Agricultural Policies in Emerging Economies 2009: Monitoring and Evaluation

u le d se ea EC e R O An OECD Rural Policy Reviews: China (2009) OECD Review of Agricultural Policies: Chile (2...

Author: OECD Organisation for Economic Co-operation and Development

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OECD Rural Policy Reviews: China (2009) OECD Review of Agricultural Policies: Chile (2008) Agricultural Policies in OECD Countries: At a Glance (2008) OECD’s Producer Support Estimate and Related Indicators of Agricultural Support: Concepts, Calculations, Interpretation and Use (The PSE Manual) (2008), available at www.oecd.org/tad/support/psecse

monitoring and evaluation

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Agricultural Policies in Emerging Economies

FURTHER READING

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This report analyses policy developments during 2006-08 in seven economies: Brazil, Chile, China, India, Russia, South Africa and Ukraine. This period was marked by a significant increase in world prices for most, but not all, agricultural commodities. Policy responses to rising food prices included tariff reductions, export restrictions, increased minimum prices and price controls, input subsidies, sales of stocks and direct transfers to the most disadvantaged. Other major common policy developments included: expanded government-supported credit facilities and/or debt rescheduling, endeavours to improve the delivery and performance of agricultural policies, extended coverage of insurance programmes and further efforts in land reform. A comprehensive statistical annex containing a wide range of contextual information for these economies is also included in this report. Estimates of support to agriculture in six economies (India is not yet covered) from 1995 to 2007 are provided, in conformance with recent changes to the OECD measurement methodology. This allows a consistent comparison across emerging economies and with OECD countries in terms of changes in the level and composition of support to producers and the sector as a whole. Findings show that the level of producer support during 2006-08 was lower than the OECD average in all six economies, with significant differences between them. Nevertheless, the level of producer support has shown a general increase over time and is typically provided in ways that distort production and trade. The database of indicators for the six economies is available on line: www.oecd.org/tad/support/psecse.

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The full text of this book is available on line via these links: www.sourceoecd.org/agriculture/9789264059276 www.sourceoecd.org/emergingeconomies/9789264059276 www.sourceoecd.org/transitioneconomies/9789264059276 Those with access to all OECD books on line should use this link: www.sourceoecd.org/9789264059276 SourceOECD is the OECD online library of books, periodicals and statistical databases. For more information about this award-winning service and free trials ask your librarian, or write to us at [email protected].

2009

isbn 978-92-64-05927-6 51 2009 01 1 P

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About OECD Browse_it editions In a traditional bookshop you can browse the display copies from cover-to-cover, free of charge. Wouldn't it be good to be able to do the same online? Now you can. OECD's Browse_it editions allow you to browse our books, online, from cover-to-cover. But, just as in a real bookshop where you can't take or copy pages from the books on display, we've disabled the print and copy functions in our Browse-it editions - they're read-only. And, just as in a real bookshop, you may choose to buy or borrow from a library some titles you've browsed, so we hope you'll buy or borrow our books when they meet your needs. Tell us what you think about our Browse-it service, write to us at [email protected]. Buying OECD Publications You can purchase OECD books and e-books from our Online Bookshop - www.oecd.org/bookshop where, if you purchase printed editions you can download the e-book edition free of charge. Our books are also available from a network of distributors, click the 'Distributors' button on this website: www.oecd.org/publications/distributors to find your nearest OECD publications stockist. OECD Publications in Libraries You'll find OECD publications in many institutional libraries around the world, especially at universities and in government libraries. Many subscribe to the OECD's own e-library, SourceOECD. SourceOECD provides online acess to our books, periodicals and statistical databases. If your institutional library does not yet subscribe to SourceOECD, tell your librarian about our free three-month trial offer. For more details about SourceOECD visit http://new.SourceOECD.org or email [email protected]. OECD has a network of Depository Libraries in each Member country where all OECD printed publications are available for consultation - www.oecd.org/deposoitorylibraries for a list.

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MONITORING AND EVALUATION

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Agricultural Policies in Emerging Economies r c tu L e 2009

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The OECD is a unique forum where the governments of 30 democracies work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies.

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ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

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The OECD member countries are: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Commission of the European Communities takes part in the work of the OECD. OECD Publishing disseminates widely the results of the Organisation’s statistics gathering and research on economic, social and environmental issues, as well as the conventions, guidelines and standards agreed by its members. This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or of the governments of its member countries.

This document has been produced with the financial assistance of the European Union. The views expressed herein can in no way be taken to reflect the official opinion of the European Union.

Also available in French under the title: Politiques agricoles des économies émergentes SUIVI ET ÉVALUATION 2009 Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda. Cover illustration: In the centre © Adalberto Rios Szalay/Sexto Sol/Photodisc/Getty Images On the top left © OECD On the top right © Javier Pierini/Photographer’s Choice RF/Getty Images On the bottom right © Jon Warburton Lee/Photographer’s Choice RF/Getty Images © OECD 2009 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d'exploitation du droit de copie (CFC) [email protected].

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Foreword

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key objective of the OECD is to facilitate policy dialogue among policy makers with a view to identifying good practices across a wide range of economic and social policy issues. The OECD places a high priority on its dialogue with non-member economies, recognising that such dialogue improves the quality and relevance of the work and assists collective action to address global economic challenges. During 2006-08, the period covered by the report, high prices for many agricultural commodities posed a major policy challenge for many countries. Policy responses to the “food crisis” are a special focus of this report.

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This monitoring exercise documents and evaluates the latest agricultural policy developments in seven emerging economies: Brazil, Chile, China, India, Russia, South Africa and Ukraine. Chile has been included for the first time, following the completion of a country review of agricultural policies in 2008. Bulgaria and Romania, which were included in the previous edition, have subsequently acceded to the European Union and therefore, by convention, are now covered in the annual monitoring and evaluation report of agricultural policies in OECD countries. The other important development since the previous report concerns changes made to the method used to calculate and present the Producer Support Estimate (PSE) and related indicators of support. Ongoing changes in agricultural policies require that the methodology be reviewed periodically. A new classification of policy measures within the PSE and a new method for calculating commodity-specific support have been adopted, and consequently implemented in this report. Definitions of support indicators and changes in the classification system are detailed in an annex, along with a description of improvements made to the estimates of support for each economy. The structure of the report is similar to that prepared on an annual basis for OECD countries, providing a common benchmark for international dialogue on agricultural policy reform. An overview chapter provides context on world commodity markets, comments on policy developments, compares support indicators between economies and over time, and presents some conclusions on recent changes. For each economy, a separate chapter describes policy developments in 2006-08 and presents estimates of agricultural support in a consistent format. A comprehensive statistical annex containing a wide range of contextual information for these economies is also included.

AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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Acknowledgements

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This report was prepared by the OECD Trade and Agriculture Directorate. The main authors were Andrzej Kwiecinski é (co-ordinator), Jonathan Brooks, Dalila Cervantes-Godoy, Darryl Jones (consultant), Olga Melyukhina and Václav Vojtech. Comments were received from Ken Ash, Carmel Cahill and Douglas Lippoldt. Statistical support was provided by Florence Bossard, who also compiled the statistical annex and graphics. Anita Lari formatted the report and provided administrative support for the 2008 Global Forum on Agriculture where the chapters were reviewed. A number of local experts contributed valuable background material for the preparation of the country chapters, including: Vicente Marques (Brazil), Andrea Cerda Vásquez (Chile), Cheng Guoqiang and Li Xiande (China), Simrit Kaur (India), Ekaterina Gataulina, Viktor Koloskov, Ludmila Muratova, Roman Romashkin, Sergey Strokov and Vasily Uzun (Russia), André Jooste, David Spies and Pieter Taljaard (South Africa) and Irina Kobuta (Ukraine). Technical assistance and programming in the preparation of the PSE/CSE database was provided by Frano Ilicic.

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Table of contents

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Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

List of Acronyms and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Chapter 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Developments in world food markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Main changes in agricultural policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Developments in agricultural support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy observations and recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17 18 23 27 37 38

Chapter 2. Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy context: Brazil agriculture at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

41 42 44 45 59

Chapter 3. Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy context: Chile’s agriculture at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61 62 64 65 75

Chapter 4. China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy context: China’s agriculture at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

77 78 80 81 93

Chapter 5. India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview of support estimates for Indian agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy context: India’s agriculture at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

95 96 98 99 112

Chapter 6. Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113 114

Policy context: Russia’s agriculture at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Statistical Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Potential impacts on agriculture of the financial crisis . . . . . . . . . . . . . . . . . . . . . . . Why does the PSE change when world prices change? . . . . . . . . . . . . . . . . . . . . . . . Food price inflation in Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The 2008 debt settlement package in Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Food price inflation in Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Structural changes: Preliminary results from the 2007 Agricultural Census in Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Food price inflation in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Food price inflation in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New regulatory and administrative framework for agricultural policies in Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Food price inflation in Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Food price inflation in South Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade agreements involving South Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Food price inflation in Ukraine and government's responses . . . . . . . . . . . . . . . . . Ukraine’s WTO commitments in agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Classification of PSE and related support indicators applied until 2006 . . . . . . . . . Classification of PSE applied from 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Definitions of categories in the new PSE classification . . . . . . . . . . . . . . . . . . . . . . .

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Measuring Agricultural Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Definitions of OECD indicators of agricultural support . . . . . . . . . . . . . . . . . . . 2. The PSE classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Measuring agricultural support in emerging economies: technical updates and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Chapter 8. Ukraine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy context: Ukraine’s agriculture at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Chapter 7. South Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy context: South Africa’s agriculture at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Boxes 1.1. 1.2. 2.1. 2.2. 3.1. 3.2. 4.1. 5.1. 6.1. 6.2. 7.1. 7.2. 8.1. 8.2. A.1. A.2. A.3.

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Tables 1.1. Policy measures taken by governments to reduce the impact of higher food prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2. Contribution to the change in Producer Support Estimate, 2006 to 2007 . . . . . . . . 1.3a. Contribution to the change in Market Price Support, 2006 to 2007 . . . . . . . . . . . . . 1.3b. Contribution to the change in border price, 2006 to 2007 . . . . . . . . . . . . . . . . . . . . . 1.4. Single Commodity Transfers by commodity, 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . 2.1. Brazil: Estimates of support to agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2. Brazil: Basic economic and agricultural indicators, 2005-07 . . . . . . . . . . . . . . . . . . . 2.3. Brazil: AGF minimum guarantee prices for main programme crops, 2005-09 . . . . 2.4. Brazil: Expenditure and volume of product by output support instrument, 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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B.1. B.2. B.3. B.4. B.5. B.6. B.7. B.8. B.9. B.10. B.11. B.12. B.13. B.14. B.15. B.16. B.17. B.18. B.19. B.20. B.21. B.22. B.23. B.24.

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3.4. 4.1. 4.2. 4.3. 5.1. 5.2. 6.1. 6.2. 6.3. 7.1. 7.2. 7.3. 8.1. 8.2. 8.3. 8.4.

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Brazil: Annual credit allocations in the SNCR, 2003-07 . . . . . . . . . . . . . . . . . . . . . . . Chile: Estimates of support to agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chile: Basic economic and agricultural indicators, 2005-07 . . . . . . . . . . . . . . . . . . . Number and area of agricultural and forestry operations by type in Chile, 1997 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Agricultural and forestry land use in Chile, by activity, 2007 . . . . . . . . . . . . . . . . . . China: Estimates of support to agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China: Basic economic and agricultural indicators, 2005-07 . . . . . . . . . . . . . . . . . . . Minimum purchase prices for grains in China, 2004-08 . . . . . . . . . . . . . . . . . . . . . . India: Basic economic and agricultural indicators, 2005-07 . . . . . . . . . . . . . . . . . . . Minimum support prices in India for selected commodities, 2005-09 . . . . . . . . . . . Russia: Estimates of support to agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia: Basic economic and agricultural indicators, 2005-07 . . . . . . . . . . . . . . . . . . Russia’s meat import quotas in 2005-09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . South Africa: Estimates of support to agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . South Africa: Basic economic and agricultural indicators, 2005-07 . . . . . . . . . . . . . South African Customs Union tariff schedule, August 2007 . . . . . . . . . . . . . . . . . . Ukraine: Estimates of support to agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ukraine: Basic economic and agricultural indicators, 2005-07 . . . . . . . . . . . . . . . . . Ukraine: Credit received by agricultural enterprises in 2006-07 . . . . . . . . . . . . . . . . Ukraine's import tariff rates on key agricultural products before and after WTO accession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share of agriculture in total employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share of agriculture in GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Agricultural input price index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Agricultural output price index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retail food price index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross Agricultural Output growth, total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross Agricultural Output growth, crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross Agricultural Output growth, livestock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total grain production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wheat production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Coarse grain production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total meat production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Beef and veal production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pigmeat production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Milk production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Production of selected commodities in selected developing countries . . . . . . . . . . Average share of household income spent on food . . . . . . . . . . . . . . . . . . . . . . . . . . Annual consumption of grain and grain products . . . . . . . . . . . . . . . . . . . . . . . . . . . Annual consumption of meat and meat products . . . . . . . . . . . . . . . . . . . . . . . . . . . Annual consumption of milk and dairy products . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total area sown, crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grain sown areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All cattle inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pig inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Figures 1.1. Changes in nominal international prices for selected agricultural commodities since 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2. Changes in nominal prices for selected energy, fertiliser and freight costs since 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3. Inflation, consumer prices, annual average, 2000-08 . . . . . . . . . . . . . . . . . . . . . . . . . 1.4. Agricultural and food trade balance, 1995 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5. Evolution of producer support levels, 1997 to 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

19 21 21 25 28

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TABLE OF CONTENTS

3.6. 3.7. 4.1. 4.2. 4.3. 4.4. 4.5. 5.1. 5.2. 5.3. 5.4. 5.5. 6.1. 6.2. 6.3. 6.4. 6.5. 6.6. 6.7. 6.8. 6.9. 6.10. 6.11. 6.12. 6.13. 7.1. 7.2. 7.3. 7.4. 7.5. 7.6. 8.1. 8.2.

