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Agricultural policy objectives Measurement of support

Agricultural policy objectives Measurement of support. Economics of Food Markets Lecture 6 Alan Matthews. Outline. Tariffs as a measure of agricultural support Nominal and effective rates of protection Introduction to the OECD Producer Support Estimate (PSE) Examples of PSE trends

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Agricultural policy objectives Measurement of support

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  1. Agricultural policy objectivesMeasurement of support Economics of Food Markets Lecture 6 Alan Matthews

  2. Outline • Tariffs as a measure of agricultural support • Nominal and effective rates of protection • Introduction to the OECD Producer Support Estimate (PSE) • Examples of PSE trends • Issues and criticisms of the PSE measure

  3. Tariff levels in agriculture • Concepts • Bound versus applied tariffs • MFN versus preferential tariffs • Specific, mixed and ad valorem tariffs • Problem in converting specific/mixed to percentage tariffs requires estimates of trade unit values • Weighting tariffs • Tariffs are established at HS8 or HS10 level for thousands of agricultural commodities, how to calculate an average tariff?

  4. Incorporating non-tariff barriers • Not all border protection takes the form of tariffs • E.g. quantitative restrictions, food safety barriers • So just looking at formal tariff schedules can give misleading impression of level of protection • Tariff equivalent of non-tariff barriers can be calculated by comparing level of domestic to world prices (adjusting for quality and transport differences)

  5. Traditional measures of protection • The Nominal Protection Coefficient • Defined as the ratio between the domestic and the world price • If domestic price is €150 per tonne, and the world price is €100 per tonne, the NPC is 1.5 • Also expressed as the Nominal Rate of Protection: difference between the domestic and world prices, expressed as percentage of the world price. In this case 50%.

  6. Tariff levels in agriculture • Weighting approaches • Simple average • Trade-weighted averages • (equivalent to expressing collected tariff revenue to total import expenditure) • Equivalence measures • What would be the equivalent uniform average tariff which would have the same impact (on what?) of the existing tariff structure • Requires calculation of counterfactual based on explicit model and parameter assumptions

  7. Producer Support Estimate • Encompasses a broader range of supports to agriculture • Market price support • Budgetary support • Direct payments • Input subsidies • General services to agriculture • Introduced by OECD in the mid-1980s as the Producer Subsidy Equivalent

  8. Producer Support Estimate • the PSE measures the value of the monetary transfers to producers from consumers of agricultural products and from taxpayers . • An indicator of the annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, measured at the farm-gate level, arising from policy measures that support agriculture, regardless of their nature, objectives or impacts on farm production or income.

  9. PSE indicators • PSEs are expressed in a number of ways • total PSE: the total value of transfers to producers • percentage PSE: total value of transfers as a percentage of the total value of production (valued at domestic prices), adjusted to include direct payments and to exclude levies • unit PSE: the total value of transfers per tonne • PSE per farm or per labour unit

  10. Other OECD indicators • CSE Consumer Support Estimate – the value of monetary transfers from domestic consumers to producers and taxpayers • Nominal Protection Coefficient – as defined earlier • Nominal Assistance Coefficient – total value of production at farmgate prices plus budgetary support to the value of production at world prices • General Services Support Estimate • Total Support Estimate (PSE)

  11. Magnitude of support • Following slides show examples of the information provided by PSE indicators • Comparison of support levels across countries using percentage PSE • Comparison of support levels across commodities using percentage PSE • Trend in composition of PSE measure over time

  12. Criticisms of PSE indicator • Are PSE trends distorted by changes in border prices • But this captures an important element of domestic policy • Are actual world prices a good reference point for PSE? • Is the PSE an indicator of trade distortion impacts?

  13. Reading • OECD, 2004. Agricultural Support: How is it Measured and What Does It Mean?, OECD Policy Brief, Paris • Tangermann, S., 2005. Is the concept of the Producer Support Estimate in need of revision? OECD Food, Agriculture and Fisheries Working Papers, No. 1, OECD Publishing. • OECD, 2004, OECD Agricultural Policies 2004 At A Glance • Legg, W., 2003. Agricultural subsidies: measurement and use in policy evaluation, Journal of Agricultural Economics

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