporters would also gain significantly. But for many developing economies the immediate benefits would be relatively small and would be focused more in manufacturing than in agricultural trade it said.

The OECD report said the average Producer Support Estimate (PSE) in the OECD area is 30 per cent, which meant that almost one-third of farm receipts are derived from Government intervention. This is an improvement on the levels witnessed before the Uruguay Round (UR) of trade talks, which averaged 37 per cent. Most of the support, 65 per cent, comes through measures that raise producer prices, including tariffs, export subsidies and domestic output subsidies.

Support levels

"These measures seriously distort production, markets and trade," the report said adding that there was also some improvement as these policies represented 83 per cent of all support before the UR

Pointing out that support levels differ enormously across countries, it said Australia reports a PSE of only four per cent; New Zealand two per cent; European Union 34 per cent and the United States 17 per cent. The highest levels are reported by Norway, Switzerland, Korea and Japan, all around 60 per cent or higher.

In a sort of support to developing countries' plea for removal of domestic support and export subsidies in the farm sector in advanced countries, the OECD said farm incomes, the quality of the agricultural environment and landscape and poverty in rural areas are often quoted as the reasons for these high levels of intervention. But in practice, it said, the extant policy set is quite "inefficient" in advancing these goals. Income effects are often perverse, granting most of the support to those who have the largest farms and generating large leakages to upstream and downstream agents who were not the intended beneficiaries or to people who own but do not farm land.

Arguing that environmental effects are sometimes the opposite of what was intended as subsidies stimulate intensive production, the report said rural development is more effectively fostered by measures such as investment in infrastructure, education and social services.

Multilateral reform

Dwelling at length the effects of multilateral reform, it said OECD results suggest that in the United States, despite the loss of the trade-distorting payments that a reform would induce, all types of household, whether involved in commercial, hobby or retirement farming, gain. This is because the increases in commodity prices more than compensate for the losses in payment.

The report made out a strong case for continuing farm policy and trade reform since decoupled and targeted policies would set off better outcomes across a broad spectrum of domestic objectives— income, equity, competitiveness, environment and rural development.

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