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1.10. 2.1. 2.2. 2.3. 2.4. 2.5. 3.1. 3.2. 3.3. 3.4. 3.5.

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Composition of producer support, 1995-97 and 2005-07 . . . . . . . . . . . . . . . . . . . . . . Producer Nominal Protection Coefficients, 1995-97 and 2005-07 . . . . . . . . . . . . . . . Single Commodity Transfers as a share of PSE, 1995-97 and 2005-07 . . . . . . . . . . . Level and composition of General Services Support Estimate, 2000-02 and 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Composition of Total Support Estimate, 1995-97 and 2005-07 . . . . . . . . . . . . . . . . . Brazil: PSE level and composition over time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brazil: Producer SCT by commodity, 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brazil: Evolution and annual changes of agricultural output, 1995-2007 . . . . . . . . Brazil: Agro-food trade, 1995-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brazil: Consumer price indices in 2006-08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chile: PSE level and composition over time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chile: Producer SCT by commodity, 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chile: Evolution and annual changes of agricultural output, 1995-2007 . . . . . . . . . Chile: Agro-food trade, 1995-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chile’s monthly wholesale prices of wheat and maize compared with world market prices, 2006-08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chile’s CPI compared with oil prices and exchange rate . . . . . . . . . . . . . . . . . . . . . . Chile: Shares of agricultural transfers by programme area, 2007 . . . . . . . . . . . . . . . China: PSE level and composition over time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China: Producer SCT by commodity, 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China: Evolution and annual changes of agricultural output, 1995-2007 . . . . . . . . China: Agro-food trade, 1995-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China’s monthly wholesale prices of wheat, rice, maize and soybeans compared with world market prices, 2006-08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average Nominal Rates of Assistance in India, 1965-2004 . . . . . . . . . . . . . . . . . . . . Nominal Rate of Assistance in India by commodity, 2000-04 . . . . . . . . . . . . . . . . . . India: Evolution and annual changes of agricultural output, 1995-2007 . . . . . . . . . India: Agro-food trade, 1995-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . India’s monthly wholesale prices of wheat, rice, maize and soybeans compared with world market prices, 2007-08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia: PSE level and composition over time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia: Producer SCT by commodity, 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia: Evolution and annual changes of agricultural output, 1995-2007 . . . . . . . . Russia: Agro-food trade, 1996-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia: Consumer price indices in 2007-08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia: Retail price growth rates for key food items . . . . . . . . . . . . . . . . . . . . . . . . . Russia: Components of the State Programme for Development of Agriculture in 2008-12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia: Expenditures under the Financial Sustainability Component of the State Programme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia: Concessional credit allocations in 2005-08 . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia: Budgetary expenditures related to concessional credit, 2005-08 . . . . . . . . Russia: Distribution of agricultural land by type of farm, as of 1 July 2006 . . . . . . . Russia: Share of farms reporting agricultural operations in 2006 . . . . . . . . . . . . . . Russia: Share of utilised agricultural land in farms of different type in 2006 . . . . . South Africa: PSE level and composition over time . . . . . . . . . . . . . . . . . . . . . . . . . . South Africa: Producer SCT by commodity, 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . South Africa: Evolution and annual changes of agricultural output, 1995-2007 . . South Africa: Agro-food trade, 2000-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . South Africa: Consumer Price Indexes for food and selected food products . . . . . South Africa: Percentage distribution of annual household consumption expenditure by expenditure group and income deciles . . . . . . . . . . Ukraine: PSE level and composition over time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ukraine: Producer SCT by commodity, 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Ukraine: Evolution and annual changes of agricultural output, 1995-2007 . . . . . . Ukraine: Agro-food trade, 1996-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ukraine: Consumer price indices in 2007-08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ukraine: Retail price growth for key food items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ukrainian applied import tariffs on key agricultural products . . . . . . . . . . . . . . . . . Ukrainian wheat export quota and wholesale wheat prices in 2006-08 . . . . . . . . .

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CIP CIS CNR COMSA CONAB CONADI CORFO COTRISA CPC CPI CPI-IW DIPRES DIRECON DoA EC ECA

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Poorest-of-the-poor (antyodaya ann yojana; India) Agricultural Bank of China ASEAN-China Free Trade Agreement African, Caribbean and Pacific Agri-Export Zone (India) Family Agriculture (Agricultura Familiar Campesina; Chile) African Growth and Opportunity Act Black Economic Empowerment Framework for Agriculture Aggregate Measurement of Support Agricultural and Processed Food Products Exports Development Authority (India) Agricultural Produce Marketing Committee Act (India) Asia-Pacific Trade Agreement Association of South East Asian Nations Financial Coordination Subsidy (Bono de Articulación Financiera; Chile) Botswana, Lesotho, Namibia and Swaziland National Bank for Economic and Social Development (Brazil) Commission for Agricultural Costs & Prices (India) Comprehensive Agricultural Support Programme (South Africa) Central Bank of Russia Agreement on Common Economic Space (between Belarus, Kazakhstan, Russia and Ukraine) Central Issue Price (India) Commonwealth of Independent States National Irrigation Commission (Comisión Nacional de Riego; Chile) Agricultural Insurance Programme (Comité de Seguro Agrícola; Chile) National Food Supply Agency (Brazil) National Service for Indigenous Development – MIDEPLAN, Chile (Corporación Nacional de Desarrollo Indígena) Economic Development Agency (Corporación de Fomento a la Producción; Chile) Wheat Marketing Enterprise (Comercializadora de Trigo; Chile) Communist Party of China Consumer Price Index Consumer Price Index for Industrial Workers (India) Budget Department (Dirección de Presupuesto), Chilean Ministry of Finance Directorate for International Economic Relations – Chilean Ministry of Foreign Affairs (Dirección de Relaciones Económicas Internacionales) Department of Agriculture (South Africa) European Commission Economic Complementation Agreement (Chile)

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INE KCC LARP LRAD MAFISA MAPA MDA MEP MERCOSUR MERT MFN MIDEPLAN MINAGRI MIP MOP MSP NABARD NAFED NAIS NAMC NAP NDRC

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EFTA EPA EU FAD FAO FAP FCI FDI FOSIS FSSS FTA GAO GATT GDP GEIS GMO GOI GRF HRB IEPA IMF INDAP

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Essential Commodity Act (India) Economic Commission for Latin America and the Caribbean – United Nations (Comisión Económica para América Latina y el Caribe – CEPAL) European Free Trade Association Economic Partnership Agreements European Union Fund of Delegated Cash Management (Fondo de Administración Delegada; Chile) Food and Agriculture Organization of the United Nations Federal Agency for Regulation of Food Market (Russia) Food Corporation of India Foreign Direct Investment Social and Solidarity Investment Fund (Fondo de Solidaridad e Inversión Social; Chile) Federal State Statistics Service (Russia) Free Trade Agreement Gross Agricultural Output General Agreement on Tariffs and Trade Gross Domestic Product General Export Incentive Scheme (South Africa) Genetically Modified Organism Government of India Government of the Russian Federation Basic Irrigation Hectares (Hectáreas de Riego Básico; Chile) Interim Economic Partnership Agreement International Monetary Fund National Institute for Agricultural Development (Instituto Nacional de Desarrollo Agropecuario; Chile) Chile’s National Statistical Office (Instituto Nacional de Estadisticas de Chile) Kisan (Farmer) Credit Card (India) Land and Agrarian Reform Project (South Africa) Land Redistribution and Agricultural Development (South Africa) Micro-Agricultural Finance Scheme of South Africa Ministry of Agriculture, Livestock and Food Supply (Brazil) Ministry of Agrarian Development (Brazil) Minimum Export Price (India) Southern Common Market Ministry of Economic Development and Trade (Russia) Most Favoured Nation Chilean Ministry of Planning and Cooperation Chilean Ministry of Agriculture Market Intervention Price (India) Chilean Ministry of Public Works Minimum Support Price (India) National Bank for Agriculture and Rural Development (India) National Agricultural Cooperative and Marketing Federation of India National Agricultural Insurance Scheme (India) National Agricultural Marketing Council (South Africa)

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National Agriculture Policy (India) National Development and Reform Commission (China) AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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OECD PBS PLAS PNRA II PPP PROCHILE PRONAF PRRS PSS R&D RBI RRA SACU SADC SAFTA SAG SARB SASA SAT SEZ SINOGRAIN SNCR SPS SSG STE TBT TDCA TPDS TICA TRQ UF UN URAA USA VAT WB WBCIS WTO

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Currencies BRL CLP CNY

Brazilian real Chilean peso Chinese yuan renminbi

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Euro Indian rupee Russian rouble Ukrainian hryvnia United States dollar South African rand

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Consumer Support Estimate General Services Support Estimate Market Price Support Nominal Assistance Coefficient Nominal Protection Coefficient Producer Support Estimate Single Commodity Transfers Total Support Estimate

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ISBN 978-92-64-05927-6 Agricultural Policies in Emerging Economies 2009 Monitoring and Evaluation © OECD 2009

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his report monitors and evaluates government support to agriculture in seven emerging economies during 2006-08: Brazil, Chile, China, India, Russia, South Africa and Ukraine. While the economic importance of the agricultural sector is falling relative to other sectors in these countries, the sector continues to play a vital role in providing employment and contributing to food security. Although weather conditions can cause large short-term fluctuations, over the longer-term both agricultural production and, in particular, agro-food trade are growing rapidly. Brazil, Chile, India and Ukraine are net exporters of agro-food products, while China and Russia are net importers.

The three-year period from 2006 to 2008 was characterised by extreme volatility in international prices

International oil prices rose sharply in 2006-07, resulting in a substantial increase in the cost of energy based inputs such as fuel, fertiliser and irrigation. In the second half of 2008, downward pressure on commodity prices was exerted by the global financial crisis. This pressure is likely to intensify should the crisis lead to a global recession. Governments responded to the sharp rise in food prices with wide-ranging policy measures. While some of them, such as raising interest rates, were introduced to reduce demand, most were implemented to increase or at least ensure supply. The most common response was to lower or suspend import tariffs and other taxes on food products. Those countries with state-held stocks released them into the domestic market. Chile and South Africa focused on transfers, either in cash or food, targeting directly those households who were most adversely affected by the rise in food prices. China, India, Russia and Ukraine introduced taxes or quantitative restrictions on exports of certain agricultural products. The use of such measures during 2007 and 2008 drew attention to the minimal disciplines imposed on export barriers by WTO rules and raised several concerns. While potentially increasing the supply of specific products to the domestic market, export barriers reduce supply on the world market, placing further upward pressure on prices in importing countries. They can impede the transmission of price signals to domestic producers, reducing the market incentives to expand production. Moreover, export restrictions may potentially undermine trust in trade, encourage other countries to adopt policies driven by inefficient self-sufficiency objectives and provide incentives for speculative activities. In some cases, governments also sought to stimulate the long term supply of agricultural commodities by increasing input subsidies, particularly for fertilisers. Such measures, however, may also have negative consequences. Input subsidies can encourage

15

EXECUTIVE SUMMARY

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For the period 2005-07, estimates of government support to producers as a per cent of gross farm receipts (%PSE) were: Chile (4%), Brazil (6%), South Africa (6%), China (9%), Ukraine (9%) and Russia (14%). While the OECD has not yet estimated support indicators for India, evidence from other studies suggests the level of producer support would be in the range of 10%-20%. These levels of producer support are below the OECD average of 26%.

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higher consumption than would have otherwise been the case and, in some instances, may be associated with inefficiencies and serious environmental damage. Consequently, the report recommends that any increase in input subsidies associated with short-term shortfalls should be made time bound or linked to the actual input cost, so the subsidy is reduced when the input cost comes down.

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relatively stable in Chile, Brazil and South Africa, increased in China and Russia, and fluctuated in Ukraine. In addition to the level of support, the composition of support ( the way in which transfers are provided to farmers) is also relevant, due to the diverse effects of different instruments on production, trade, income and the environment. The composition of producer support in the emerging economies is dominated by transfers based on either commodity output (market price support [MPS] and payments based on output) or input use. These are considered to be most production and trade distorting, and are less efficient at transferring income to producers. In comparison with OECD countries, very little use is made of payments based on other factors such as land, animals or income. Annual changes in the level of support are primarily driven by changes in the value of transfers arising from MPS, which are affected by changes in the quantity of production, international prices and exchange rates, as well as policy measures such as tariffs, minimum guarantee prices and export subsidies. Failure to reach agreement in the WTO Doha round of negotiations has meant there has been little pressure to change these policy measures. Only in Ukraine, as a consequence of its accession to the WTO in 2008, has there been a noticeable decrease in tariffs for highly supported commodities such as pigmeat, poultry and sugar. In terms of payments based on input use, Brazil, India and Russia expanded producer access to concessional credit in 2006-08 to encourage investment or enable producers to cope with falling incomes. At the same time, new debt rescheduling and – in some cases – debt write-offs are envisaged in Brazil, India and Ukraine. While access to credit is vital for the further development of agriculture in emerging economies, the report recommends that governments review and remove barriers to private sources of credit. Debt rescheduling, done on an basis, can damage the discipline of credit systems and create an expectation on the part of farmers that the government will bail them out in the event of future payment difficulties.

AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009 – ISBN 978-92-64-05927-6 – © OECD 2009

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Chapter 1

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Overview

This chapter provides an overview of developments over the period 2006 to 2008 in agricultural policies in seven emerging economies: two from the South American continent (Brazil and Chile); two from Asia (China and India): two from Europe (Russia and Ukraine) and one from Africa (South Africa). A separate chapter for each of the seven economies, providing in-depth analysis and commentary, follows this overview. The first section discusses developments in world food markets, with a particular emphasis on the significant increase in global agricultural prices. Policy responses to higher food prices, along with other significant policy changes and new initiatives are then described. The global spread of the seven economies, their net trade positions (net exporters and net importers) and their differing policy objectives provide for an interesting contrast in terms of government policy responses to the challenge of food price inflation. The third section examines changes in the level and composition of agricultural support since 1995-97, a period which coincides with the beginning of implementation commitments made under the Uruguay Round Agreement on Agriculture (URAA), and makes comparisons between these economies and with the OECD country averages. Finally, some policy conclusions are offered both in terms of specific responses to higher agricultural prices and the general direction of agricultural policy in these seven emerging economies.

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OVERVIEW

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Developments in world food markets

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The first part of this section discusses the significant increase in international commodity prices, noting differences between commodities in terms of the timing and the

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extent of increases, and the contributing factors. The impact of higher food and fuel prices on inflation is discussed in the second part, and the variety of policy responses in the

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following section.

International commodity prices have risen dramatically The period under review has witnessed a surge in international prices for some commodities, which began to rise sharply in 2006 initially for wheat and maize, and then for dairy products and oilseed crops (Figure 1.1). International market prices for these commodities more than doubled in nominal terms between the beginning of 2005 and the end of 2007, and continued to rise rapidly for some through the first six months of 2008. International prices for rice, which had been increasing at a slower pace, tripled between January and May 2008. However, prices for these commodities began falling in the second half of 2008 on the expectation of favourable crop harvests and because of a slowing world economy. In comparison, international prices for meat products, with the exception of poultry, have not shown such a dramatic rise although they were continuing to trend upward through the latter part of 2008. After peaking at the end of 2005, international prices of sugar declined during 2006 and 2007, but rose once again in 2008 due to concerns about the Brazilian harvest. Price spikes, like price troughs, are not rare occurrences in agricultural markets, although periods of high prices tend to be short lived compared with periods of low prices. Further, the recent price spike is neither the only nor even the most important one to occur in the last 30-plus years. In inflation adjusted terms, peak prices in mid-2008 were well below the peaks reached in the early 1970s, and current prices remain much below these peaks, although above the historical trend. The causes of the price spikes are complex and can be attributed to a combination of mutually reinforcing factors at play in international agricultural markets. Over the long term, demand for agricultural products has been steadily increasing, driven by consumption growth in emerging economies such as India and China, although most of the increase in consumption in these two countries had been met from domestic production. Demand patterns have also been changing, moving away from starchy foods towards more meat and dairy products, which is intensifying demand for feed grains and strengthening the linkages between different food commodities. While world cereal production increased on average by 2% per year between 1980 and 2007, the portion going to feed use has increased on average by over 3.5% per year. The emerging biofuels market is a new and significant source of demand for some agricultural commodities such as sugar, maize, cassava, oilseeds and palm oil. Ethanol and biodiesel production rose rapidly in many parts of the world, partly in response to higher

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Figure 1.1. Changes in nominal international prices for selected agricultural commodities since 2005

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Prices refer to monthly average. Wheat: US No. 2 Hard Red Winter, f.o.b. Gulf Maize: US No. 2 Yellow, f.o.b. Gulf Rice: Thai white rice 100% B second grade, f.o.b. Bangkok Soybean: US No. 1 Yellow, f.o.b. Gulf Sugar: I.S.A. daily price Beef: Australian, cow beef, boneless, c.i.f. USA Pigmeat: USA, pork, frozen product, export unit value Poultry: USA, Broiler cuts, export unit value Sheepmeat: New Zealand, lamb, frozen whole carcasses, wholesale price, Smithfield (London) SMP: Oceania, indicative export prices, f.o.b. Source: FAO, FAOSTAT Database, 2008. statLink 2 http://dx.doi.org/10.1787/528556426048


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1. OVERVIEW

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oil prices which are making them more competitive. The implementation of public policies

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to support the biofuel sector further encouraged the demand for these feedstocks. Between

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2005 and 2007, half the increase in world grain use went into biofuel production.

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On the supply side, there were significant weather-induced production shortfalls in

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key commodity-exporting regions. Supply disruptions in major exporting countries can

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have important implications for export supplies and international agricultural markets

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even if they have little impact on global production. While total production of key traded crops (wheat, rice, coarse grains, rapeseed, soybean, sunflower seed, palm oil and

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sugar), measured in wheat equivalent terms, rose by almost 6% in 2007 compared to the

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2003-05 average, production shortfalls of 20% in Australia and Canada, two major cereal exporters, contributed to tighter export supplies.

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The short-term fall in supply followed a longer term decline in global stocks of wheat, rice and coarse grains, which have fallen steadily relative to use requirements since the mid-1990s and even more quickly since 2000. The stock-to-use ratio for these cereals, at 17% in 2007/08, was half the level of ten years ago and lower than at any time during the past 45 years. Very low stocks can make markets more vulnerable to shocks, contributing to price volatility and overall market uncertainty. International market prices have also been affected by policies introduced by governments to reduce domestic inflationary pressures. In particular, the introduction of export restrictions and bans, such as those imposed by India and China on rice or by Russia and Ukraine on wheat, has restricted global supply and aggravated shortages. Unilateral actions by exporting countries prompted others to quickly follow suit, undermining trust in the market and leading to worse outcomes for all. The thinly traded rice market was particularly vulnerable to such actions, with the rapid increase in international rice prices heavily affected by government actions. Speculation and hoarding activities, fostered by low stock levels and ill-designed policy responses, also contributed to the rapid increase and volatility of food prices on both world and domestic markets.

Higher prices for food and energy have raised inflationary pressures The rapid growth of the world economy in recent years has strained the capacity of oil markets, resulting in an unprecedented price rise. Since 2001 the price of oil rose from USD 20 per barrel to a peak of around USD 150 in July 2008, with prices more than doubling between January 2007 and mid-2008 (Figure 1.2). The rise was initially demand driven, but more recent increases were fuelled by a combination of supply concerns and financial factors. Higher oil prices had a flow on effect into other costs. While freight rates fell during 2005, they too have more than doubled since the beginning of 2006. There has also been a steep rise in the cost of fertiliser. Oil prices fell sharply during the latter half of 2008, but are likely to remain volatile as markets assess the net balance of competing effects, such as the downward price pressure that may ensue from the financial crisis and the upward pressure from low stocks, limited spare capacity, supply disruptions and uncertainty over the exploitation of new reserves and the development of non-oil sources. Higher global food and energy prices contributed to upward domestic price pressures in many countries, threatening past gains in stabilising prices. The 2007 edition of this report noted the impressive progress made by the emerging economies in bringing inflation under control during the period 2000-05. While staying within the “normal” range during 2006 and 2007, inflation rates rose during 2008 in all countries, but particularly in

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1. Except for freight for which April 2005 = 100. Fertiliser: DAP, US Gulf, USD/tonne; Oil: UK Brent, USD/barrel; Freight: IGC Grain Freight Index. Source: IMF, International Financial Statistics, 2008; International Grain Council, 2008. statLink 2 http://dx.doi.org/10.1787/528561535132

Figure 1.3. Inflation, consumer prices, annual average, 2000-08 Per cent Brazil Russia

Chile South?Africa

China Ukraine

India OECD

30 28 26 24 22 20 18 16 14 12 10 8 6 4 2 0 -2 2000

2001

2002

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The inflation rate for 2008 is the average for the nine month period January-September. Source: OECD MEI Database, 2008; IMF, International Financial Statistics, 2008. statLink 2 http://dx.doi.org/10.1787/528611511736


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Ukraine, Russia, South Africa and China (Figure 1.3). Some of these economies were

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affected by domestic food supply and demand imbalances. For example, in South Africa,

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domestic prices for wheat and maize (a staple food for most of the rural population)

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increased significantly because of bad harvests in 2006 and 2007. The long term impact will

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2008 (Box 1.1).

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also be heavily influenced by the financial crisis which swept the world in the latter half of

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The impact of higher prices on the wider economy is determined by a number of

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structural characteristics. At the country level, low income food importing countries that rely heavily on tradable cereals for their diets are the most vulnerable to global food price

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shocks. None of the seven emerging economies fit into this category. Nevertheless, within

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each country the sharp rise in prices for staple foods has a significant impact on the poor who are net food buyers. The poor experience a further deterioration of their dietary

quality and nutritional intake, and the number of poor and hungry rises. Estimates of the global increase in the number of poor due to the food crisis are converging on a figure of around 100 million persons, an increase of 3%-5%.1 According to the World Bank, this will

Box 1.1. Potential impacts on agriculture of the financial crisis The impacts of higher food and fuel prices are likely to be compounded by the global financial crisis that developed in the latter half of 2008. While the outcome of various coordinated efforts by political leaders and their financial authorities to address issues of liquidity, solvency and recapitalisation is still unknown, the impact of the financial crisis may have a number of effects on agriculture. Directly it will: ●

Reduce the availability of loans – lenders will want more equity and collateral before approving loans. This will not only affect producers but also processors, traders and retailers who rely on credit.

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Increase the cost of borrowing through higher interest rates.

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Reduce the level of foreign direct investment – which is crucial for the development of emerging economies. In the context of the spreading recession, it will indirectly:

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Put additional downward pressure on prices – while this may be beneficial for consumers and reduce input costs for producers, it sends a signal to decrease production which may lead to future shortages in supply, increasing both the level and variability of prices.

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Put pressure on government budgets (through reduced tax revenue and higher borrowing costs) – this may lead to a reduction in expenditure on items not related to current concerns such as research and development, although expenditure on infrastructure may rise as governments try to stimulate economic recovery.

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Reduce the level of remittances – which can be an important source of finance for developing countries.

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Potentially reduce official development assistance – as OECD governments face increasing deficits, they may be tempted to reduce ODA spending.

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Increase pressure to raise protectionism – which would increase price variability on world markets and reduce trading opportunities.

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Reinforce an orientation towards self-sufficiency in food production – which would lead to a reallocation of resources away from their most efficient use.


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be associated with an increase in the number of undernourished persons in the world from

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848 million in 2004 to 967 million by the end of 2008 (WB, 2008a). Of the seven emerging

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undernourishment, above the world average of 14% of the total population.

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economies, India is probably the most vul nerable, having a higher rate of

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While producers are likely to benefit from higher international agricultural prices, and

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to respond by increasing production, higher world prices do not necessarily translate

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directly into higher domestic prices. First, the degree of price transmission depends on several factors, including currency exchange rates, trade openness, the efficiency of

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markets and government policies for price stabilisation. The same factors play a role when

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c tu Lineparticular second half of 2008. Second, producers have faced increased production costs, international prices are declining, as observed for most agricultural commodities in the

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for energy based inputs (fuels, fertiliser, irrigation, freight charges, etc.). While the share of energy in the cost of crop production is around 4% in most developing countries, it is between 8% and 20% in some large countries such as Brazil, China and India. Labour costs are also increasing in some economies as workers demand wage increases to compensate for higher food prices. In addition, livestock producers have incurred significant increases in feedstock costs.

Main changes in agricultural policies This section describes the major agricultural policy developments in the seven emerging economies during 2006-08. The first part describes the policy measures taken to reduce inflationary pressures associated with higher food prices and to address food security issues. The second part briefly outlines other major policy changes in each economy.

Government responses to higher food prices Along with a large number of other countries, the seven emerging economies made various policy interventions in response to higher food prices. Table 1.1 summarises these different measures in terms of their orientation: whether policies are directly orientated to affect consumers, producers or trade. Of course, policies oriented to one group will have an effect on others. A number of these measures were introduced for just a limited period of time and are no longer in effect. They are described in more detail in the relevant country chapters. ●

The most common policy response taken by the emerging economies – and also worldwide – has been to reduce or suspend import tariffs on food products. The products on which tariffs were reduced, and the time and quantity limit varied between economies, as well as the extent of the tariff reduction. For example, while Brazil has provided tariff-free access for 2 million tonnes of wheat, the MFN applied tariff is just 6%. Changes of this magnitude can be expected to make only a limited impact on inflation.

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The next most common response has been to impose export barriers in the form of export restrictions or export taxes. The measures imposed by India, Russia and Ukraine were particularly significant given the potential quantities involved. Export barriers are likely to lower domestic prices for the products concerned but have serious spill-over effects, impeding price signals to producers and decreasing supplies for importing countries.


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Increased interest rates

South Africa

Ukraine

Reduced tariffs on wheat, sardines, palm kernel oil and some fertilisers; eliminated the merchant marine levy on wheat and flour

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Russia

Lowered the excise tax on petrol and diesel

Released stocks of beans, maize and wheat

Increased funds to raise the level of safety stocks

Increased access to credit and expanded extension services

Price controls on cooking oil, pork, eggs, instant noodles, milk, grains, natural gas, gasoline and electricity

Released stocks of grain

Stopped approval for any new grain-based biofuel processing plant

Increased subsidies Increased minimum for the purchase purchase prices for wheat of farm machinery, fuels, and rice fertilisers and improved seeds

Reduced tariffs for a variety of products including pigmeat, cod fish, infant food, soybean and peanut meal

Imposed export licences on grains, soybean and flour

Increased input subsidies Increased minimum prices particularly for fertilisers and banned futures trading on a range of agricultural commodities

Removed tariffs on wheat, rice, maize and pulses

Export ban on Introduced minimum wheat, corn, pulses export price and duty and non-basmati on basmati rice rice

Fuel subsidies to mitigate higher energy prices; additional per tonne subsidies for pigmeat and poultry

Reduced tariffs on milk and milk products, cheese, some types of vegetable oil and vegetables; lifted duties on poultry and eggs imported for breeding purposes

Introduced Introduced export taxes temporary ban on grain on exports of wheat to Belarus and Kazakhstan

One-off cash bonus for the 40% poorest

Increased Administratively fixed food subsidies prices of key food products for public distribution kept unchanged

Efforts to secure sufficient supplies of grain for buffer stocks

Price freeze on wheat and Released stocks rye bread, milk and of grain fermented milk, sunflower oil and eggs; voluntary price restraint agreement Increased spending on the food package programme

Lowered the biofuel target level in liquid fuel from 4% to 2.5% Mark-up limits on flour Released stocks and retail price limits of grain, flour, on breads, voluntary price sugar and meat restraint agreements

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Export price controls and tax measures

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Increased minimum prices for 2008/09 crop season

Quantitative export controls

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Allowed the CNY to appreciate

Import tariffs and other

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Minimum producer prices and other

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Release stocks

Market management

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Price controls and taxes

Production support Food procurement and Producer credit and other other

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Food subsidies and other

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Interest and exchange rates

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Consumer-orientated

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Removed tariffs on maize if the world price is greater than USD 110 for more than two weeks Granted preference to state trading enterprises

1. OVERVIEW

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Table 1.1. Policy measures taken by governments to reduce the impact of higher food prices

Export quotas for grains and oilseeds

Source: OECD Secretariat, 2008. The table structure is based on that developed by the FAO Global Information and Early Warning System (GIEWS) on food and agriculture.

Suspended VAT export rebates on grain and grain products, later reinforced by provisional export taxes on grains, soybeans, flour and fertilisers

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Another response has been to stimulate domestic production by raising minimum prices and expanding input subsidies. The increase in minimum prices may indicate a failure in the transmission of market price signals to farmers, which in turn could be due to other policy decisions, or it may reflect efforts to rebuild government stock holdings. The expansion of input subsidies reflects initiatives to counteract the increase in energy costs. These policies take time to work through the system and do little to reduce the position of the most vulnerable in the short run.

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Another common response was to release government held stocks, particularly of grains, on to the domestic market to ensure supply and reduce upward price pressure. Many governments used up a large proportion of their buffer stocks during 2007-08.

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Retail price controls have been introduced in China, Russia and Ukraine.

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China and South Africa made changes to their biofuel policies to reduce pressure on food security.

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Chile and South Africa provided additional direct transfers to those most vulnerable to the effect of higher food prices: a cash-based transfer in Chile and the provision of food in South Africa.

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The varying responses of the seven economies reflect differences in their net trading positions (Figure 1.4), income levels, distribution of poverty, share of expenditure on food, and government economic policy. The contrasting responses of Chile and China illustrate this. In comparison with China, the response in Chile has been quite muted reflecting the fact that Chile is a net exporter while China is a net importer; income per capita in Chile (measured in PPP USD) is 2.5 times higher than in China; the share of expenditure on food in Chile is around half the level in China; and the level of state involvement in the market is minimal in Chile.

Figure 1.4. Agricultural and food trade balance, 1995 and 2007 1995

2007

USD million 10 000

38 865

8 000 6 000 4 000 2 000 0 -2 000 -4 000 -6 000 -8 000 -18 518

-10 000 Russia

China

South Africa

Ukraine

Chile

India

Brazil

Data for Russia and Ukraine is for 1996 instead of 1995; data for South Africa is for 2000 instead of 1995. Source: UN, UN Comtrade Database, 2008; OECD calculations based on national data, 2008. statLink 2 http://dx.doi.org/10.1787/528656478426


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Other changes reflect differing policy objectives among the emerging economies

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Brazil – Prior to the introduction of policy measures to deal with rising food prices, a number of measures were introduced in 2006 to deal with falling producer incomes. Lower output prices, attributable in large part to the appreciation of the Real against the USD, and higher production costs as well as localised droughts, pest and disease outbreaks were causing financial hardships for many farmers. In response, the government introduced a new payment based on output, expanded credit facilities and deferred debt repayments on investment and working capital for a period of one year (which was further rolled over in 2007). Of particular note was the extent to which these measures were introduced to support soybean producers.

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During 2006-08, a number of new policy measures and major changes to existing policies were introduced in each of the seven economies:

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Chile – Stronger emphasis was put on credit programmes for small-scale agriculture. These programmes are designed and co-ordinated by the National Institute of Agricultural Development (INDAP) with the purpose of increasing credit allocations to smallholders from the private financial sector. In 2007, investments in general services increased to account for more than a third of total expenditures to support agriculture.

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China – Agricultural tax reform was completed in 2006 and a new Property Law adopted in 2007 strengthened farmers’ legal rights to land. However, farmers are still prohibited from raising a mortgage on the land, which limits access to credit. Pilot insurance schemes have been introduced for grain and livestock producers, with the cost shared between central government, local government and farmers. Stronger support for farmers is part of a wider programme of improving access to basic services such as

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education, health care and social security for the rural population.

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India – Improvement of rural infrastructure has been given a high priority to make India’s growth “more inclusive and equitable”. A large part of this rural investment is to be undertaken within a programme Bharat Nirman focussing on the expansion of irrigation area, improved water management, support for rural roads, housing, electrification, telecommunication, research and diversification of economic activities. The National Policy for Farmers, introduced in 2007, places greater emphasis on the economic well-being of farmers and rural development rather than just on agricultural production. In 2006, a new package was introduced to revive the short-term rural cooperative credit structure and to expand credit available to farmers at preferential interest rates. In 2008, the government announced a large scheme to waive overdue and unpaid debt, initially for small and marginal farmers, but then extended to include commercial producers.

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Russia – As part of a broader administrative reform process, the roles and responsibilities of central and regional governments in the delivery and financing of agricultural programmes were defined more clearly, and a multi-year overarching framework for the delivery of agricultural policy was introduced. With twin aims of stimulating agricultural production and improving rural areas through technological modernisation and investment in social infrastructure, there has been a significant expansion in concessional credit.

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South Africa – Following an evaluation of the performance of its land, agriculture and rural sector policies, the government adopted three new measures to accelerate the pace of land redistribution: the Land and Agrarian Reform Project (LARP) provides a new AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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Framework for delivery and collaboration on land reform and agricultural support to

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accelerate the rate and sustainability of transformation through aligned and joint action

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by all involved stakeholders; the Pro-Active Land Acquisition Strategy (PLAS) under

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which the government proactively identifies, purchases and distributes land in terms of

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established needs; and Sourcing Strategic Partners (from key non-governmental

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stakeholders) that will speed up land delivery, and more importantly, ensure stability of

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Ukraine – The main driver of policy changes over the period was the long awaited

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lacking in the public service.

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the farms and projects delivered, by providing skills and expertise that are currently

tu c been L ehad implemented to comply with the WTO requirements. Prior to accession, tariffs accession to the WTO in 2008. Many modifications in national legislation were

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reduced substantially for key commodities such as pigmeat, poultry and sugar. An attempt is being made to improve co-ordination regarding the formation and implementation of agricultural policy measures. While negotiations for Russia’s accession to the WTO have reached an advanced stage, particularly in terms of market access, the remaining issues include determining the level of agricultural domestic support commitments. At the multilateral level, agriculture remains one of the areas of continuing difficulty in the WTO negotiations. In June 2008, ministers from WTO member countries failed to conclude a final agreement in the Doha round of negotiations. An impasse was reached on the terms that would govern Special Safeguard Mechanism remedies, with some developing countries, notably China and India, arguing that they needed additional flexibility, including the right to raise tariffs above bound rates – a position that could not be reconciled with demands for improved access to developing country markets. All seven emerging economies have been engaged in bilateral and regional trade negotiations during 2006-08. Among the most significant to be concluded, or in which substantive progress was made, were agreements between: Ukraine and the European Union (EU); India and the Association of South East Asian Nations (ASEAN), and with the EU; China and Pakistan, and with New Zealand; South Africa, as part of the Southern African Development Community, and the EU; and Brazil, as part of Mercosur, with Venezuela, Chile and Israel.

Developments in agricultural support This section examines agricultural support estimates for six of the seven emerging economies in this report (support estimates are not available for India because the government of India does not participate in the review process). These estimates form the basis for a comparative evaluation of policy developments in each country and cover the period 1995 to 2007. The effects of policy changes made in 2008 discussed in the previous section are not captured by these estimates. Annex A contains definitions of the OECD indicators of agricultural support, a description of the new PSE classification system introduced in 2007 and used in this report, and technical updates and improvements made to the measurement of support in each of the six economies.

Producer support is provided at a relatively low level The percentage Producer Support Estimate (%PSE) is the key indicator used to measure the level of support to agricultural producers. It expresses the estimated monetary value of AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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1. OVERVIEW

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policy transfers from consumers and taxpayers to producers (defined as the PSE) as a

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support both over time and between countries.

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percentage of gross farm receipts. The %PSE is useful for analysing changes in the level of

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For all six emerging economies, the level of producer support as measured by the %PSE

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has been lower than the OECD average for all years of the past decade (Figure 1.5). In 2005-07,

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the value of policy transfers to producers represented 4% of gross farm receipts in Chile, 6%

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in Brazil and South Africa, around 9% in China and Ukraine, and 14% in Russia. This compares with an average level of producer support in the OECD area of 26% in 2005-07.

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Russia, with the exception of 1999 (a year following the 1998 financial crisis), has the

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highest level of producer support among the six emerging economies being evaluated in this study.

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Trends in the level of producer support over time vary between economies. In Chile and South Africa, the level of producer support has fallen from around 10% in the mid-1990s, to 4% and 7% respectively in 2005-07. While the level of producer support in Brazil has been relatively constant at about 5% during the current decade, this represents a slight rise from the mid-1990s when policies effectively taxed the sugar cane/ethanol sector. Since the late 1990s, there has been a steady rise in producer support in China, which has stabilised at around 9% in recent years. The level of support to agricultural producers in Russia has been steadily rising over the current decade, from around 5% of farm receipts in the early 2000s to 14% in 2005-07, although it remains below the 1995-97 level of 19%. Ukraine has the greatest variability in producer support levels from year to year. Even as recently as 2003, agricultural producers in Ukraine were being “taxed” rather than supported by government policies.

Figure 1.5. Evolution of producer support levels, 1997 to 2007 %PSE Brazil

Chile

China

South Africa

Ukraine

OECD

Russia

40 35 30 25 20 15 10 5 0 -5 -10 1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Source: OECD, PSE/CSE Database, 2008. statLink 2 http://dx.doi.org/10.1787/528674576343

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Between 2006 and 2007, the monetary value of policy transfers from consumers and

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taxpayers to producers (PSE) decreased in all six economies (Table 1.2). With the exception

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of Brazil, the reduction in the value of support to producers was driven by a fall in market

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price support (MPS) – the value of transfers arising from policy measures that create a gap

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between domestic market and border prices such as tariffs, minimum guarantee prices

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and export subsidies. In Brazil, an increase in MPS was more than offset by a decline in

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budgetary and other transfers (e.g. transfers arising from preferential credit) to producers. Brazil was also the only economy to have a decline in budgetary and other transfers: in

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other economies the increase in budgetary and other transfers came predominately

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through an increase in transfers based on input use.

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The change in MPS is further broken down in Table 1.3a and 1.3b in order to understand better the main drivers behind annual changes in MPS in each emerging economy. In four of

the six economies (Brazil, China, Russia and Ukraine), the main driver for the change in MPS was a variation in the quantity of production supported by MPS policies: this increased in Brazil, but decreased in the other three. In contrast, changes in the average unit MPS (gap between domestic and border prices measured at the farm gate) were the most important cause of lower MPS in Chile and South Africa (Box 1.2). A rise in the unit MPS means that the gap between domestic and border prices increased, while a fall indicates that the gap decreased. While out-weighed by the fall in quantity, there was also a large increase in the unit MPS in Ukraine. In OECD countries, overall developments in MPS were mainly the result of decreases in unit MPS, which were in turn driven by increases in border prices. In all six economies the average border price rose when measured in both national currency and in US dollars. For Brazil, Chile, China and Russia, the appreciation of the national currency against the US dollar partly offset the increase in border prices measured in US dollars, while in South Africa, the depreciation of the Rand against the US dollar led to a larger increase in average border prices measured in national currency. In Ukraine, there was little change in either the US dollar border prices or the exchange rate.

Table 1.2. Contribution to the change in Producer Support Estimate, 2006 to 2007 Contribution of:

Producer Support Estimate (PSE)

USD million, 2007

MPS

BOT

Contribution of budgetary and other transfers (BOT) based on:

Output Input use

% change1

Current A/An/R/I2 production required

Non-current Non-current A/An/R/I A/An/R/I production production not required required

Noncommodity criteria

Miscellaneous

% change in PSE if all other variables are held constant

Brazil

5 374

–4.9

6.8

–11.6

4.9

–17.7

1.2

0.0

0.0

0.0

0.0

Chile

285

–5.2

–15.2

10.0

0.0

11.3

–1.2

0.0

0.0

0.0

0.0

China

50 208

–3.0

–20.2

17.3

0.0

11.3

5.5

0.0

–0.3

0.7

0.0

Russia

7 880

–22.6

–37.8

15.3

1.1

10.8

0.2

0.0

0.0

0.0

3.2

457

–47.6

–50.6

3.1

0.0

3.8

–0.7

0.0

0.0

0.0

0.0

1 175

–56.6

–72.1

15.5

10.1

9.4

–4.0

0.0

0.0

0.0

0.0

258 236

–3.9

–3.4

–0.5

–1.2

0.9

–1.1

0.2

1.0

–0.4

0.1

South Africa Ukraine OECD3

1. Per cent change in national currency. 2. A (area planted) / An (animal numbers) / R (revenue) / I (income). 3. An average of per cent changes in PSE for individual OECD countries (with EU25 as one), weighted by the value of countries’ PSE in OECD total PSE in the previous year; not equivalent to the variation in OECD PSE in any other common currency. Source: OECD, PSE/CSE Database, 2008. statLink 2 http://dx.doi.org/10.1787/531722013865


29

1. OVERVIEW

w

_it E d it e io s

–46.3 –40.6

South Africa

–58.4

6.8

–172.0

–240.3

–6.6

1.7

Ukraine 2

OECD

u le

d

se

–48.9 –47.7

2.5

–38.0 –2.6 –7.1 –65.2

e

China Russia

ea

19.9 –17.3

R

22.4 –55.3

O

Brazil Chile

EC

if all other variables are held constant

An

% change

Unit MPS

O

Quantity 1

nl y

D Br o

Contribution to % change in MPS of: Market Price Support (MPS)

n

Table 1.3a. Contribution to the change in Market Price Support, 2006 to 2007

u –8.3 L ect 68.3

r

1. Per cent change in an economy’s total MPS is the average of per cent changes in MPS for individual commodities in national currencies, weighted by the shares of individual commodity MPS in an economy’s total MPS in the previous year. 2. An average of per cent changes in MPS for individual OECD countries (EU25 as one), weighted by the value of countries’ MPS in OECD total MPS in the previous year. Source: OECD, PSE/CSE Database, 2008. statLink 2 http://dx.doi.org/10.1787/531726567854

Table 1.3b. Contribution to the change in border price, 2006 to 2007 Border price (national currency)1 % change2

Contribution to % change in border price of: Exchange rate

Border price (USD)

If all other variables are held constant

Brazil

17.7

–12.2

29.9

Chile

46.4

–1.8

48.2

China

11.7

–4.9

15.9

Russia

15.3

–6.6

21.9

South Africa

46.8

51.9

5.1

Ukraine

1.5

0.0

1.5

OECD3

15.0

–4.6

19.6

1. Border price at farm gate, i.e. price excluding marketing margins between border/wholesale market and farm gate. 2. Per cent change in an economy’s border price is the average of per cent changes in border prices for individual commodities in national currencies, weighted by the shares of individual commodity MPS in an economy’s total MPS in the previous year. 3. An average of per cent changes in border price for individual OECD countries (EU25 as one), weighted by the value of countries’ MPS in OECD total MPS in the previous year. Source: OECD, PSE/CSE Database, 2008. statLink 2 http://dx.doi.org/10.1787/531735700487

Producer support is provided through measures which support commodity output or input use In addition to the level of support, it is also instructive to analyse the composition of support, showing the different ways in which support is provided. As in most OECD countries, support based on commodity output (MPS and payments based on output) is an important way in which transfers are delivered to producers in the six emerging economies, particularly in Russia, South Africa and Ukraine (Figure 1.6). In the emerging economies this almost exclusively takes the form of transfers associated with MPS policies, primarily import protection, with only Brazil, Russia and Ukraine providing payments based on output. In contrast to most OECD countries, a considerable portion of support is provided to agricultural producers in the six emerging economies through

30


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Box 1.2. Why does the PSE change when world prices change?1

d

se

ea

e

R

O

EC

The calculation of the MPS for a given commodity is based on the gap between the producer price (at the farm gate) and the border price equivalent (adjusted for marketing margins) in the country concerned. A major source of fluctuations in the MPS is the variability of world market prices for agricultural commodities. Another source is variability of exchange rates, as world market prices (at the border) and domestic prices have to be expressed in the same currency.

u le

O

Support levels as measured in the PSE framework tend to fluctuate over time, a large part of which can be attributed to fluctuations in the MPS component of the PSE.

An

The PSE indicator reflects the nature of policy and the changes in support due c tu L toepolicy.

r

It is tempting to think that the indicators should remain constant if policy settings have not changed. However, by picking up the variability of world market prices and exchange rates, the PSE rightly reflects the policy design characteristics that lead to a dependence of support levels on market developments. In the absence of price support policies, and with rapid adjustments in markets, the producer price would be aligned with the border price (adjusted for marketing margins), and would therefore move up and down with changes in world market prices and exchange rates.2 Fluctuations in policy transfers arise when domestic prices are supported by domestic and border measures that impede the transmission of changes in world market prices to the domestic market. There are different policies regarding the transmission of world market changes to the domestic market, and the MPS properly reflects such differences. For example, if an importing country has only an ad valorem tariff, then its domestic market price moves up and down with the world market price (although domestic prices remain higher than those on the world market). Consequently the gap between border and domestic prices remains constant and the per unit MPS would show no fluctuation. Alternatively, if an importing country operates a mix of policy measures which keeps domestic prices constant, then the gap between border and domestic prices will fall when world prices rise, and vice versa. Equally, per unit MPS will rise (fall) when the exchange rate appreciates (depreciates). Similarly, a country providing a deficiency payment (a payment based on output) to maintain a constant domestic target price makes smaller budget expenditures when the border price is high (including due to exchange rate variations), and vice versa. In this case, the PSE calculations will show a change in the level of payments based on output rather than of MPS.

The fact that MPS in the above examples behaves differently over time is an appropriate reflection of differences in policy implementation. In brief, the PSE is an indicator of the transfers associated with agricultural policies, including those resulting from keeping producer prices in the domestic market stable while world market prices and exchange rates fluctuate. The indicator provides an equivalent measurement of all types of policies that insulate producer prices from market fluctuations. In particular, the method treats market price support and deficiency payments in the same way. 1. For a more detailed discussion on this topic see Tangermann, S. (2005). 2. In the reality of complex market situations, pass-through of a given change in the border price to the domestic market may be imperfect and may take some time. However, this does not change the fundamental point that in the absence of price support policies or other barriers, domestic market prices for tradables would respond to changes in international prices and exchange rates.


31

1. OVERVIEW

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_it E d it e io s

2005-07

u le

O

se

e

O

2005-07

An

Chile

d

1995-97

2005-07

ea

South Africa

1995-97

Other payments

R

Ukraine

1995-97

Payments to inputs

EC

OECD Russia

1995-97

Brazil

1995-97

China

MPS + payments based on output

nl y

D Br o

%PSE

n

Figure 1.6. Composition of producer support, 1995-97 and 2005-07

u Lect

r

2005-07

2005-07 1995-97 2005-07 1995-97 2005-07 -20

-15

-10

-5

0

5

10

15

20

25

30


payments based on input use (interest concessions, fertiliser subsidies, etc), with comparatively less use made of other payments, such as those based on land, animals or income. While support based on commodity output decreased in importance for the OECD as a whole between 1995-97 and 2005-07, it increased in importance for four of the six emerging economies. Only in Chile and South Africa did support based on commodity output fall as a share of gross farm receipts between the two periods; hence it is the main factor contributing to the reduction in the level of producer support in both countries. In China and Russia there was a rise in support based on commodity output. While this led to a rise in the level of producer support in China, in Russia the level of support has fallen because of a reduction in other forms of support, most notably transfers associated with debt restructuring. Brazil and Ukraine both had significantly negative commodity based support in 1995-97. This has changed, with producers in both countries benefiting from support based on commodity output leading to an increase in the %PSE, but in Ukraine MPS was again negative in 2007. These changes in support based on commodity output are also quite clearly shown by changes in the producer Nominal Protection Coefficient (producer NPC): the ratio between the producer price (including payments per unit of output) and the border price. This highlights the degree to which policies increase prices received by domestic producers. The average producer NPC for the OECD area was 1.20 for the period 2005-07, meaning that in the OECD farmers received, on average, prices that were 20% above international levels (Figure 1.7). In 1995-97 prices were 30% higher (NPC of 1.30), indicating that the gap between domestic and world prices has fallen by about one-third on average across all commodities across the OECD.

32


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nl y

Ukraine

u le

O d An

China

se

South Africa

e

O

Russia

ea

EC

OECD

2005-07

R

D Br o

1995-1997

n

Figure 1.7. Producer Nominal Protection Coefficients, 1995-97 and 2005-07

u Lect

r

Brazil Chile 0.8

0.9

1.0

1.1

1.2

1.3

1.4


The gap between domestic and international prices also fell in Chile and South Africa between 1995-97 and 2005-07, although producer prices in Chile are, on average, more closely aligned with world prices than in South Africa. In contrast, producer NPCs for Russia and China have increased, implying a greater misalignment of domestic prices vis-à-vis world market levels. In Brazil and Ukraine, the situation is more complex. In 1995-97, producers received on average prices that were around 10% lower than world prices (negative NPCs): in 2005-07, producers received prices 3%-4% greater than world prices (positive NPCs). Consequently, while the producer NPC increased in both Brazil and Ukraine, average producer prices are now more closely aligned with world prices than in 1995-97.

Producer support is often concentrated on a few commodities The composition of support can also be analysed from the standpoint of the flexibility that policies accord to producers in determining production choices. For example, a payment designated for one specific commodity implies that in order to receive payment a farmer must produce that commodity. In contrast, payments may be provided to a group of commodities, i.e. any crop belonging to the cereals group, simply to any commodity without distinction. The prevalence of transfers directed to single commodities – as reflected by the share of Single Commodity Transfers (SCT) in the PSE – conveys important information on the flexibility given to producers in their production choices.2 The share of SCT in the PSE for the OECD countries fell from 74% in 1995-97 to 59% in 2005-07, driven mainly by a fall in MPS (Figure 1.8). Among the emerging economies, around 70% of producer support in South Africa and Russia is provided through single commodity transfers, indicating little production flexibility for farmers if they want to retain support. In contrast, less than 30% of support in Chile and China is provided in this form. Around 50% of producer support in Brazil and Ukraine is provided through transfers designated for a specific commodity.


33

1. OVERVIEW

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_it E d it e io s

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An

Brazil

u le

O

se

e

Russia

R

O

South Africa

ea

EC

OECD

2005-07

d

D Br o

1995-97

n

Figure 1.8. Single Commodity Transfers as a share of PSE, 1995-97 and 2005-07

u Lect

r

Ukraine

China

Chile

0

10

20

30

40

50

60

70

80

90

100

Share of Producer SCT in Total PSE (%) Data is not presented for Brazil and Ukraine for the years 1995-97 because SCT was negative in these countries during this period. For China, SCT as a share of PSE was just 0.1% for the years 1995-97. Source: OECD, PSE/CSE Database, 2008. statLink 2 http://dx.doi.org/10.1787/528734185708

It is also instructive to look at the extent to which farmer’s receipts for a particular commodity depend on the Single Commodity Transfers (the %SCT indicator). This measures the estimated monetary value of SCT for a commodity as a share of gross farm receipts for that commodity. While the level of support to agricultural producers in the emerging economies is below 10% of gross farm receipts for the sector as a whole, with the exception of Russia, there are commodities in each economy where SCTs account for a substantial share of farmers’ receipts (Table 1.4). Sugar appears in the list for all countries, with the exception of Brazil. There is no consistent pattern of support for any other commodities across the emerging economies, reflecting differences in production and consumption patterns and policy objectives. For example, it is mainly crops that receive SCT support in China, while it is mostly livestock

Table 1.4. Single Commodity Transfers by commodity, 2005-07 SCT as per cent of gross farm receipts for each commodity %PSE 10%-20%

20%-30%

30%-40%

Cotton

Rice

Brazil

5.8

Chile

4.4

Sugar

China

9.2

Soybean, Sheepmeat

Maize

Sugar

Russia

13.9

Milk

Beef and veal, Poultry

Sugar, Pigmeat

South Africa

5.7

Sugar, Sheepmeat

Ukraine

9.9

Beef and veal

Pigmeat, Sugar

Over 40%

Cotton

Poultry

Source: OECD, PSE/CSE Database, 2008.

34


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products in Russia and Ukraine. Brazil, Chile and South Africa, the three emerging economies

nl y

with the lowest level of producer support, have only one or two commodities with a %SCT

n

w


u le

O

value above 10%, although the level of support for cotton and rice in Brazil is relatively higher.

se

ea

EC

d

Relative importance of support to general services is increasing in some economies but falling in others

R

O

In addition to support provided to producers individually (PSE), the agricultural sector is assisted through public financing of services such as agricultural research and

e

development, training, inspection, infrastructure, marketing and promotion, and public

An

c tu L e areas associated transfers. Some of these expenditures constitute potentially important of stockholding. The General Services Support Estimate (GSSE) measures the value of the

r

public investment, which may in the long run improve the competitiveness of the agricultural sector and yield higher and sustained returns to farmers than commodity price support or input subsidies. The share of GSSE in total support (%GSSE) indicates the relative importance of these transfers within overall support to the agricultural sector. The six emerging economies spend a greater proportion of total support on general services than for the OECD as a whole (Figure 1.9). In South Africa, over half of total transfers to agriculture are categorised as GSSE, which represents about one-third of transfers in Chile, and one-quarter in Brazil and China. During the current decade there have been divergences among economies in terms of changes in the relative importance of expenditure on general services. In Brazil and South Africa, the level of producer support is low and stable; however, the relative importance of

Figure 1.9. Level and composition of General Services Support Estimate, 2000-02 and 2005-07 Share of Total Support (%GSSE)

OECD

2000-02

South Africa

2000-02

Chile

2000-02

China

Infrastructure

2000-02

Research and Development

Other GSSE

2005-07

2005-07

2005-07

Ukraine

2000-021

Brazil

2000-02

Russia

2005-07

2000-02

2005-07

2005-07

2005-07 0

5

10

15

20

25

30

35

40

45

50

55

60 %

1. For Ukraine, data for 2000-02 is not presented because the TSE was negative in 2002. Source: OECD, PSE/CSE Database, 2008. statLink 2 http://dx.doi.org/10.1787/528746427054


35

1. OVERVIEW

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GSSE expenditures has decreased in Brazil but increased in South Africa. Expenditure on

nl y

general services has also become relatively more important in Chile, where producer

n

w

_it E d it e io s

O

support has fallen since 2000. GSSE expenditure has not kept pace with the increase in

u le

producer support in China; the %GSSE falling from 43% to 27% between 2000-02 and 2005-07.

se

support and the %GSSE remained almost stable.

ea

EC

d

In Russia, by contrast, GSSE expenditure has kept pace with the increase in producer

R

O

In all six emerging economies, expenditure on infrastructure to support agriculture

e

(irrigation, drainage, farm consolidation, etc.) is one of the major categories of GSSE category of expenditure. A significant portion goes to research and development in Chile

u Lect

An

and South Africa, although in Brazil expenditure on research and development has fallen

r

in relative importance. Public stockholding is important in China, and there has been a considerable increase in expenditure on inspection services in Russia and Ukraine.

The total value of support to the agricultural sector is measured by the Total Support Estimate (TSE), which represents the sum of transfers to agricultural producers individually (PSE) and collectively (GSSE), as well as subsidies from taxpayers to consumers. For the OECD as a whole, total transfers arising from agricultural support policies represented around 1% of GDP in 2005-07, and have fallen over time as non-agricultural sectors of the economy have grown and support levels to agriculture have fallen (Figure 1.10). This is not the case for some emerging economies, in particular for China, where, despite the rapid expansion of the Chinese economy, support to agriculture has risen from about 1.5% of GDP in 1995-97 to more than 2% in 2005-07. Support to agriculture also imposes a considerable burden on the economy in Ukraine, with a %TSE of about 2.5%. For the other four countries, support to agriculture represents around 1% or less of GDP.

Figure 1.10. Composition of Total Support Estimate, 1995-97 and 2005-07 Per cent of GDP

OECD

1995-97

Ukraine

1995-97

China

1995-97

Russia

1995-97

South Africa

1995-97

Brazil

1995-97

Chile

GSSE

1995-97

Transfers to consumers from taxpayers

PSE

2005-07

2005-07

2005-07

2005-07

2005-07

2005-07

2005-07 -3

-2

-1

0

1

2

3 %


36


nl y

D Br o

w

n

Policy observations and recommendations


u le

se

ea

e

R

O

d

The level of support to agricultural producers in the emerging economies is relatively low compared to that provided in many OECD countries. However, there are certain commodities in each economy that benefit from a greater amount of support than others, with sugar being an obvious example in many cases. This provides a strong incentive to farmers to retain production of these commodities, diverting more resources such as land, labour and fertilisers into their production than would otherwise be the case. As governments consider policy measures to increase food production in response to higher food prices, they should consider reducing support for some commodities which are attracting more resources than they would otherwise because of current policy settings.

EC

●

O

Based on the previous sections of this overview, the following policy conclusions and recommendations can be drawn:

u Lect

An

●

The imposition of export barriers in response to higher food prices, while reflecting legitimate concerns about food security, does not target those most in need and is likely to undermine producers’ supply response. Moreover, while they may reduce the risks of food shortages in the short term, they are likely to make international markets smaller and more volatile. Export bans undermine trust in trade and encourage self-sufficiency driven policies in importing countries. Export restrictions have harmful effects on import-dependent trading partners. For example, export restrictions on rice in India affected Bangladeshi consumers adversely and also dampened the incentives for rice farmers in India to invest in agriculture, which is a long-term driver of growth. They also impede the transmission of price signals to domestic producers. For example, export quotas involved substantial foregone revenue in the grain and oilseed sectors, and reduced Ukraine’s total export earnings.

●

The introduction of export barriers, and their subsequent destabilising effect on world markets, has drawn attention to the fact that WTO rules do not prevent countries from imposing such export restrictions and that export taxation is not well disciplined. Weak rules in this area create uncertainty about the world market as a reliable source of food supplies.3

●

A number of countries have responded to the food price crisis by increasing input subsidies, particularly for fertiliser, to stimulate production. While prices for energy based inputs have certainly increased, great care needs to be exercised in the delivery of these policies. In particular, it may be sensible to make such increases in subsidies time bound, or closely linked to international prices so that they are reduced if prices come back down. Further, appropriate regulations and extension services need to be provided and enforced to ensure that the increased use of chemical inputs does not lead to further environmental damage.

●

Efforts are being made to improve the delivery of agricultural policy in a number of emerging economies, through administrative reform, the rationalisation of policy measures, the establishment of co-ordinated multi-year frameworks, and the introduction of private sector expertise and skills, among other initiatives. These are all welcome developments as

r

consistency and transparency are vital for the success of any policy regime. ●

Initiatives to introduce or expand insurance opportunities for farmers are also positive steps. Insurance schemes, if successful, can reduce the need for market intervention and assist farmers develop appropriate risk management strategies. However, when heavily


37

1. OVERVIEW

nl y

u le

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R

Producer access to credit is vital for the development of agriculture in the emerging economies. A number of governments have increased the amount of credit available to farmers, including both commercial and small-scale producers. While the government can play a vital role in establishing the credit market, more can be done to expand private sources of credit, particularly to small producers. Rather than simply expanding government-supported credit, barriers to the expansion of private credit need to be reviewed and removed if feasible. However, the global financial crisis during the latter half of 2008 is likely to severely curtail governments’ opportunities for doing this.

e

●

O

EC

D Br o

subsidised, insurance schemes can encourage excessive risk taking, leading to an expansion in production of the commodities covered by the insurance scheme at the expense of those that are not and the development of farming in areas which are not suitable for agricultural production, resulting in environmental degradation. When establishing or reviewing these schemes, governments need to consider carefully whether subsidies provided for the operation of the scheme can be phased out over a period of time, so that farmers gradually move towards paying the full costs of the programmes.

n

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_it E d it e io s

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●

A number of governments have taken steps during the period to either defer repayment of producer debt or completely write it off. These actions were taken to address a short term problem (financial difficulties) but they may worsen a long term structural deficiency (underdeveloped credit markets) because they can damage the discipline of credit systems. They can also create an expectation on the part of farmers that the government will bail them out in the event of future payment difficulties. Furthermore, such schemes may end up compounding rather than alleviating the debt problem because they make farmers’ eligible for fresh credit despite not being creditworthy.

●

The relative increase in expenditure on general services for agriculture, particularly infrastructure and research and development, is reassuring. However, significant room remains for improving the efficiency of public resources by increasing investments on high-priority public goods. Public investments are needed to ensure that the supply responses to higher prices can take place and that new strains of crops which deliver quantum yield increases are developed.

r

Notes 1. As determined by the standard “dollar-a-day” expenditure definition of the World Bank. 2. SCT includes all market price support and payments based on output – as these forms of support are specific to a particular commodity be definition – as well as any payments provided to single commodities under other categories of support which require commodity production. 3. At present, the WTO provides only minimal disciplines on export restrictions, mainly a notification requirement. Under the current DDA modalities members would be obliged to notify the WTO of new export restrictions or prohibitions within 90 days of their entry into force, with the duration of these measures limited to 12 months, or up to 18 months if affected importing countries were to agree.

Bibliography FAO [Food and Agricultural Organisation of the United Nations] (2008a), The State of Food and Agriculture 2008, FAO, Rome, www.fao.org/es/esa/en/pubs_sofa.htm. FAO (2008b), “Policy Measures Taken by Governments to Reduce the Impact of Soaring Prices” (as of 11 July 2008), Global Information and Early Warning System (GIEWS) on Food and Agriculture, www.fao.org/giews/english/policy/index.htm.

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FAO (2008c), “National Policy Responses to High Food Prices”, Economic and Social Perspectives Policy Brief 1, FAO, Rome, ftp://ftp.fao.org/docrep/fao/010/aj113e/aj113e00.pdf.

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FAO (2008d), “The Breakdown of the Doha Round Negotiations: What Does it Mean for Soaring Food Prices?”, Economic and Social Perspectives Policy Brief 3, FAO, Rome, ftp://ftp.fao.org/docrep/fao/011/ aj221e/aj221e.pdf.

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IFPRI [International Food Policy Research Institute] (2008), “High Food Prices: The What, Who and How of Proposed Policy Actions”, Policy Brief, May, IFPRI, Washington, DC, www.ifpri.org/PUBS/ib/ FoodPricesPolicyAction.pdf.

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OECD (2008b), Agricultural Policies in OECD Countries: At a Glance 2008, OECD, Paris.

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OECD (2008a), OECD-FAO Agricultural Outlook 2008-2017, OECD, Paris, www.agri-outlook.org/pages/ 0,2987,en_36774715_36775671_1_1_1_1_1,00.html.

tu OECD (2008c), “Rising Agricultural Prices: Causes, Consequences and Responses”, Policy Brief,c L e August,

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OECD, Paris.

OECD (2008d), Economic Assessment of Biofuel Support Policies, OECD, Paris. Tangermann, S. (2005), “Is the Concept of the Producer Support Estimate in Need of Revision?”, Working Paper No. 1, OECD, Paris. World Bank (2007), World Development Report 2008: Agriculture for Development, World Bank, Washington, DC. World Bank (2008a), Rising Food and Fuel Prices: Addressing the Risks to Future Generations, Human Development Network and Poverty Reduction and Economic Management Network, 12 October, http://siteresources.worldbank.org/DEVCOMMEXT/Resources/Food-Fuel.pdf?resourceurlname=FoodFuel.pdf. World Bank (2008b), “Double Jeopardy: Responding to High Food and Fuel Prices”, Paper prepared for the G8 Hokkaido-Toyako Summit, 2 July, http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/ 0,,contentMDK:21827681˜pagePK:64257043˜piPK:437376˜theSitePK:4607,00.html. WTO [World Trade Organisation] (2008), An Unofficial Guide to Agricultural Safeguards, 5 August, www.wto.org/english/tratop_e/agric_e/guide_agric_safeg_e.htm.


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Chapter 2

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An

Brazil Evaluation of policy developments ● Brazil provides a relatively low level of support and protection to agriculture, reflecting its position as a competitive

exporter and a relatively open trade policy. While increasing in nominal terms, the level of producer support has been relatively constant at 5% of gross farm receipts since 2000, with producer prices on average only 3% above world prices. ● Nevertheless, there is a wide range and growing number of agricultural policy measures. Price supports have been used

extensively, in principle to offer price stability (minimum guarantee prices are set at low levels) and to provide localised support to smaller “family” farmers. There is also heavy state intervention in the credit system, both creating access to credit and rescheduling debt commitments. ● After a period of rising producer prices, there was a significant fall in 2005-06, due in part to the appreciation of the real, with

farmers also struggling to cope with localised droughts, pest and disease outbreaks, and rising costs. The government responded by expanding output support to both family farmers and commercial producers. In particular, the new PEPRO programme was used to support coffee and soybean producers, products in which Brazil is the world’s leading producer and exporter. ● Progress is being made on integrating small, subsistence producers into the market through targeted government

acquisition programmes. Market integration is vital to achieving a transition from traditional to modern, commercial agriculture. Further attempts could be made to increase private sector involvement. ● The level of credit provided to commercial farmers continues to rise, with increases in credit limits and a broadening of eligibility

requirements. The government is also channelling an increasing proportion of credit to family farmers who are less able to access commercial lines of credit. As part of the relief package to producers, the government deferred repayment of investment and working capital credit in 2006 and 2007. These actions, while benefiting farmers in the short term, discourage the development of a functioning credit market, and will lead to an increase in the level of support if market interest rates rise. ● In an attempt to deal with the problem of overdue debt, a major debt restructuring option was offered to farmers in late

2008. While the package includes discounts and reduced interest rates, so far there has been little uptake by producers. Resolving the debt issue remains a significant policy challenge. ● The expansion of farm insurance programmes to cover a greater number of crops in both the commercial and family

farming sectors could, if successful, reduce the need for market intervention in the long run. These programmes must be carefully evaluated to ensure that farmers pay an appropriate premium level. ● The new Programme for Growth Acceleration (PAC) has the potential to provide a much needed boost to infrastructure

development. However, it relies heavily on private investment, and the current financial crisis may have a severe impact on the success of this programme. Significant investments in infrastructure are needed if Brazilian agriculture is to continue to grow. The government needs to ensure that its investments are channelled into creating markets rather than managing and directing them.

41

n

_it E d it e io s w Summary of policy developments

nl y

D Br o

d

e

R

O

ea

EC

An

●

Rice, cotton, maize and wheat are the most heavily supported commodities as measured by producer Single Commodity Transfers (%SCT). The share of STC in total PSE averaged 53% in 2005-07, rising from 46% in 2005 to 63% in 2007.

●

The cost to consumers, as measured by the %CSE has remained fairly stable since the year 2000 in the range of 2%-3%.

●

Support provided to general services, notably infrastructure and agricultural schools, averaged 25% of total support in 2005-07, with the value of GSSE expenditure falling by 36% between 2005 and 2007.

●

Total support to agriculture averaged 0.7% of GDP in 2005-07, up from 0.2% in 1995-97, but less than the OECD average of 1%.


42

03 20 0 20 4 05 20 06 20 07

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

20

02

01

20

00

20

20

99

Payments based on input use fell by 29% to BRL 4.8 billion (USD 2.4 billion) in 2007. While the quantity of concessional credit provided to farmers increased and the value of debt deferral rose, the implicit subsidy provided decreased as a result of a fall in market interest rates.

98

●

19

Prices received by producers were on average 3% higher than those received on world markets in 2005-07 (NPC).

19

●

MPS and budgetary support, billion USD 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6

97

Support based on commodity output increased by 52% between 2005 and 2007 to a total of BRL 5.5 billion (USD 2.8 billion).

Support based on commodity output (left scale)

96

●

r

Budgetary transfers (left scale) % Producer Support Estimate (right scale)

19

Just one-half of producer support in 2005-07 was provided through the most distorting forms of support (based on commodity output and variable input use), with the share increasing over time.

95

●

u Lect

Figure 2.1. Brazil: PSE level and composition over time

19

Support to producers (%PSE) averaged 6% in 2005-07, up from –5% in 1995-97, but well below the OECD average of 26%.

19

●

u le

O

Market price support is provided through a number of programmes based on regionally announced minimum guarantee prices. These prices remained the same over 2005/06 and 2006/07 for the major crops but were increased significantly in 2008/09 to encourage production in response to food price increases. New commodity programmes were introduced to support “family” farmers and commercial producers, with extensive support provided to soybeans. The volume of subsidised credit available to farmers continued to increase, and investment and working capital repayments due in 2006 and 2007 were deferred. Farm insurance programmes were expanded to cover more crops, with the maximum compensation level per farmer also increasing. Actions taken in response to rising food prices included reductions in tariffs and other forms of taxes on certain foods, the release of government stocks of beans and grains, and actions to reduce domestic demand.

se

2. BRAZIL

statLink 2 http://dx.doi.org/10.1787/528800757652

Figure 2.2. Brazil: Producer SCT by commodity, 2005-07 MPS Payments based on output

Other SCT SCT as % of PSE

Rice Cotton Maize Wheat Coffee Soybean Beef and veal Sugar Milk Pigmeat Poultry Other commodities SCT as % of PSE -10

0

10 20 30 40 50 60 % of commodity gross farm receipts



176 572

78

78

140 206

136 398

Producer Support Estimate (PSE) Support based on commodity output Market Price Support Payments based on output Payments based on input use Based on variable input use with input constraints Based on fixed capital formation with input constraints Based on on-farm services with input constraints Payments based on current A/An/R/I,1 production required Based on receipts/income Based on area planted/animal numbers with input constraints Payments based on non-current A/An/R/I, production required Payments based on non-current A/An/R/I, production not required With variable payment rates With fixed payment rates Payments based on non-commodity criteria Based on long-term resource retirement Based on a specific non-commodity output Based on other non-commodity criteria Miscellaneous payments Percentage PSE Producer NPC Producer NAC General Services Support Estimate (GSSE) Research and development Agricultural schools Inspection services Infrastructure Marketing and promotion Public stockholding Miscellaneous GSSE as a share of TSE (%)h Consumer Support Estimate (CSE) Transfers to producers from consumers Other transfers from consumers Transfers to consumers from taxpayers Excess feed cost Percentage CSE Consumer NPC Consumer NAC Total Support Estimate (TSE) Transfers from consumers Transfers from taxpayers Budget revenues Percentage TSE (expressed as share of GDP)

–1 659 –4 666 –4 741 75 3 007 1 673 0 1 200 0 134 0 0 0 0 0 0 0 0 0 0 0 0 0 0 –3 0.92 0.97 2 914 483 192 109 1 697 8 425 0 n.a. 2 700 2 944 –273 15 13 5 0.95 0.95 1 271 –2 671 4 215 –273 0.17

11 043 4 451 3 610 841 6 498 1 824 0 4 418 0 256 0 94 94 0 0 0 0 0 0 0 0 0 0 0 6 1.03 1.06 3 939 391 698 137 2 344 86 263 20 25.6 –4 067 –4 205 –885 434 590 –3 1.04 1.03 15 416 5 091 11 211 –885 0.67

11 652 3 615 3 447 168 7 998 2 553 0 5 067 0 378 0 39 39 0 0 0 0 0 0 0 0 0 0 0 6 1.03 1.07 4 878 787 1 492 139 2 088 85 227 59 28.7 –4 680 –5 456 –1 250 462 1 563 –3 1.05 1.04 16 992 6 705 11 536 –1 250 0.84

100

220

R

An

GDP deflator 1995-97 = 100

ea

51 809

O

Total value of consumption (at farm gate)

174 005

2007 201 770

78

78

133 095

151 125

11 006 4 227 3 320 907 6 722 1 745 0 4 633 0 344 0 57 57 0 0 0 0 0 0 0 0 0 0 0 6 1.03 1.06 3 808 188 305 162 2 783 99 271 0 24.7 –3 603 –3 560 –846 597 206 –3 1.03 1.03 15 410 4 406 11 850 –846 0.66

10 471 5 511 4 063 1 448 4 774 1 173 0 3 555 0 46 0 186 186 0 0 0 0 0 0 0 0 0 0 0 5 1.03 1.05 3 133 198 297 111 2 162 74 291 0 22.6 –3 919 –3 601 –560 242 0 –3 1.03 1.03 13 845 4 161 10 245 –560 0.54

se

184 116

73

2006

e

53 594

nl y

2005

O

2005-07

d

of which share of MPS commodities (%)

1995-97

EC

Total value of production (at farm gate)

D Br o

BRL million

n

Table 2.1. Brazil: Estimates of support to agriculture

u Lect

210

219

u le

w

_it E d it 2. BRAZIL e io s

r

229

n.a.: not applicable. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient. 1. A (area planted) / An (animal numbers) / R (receipts) / I (income). For the definition of OECD indicators of support to agriculture, see Annex A.1. Market price support is net of producer levies and excess feed cost. MPS commodities for Brazil are: wheat, maize, rice, soybeans, sugar, cotton, coffee, milk, beef and veal, pigmeat and poultry. Source: OECD, PSE/CSE Database, 2008. statLink 2 http://dx.doi.org/10.1787/531781033426


43

nl y

D Br o

n

_it E d it e io s w Policy context: Brazil agriculture at a glance

d

e

R

O

ea

EC

An

2006

u Lect

r

Figure 2.3. Brazil: Evolution and annual changes of agricultural output, 1995-2005

Table 2.2. Brazil: Basic economic and agricultural indicators, 2005-07 2005

u le

O

Agriculture is an important sector of Brazil’s economy. Primary agriculture accounts for 5% of GDP and 18% of total employment. Agro-food exports have grown rapidly since 2002 and account for 28% of exports. With an import share of only 5%, the agro-food sector is responsible for 97% of the country’s balance of trade surplus. While the total area used for agricultural production increased by just 0.4% between 1995 and 2006, the number of farms increased from 4.8 to 5.2 million, leading to a fall in the average farm size from 72 to 68 hectares. These figures reflect the dualistic structure of Brazilian agriculture, with producers (both large and small) that are fully integrated into markets existing alongside many subsistence farmers.

se

2. BRAZIL

2007

Total GAO annual rate of growth (right scale) Total GAO (left scale)

Basic economic indicators GDP (USD billions)

882

1 068

1 314

GDP growth (%)

2.9

3.7

5.4

8 474

8 949

9 570

6.9

4.2

3.6

1995=100 180 160

6

GDP per capita, PPP (USD) Inflation (annual average, %)

Crops (left scale) Livestock (left scale) Annual rate of growth, % 8

Exchange rate (annual average, local currency per USD)

2.4

2.2

1.9

Population (million)

187

189

192

Population in rural areas (%)

17.2

16.7

16.5

140

4

5.7

5.2

5.5

120

2

Industry

29.3

30.1

28.7

Services

65.0

64.7

65.8

100

0

80

-2

Agriculture

20.5

19.3

18.3

Industry

21.4

21.4

22.0

Services

58.2

59.3

59.8

n.a.

n.a.

17

Agro-food exports (% of total exports)

27.2

26.8

27.9

Agro-food imports (% of total imports)

4.7

4.9

5.0

Agro-food trade balance (USD million)

38 865

Average share of income spent on food1 (%) Basic agricultural indicators

28 721

32 459

GAO (% change from previous year)

–0.3

n.a.

n.a.

Total cereal production (million tonnes)

55.4

59.1

68.8

Total meat production (million tonnes)

20.9

20.0

20.1

Natural resources and farm structure Average farm size (ha)

n.a.

68.2

n.a.

Agricultural land (million ha)2

n.a.

354.9

n.a.

Arable land per capita (ha)

0.3

n.a.

n.a.

Land sown to crops (million ha)

n.a.

76.7

n.a.

n.a.: not available. 1. Data come from the most recent national Consumer Expenditure Survey (POF in Portuguese) which is dated 2002-03. 2. Of which 76.7 million hectares in crops; 172.3 million hectares in pasture and 99.9 million hectares in woods and forest. statLink 2 http://dx.doi.org/10.1787/531831754786 Source: IBGE, 2008; IMF, International Financial Statistics, 2008; MDICALICE, 2008; PNAD, 2008; UN, UN Comtrade Database, 2008; World Bank, World Development Indicators, 2008.

44

97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05

96

19

19

19


Figure 2.4. Brazil: Agro-food trade, 1995-2007 Agro-food export (including fish and fish products) Agro-food import (including fish and fish products) Agro-food balance (including fish and fish products) USD billion 50 45 40 35 30 25 20 15 10 5 0

95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07

Share in employment (%)

19

Agriculture

95

Share in GDP (%)



nl y u le

O

D Br o

Main policy objectives and instruments

w

n

Policy developments


d

The principal objectives of agricultural policy, reaffirmed in the latest Pluriannual

ea

EC

Plan (PPA) 2008-11, approved in April 2008, are to promote economic development,

se

environmental sustainability, employment generation and a more equitable income

R

O

distribution, and reduce regional inequalities. These broad objectives are implemented

e

through programmes that often specifically target either the commercially orientated

An

agro-food sector or poorer farmers and other rural households that are less integrated into

tu markets. Modifications to programmes and new initiatives are generally setL out in c e annual

r

Agricultural and Livestock Plans by the Ministry of Agriculture, Livestock and Food Supply (MAPA).

Producers receive price support through a number of programmes including direct government purchases at guaranteed prices, although greater use is being made of auction and tendering systems involving the private sector. The primary purpose of these programmes is to reduce price instability rather than maintain high domestic prices. Some programmes do specifically support small and/or medium-scale (“family”) producers who are considered to be at a disadvantage either because their costs are raised by the underdevelopment of infrastructure or because of locally depressed incomes. This is done by restricting the terms under which price supports are applied and by differentiating prices between regions. Producers receive input support through preferential credit arrangements including administrative requirements to allocate credit resources to agriculture, controlled interest rates at below market levels, and debt rescheduling. Intervention in the credit market is justified on the grounds that it offsets high market interest rates that are the result of macroeconomic instability and provides access to credit for the rural poor who would not otherwise be able to obtain credit. The National Programme for the Strengthening of Family Agriculture (PRONAF) was introduced in 1995 to provide long-term benefit to small holders – including subsidised credit, training and extension, and the promotion of value-added activities. With the adoption of the Zero Hunger (Fome Zero) programme in 2003, support for family farming became part of a broader objective of combating hunger and poverty in Brazil. The current land reform programme, the Second National Agrarian Reform Plan (PNRA II) was also launched in 2003. Its broad aim is to assist the economic development of the poorest households through the settlement of landless peasants on lands confiscated, purchased or reclaimed by the government; provision of low interest loans to acquire land; and funding of community and infrastructure-related investments. Weak infrastructure is a significant bottleneck to agricultural development. Producers are typically a long distance from their principal markets and face internal logistic systems that are relatively underdeveloped. The policy challenge of developing the necessary infrastructure is made more difficult by environmental concerns associated with the potential destruction of natural ecosystems. The commercial agricultural sector is largely export orientated. Consequently, there is considerable trade policy emphasis on increasing market access/reducing international trade distortions through trade negotiations, improving sanitary and phytosanitary standards and an active involvement in the WTO dispute settlement process. AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

45

w

_it E d it e io s n

D Br o

2. BRAZIL

nl y

Box 2.1. Food price inflation in Brazil

u le

O

d

se

ea

The increase in food prices during 2007 and 2008 was the result of both international market developments, with Brazil well integrated with global agricultural markets, and increased domestic demand for food arising from a strong economic performance (Brazil’s real GDP grew by 5.4% in 2007 compared to an average annual increase of just 2.5% over 1998-2006). On the supply side, while the planted area for the 2007 harvest had decreased by 1.5%, primarily due to a reduction in soybean plantings because of low prices in 2006, favourable weather conditions resulted in an increase in cereal production. It is estimated that the area planted to grains increased by 4.4% in 2008 to 47.4 million hectares. Further, while farmers have generally benefited from higher output prices, particularly producers of beans, coffee, maize, milk, soybean and wheat, they have incurred higher costs, particularly for chemical fertilisers and labour.

e

R

O

EC

In the year to December 2007, Brazil’s annual CPI increased by 4.5% (3.1% in 2006) and increased further to a rate of 6.4% by July 2008. Food prices, which account for about one-fifth of Brazil’s CPI, rose by 10.8% in 2007 and by 15.5% in the year to July 2008, compared to an increase of just 1.2% in 2006 (Figure 2.5). Food prices fell in August 2008, with the annual CPI for 2008 estimated at 6.5%. The government annual inflation target is 4.5% for the period 2006-09, with lower and upper limits of 2.5% and 6.5%.

u Lect

r

An

Brazil has also been directly affected by the policy actions of other governments, particularly with regard to wheat. Brazil is the world’s largest importer of wheat, with 90% normally sourced from Argentina due to its proximity and its advantages of being a Mercosur member, i.e. tariff free entry (MFN rate of 10%) and waiver of the merchant marine levy (25% of freight cost). However, since March 2007 Argentina has imposed quantitative restrictions on the export of wheat, requiring Brazilian importers to source wheat from the United States and pay higher import charges. The government has taken a number of measures to stem the upward pressure on food prices. At the general macroeconomic level, it has taken steps to reduce domestic consumption pressure by: a) increasing interest rates (through raising the inter-bank lending rate); and b) establishing the Brazilian Sovereign Fund so that a greater share of the increase in revenue from GDP growth is channelled into savings rather than consumption. In terms of agricultural specific policies, it has: ●

Released government stocks of beans, maize and wheat, which have decreased by 91%, 76% and 99% respectively from 2005 levels.

●

Reduced tariff rates for wheat, sardines and palm kernel crude oil, and some chemical fertilisers.

●

Reduced other taxes levied on goods: a) lowered the excise tax (CIDE) on petrol and diesel; b) expanded the range of products which benefit from lower social security contributions (PIS/ Cofins) to include a number of additional milk and wheat products; and c) eliminated the merchant marine levy (AFRMM) imposed on the freight using Brazilian ports for wheat and wheat flour between May and December 2008.

●

The 2008/09 Agricultural and Livestock Plan included a number of measures such as higher guarantee minimum prices, increased access to credit and the expansion of extension services in order to stimulate farm production, support for food manufacturing and commercialisation, and a build up of public stock levels.

While predating the significant rise in food prices, the National Food Security and Nutritional System (SISAN) was approved in September 2006 with the purpose of assuring the human right to appropriate food, taking into account the environmental, social, regional, and economic dimensions. It establishes a definition of food security, and seeks to provide the over-arching framework for establishing, implementing and monitoring policies relating to food and nutritional security in all spheres of the government.

46


O

nl y

Box 2.1. Food price inflation in Brazil (cont.)

se

ea

An

115

e

O

R

Food and drink

EC

Total CPI December 2005=100 120

d

Figure 2.5. Brazil: Consumer price indices in 2006-08

u le

D Br o

n

w


u Lect

r

110

105

100

Ja

n. Fe 06 b M . 06 ar Ap . 06 r. M 06 ay Ju 06 ne Ju 06 ly Au 06 g. Se 06 pt Oc . 06 t. No 06 v. De 06 c. Ja 06 n. Fe 07 b M . 07 ar Ap . 07 r M . 07 ay Ju 07 ne Ju 07 ly Au 07 g. Se 07 pt Oc . 07 t. No 07 v. De 07 c. Ja 07 n. Fe 08 v. M 08 ar Ap . 08 r M . 08 ay Ju 08 ne Ju 08 ly Au 08 g. 08

95

Source: Brazilian Institute of Geography and Statistics (IBGE); Extended National Consumer Price Index (IPCA). statLink 2 http://dx.doi.org/10.1787/530134604626

Domestic agricultural policies Price and income support policies The traditional market price support instrument, Aquisição do Governo Federal (AGF), consists of direct government purchases from producers and producer co-operatives at announced prices, which generally vary between major regions. Twelve commodities are covered, including staple crops (mostly rice, maize and wheat), non-food crops such as cotton and jute, and a few processed products such as manioc flour. Minimum guaranteed prices for the major commodities were held constant in 2005/06 and 2006/07 with the exception of maize and rice for which minimum prices increased by 4% and 10% respectively (Table 2.3). There were also increases for a few minor crops (carnauba wax and jute). Almost 2.6 million tonnes of product were purchased through this programme in 2005/06, the highest level since 1996/97, although purchases fell back in 2006/07 (Table 2.4) Minimum prices were increased in 2007/08 for beans, and for most of the non-major commodities, by an average of 20%. They were increased again for the 2008/09 crop year, including for all the major commodities with the exception of cotton. The other historical government purchase instrument is Contrato Governamental de Opção de Venda, a public sell option contract system which guarantees the holder (a producer or an agricultural co-operative) a future sale at a fixed “execution” price. Before the start of each season, the National Food Supply Agency (CONAB) announces the products for which sell option contracts will be offered, the quantity and the fixed “execution price” (at least the AGF minimum price). Options are purchased through AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

47

BRL

USD

BRL

USD

USD 27.91

80.00

46.12

25.71

44.60

25.71

47.00

19.31

47.00

21.59

47.00

24.12

48.42

15 kg

44.60

18.32

44.60

20.49

44.60

22.89

44.60

Maize3

60 kg

13.50

5.55

14.00

6.43

14.00

7.19

14.00

Rice4

50 kg

20.00

8.22

22.00

10.11

22.00

11.29

O

22.00

Soybeans5

60 kg

14.00

5.75

14.00

6.43

14.00

7.19

14.00

Wheat6

Tonne

330.88

135.94

330.88

151.98

330.88

169.83

330.88

BRL

USD

8.07

16.50

9.51

12.68

25.80

14.87

R

60 kg

Cotton2

EC

Beans1

8.07

22.80

9.51

190.75

397.00

228.87

An

1. 2. 3. 4. 5. 6.

nl y

BRL

u le

USD

2008/09

O

BRL

2007/08

d

2006/07

ea

2005/06

Weight

D Br o

2004/05 Crop

n

Table 2.3. Brazil: AGF minimum guarantee prices for main programme crops, 2005-09

se

w

_it E d it e io s

e

2. BRAZIL

u Lect

r

South, Southeast and Centre West regions and south Bahia. The same minimum guarantee price applies in all regions in Brazil. South, Southeast, Centre West regions (except Mato Grosso), and south Bahia, Maranhao and Piaui. Type 1 (long, fine, husked) for the South, Southeast, Northeast and Centre West regions (except MT). The same minimum guarantee price applies in all regions in Brazil. Type 2, minimum ph 75, Brando, for the South region.

Source: MAPA, Agricultural and Livestock Plans, various years. statLink 2 http://dx.doi.org/10.1787/531883414557

auction. CONAB is responsible for purchasing the product once the option holder decides to execute the contract. Since its inception in 1996/97, public option contracts have been issued on a regular basis for maize, and on an ad-hoc basis for wheat, rice, sorghum, cotton and coffee. In 2005/06, the government suspended the use of public option contracts in preference for the use of the recently introduced private sell option contracts. However, this proved to be temporary, as it was reintroduced in 2006/07 for rice. CONAB also makes direct acquisitions from family farms under the Programa de Aquisição de Alimentos (PAA) which began in 2003/04. These purchases are made at market prices, with the product either going into stock or distributed as part of a food programme. Changes were made to expand and improve the operation of this programme, including an increase in the acquisition cap limit from BRL 2 500 to 3 000 (USD 1 300 to 1 500) per farmer in August 2006. Acquisitions under this programme increased from 2% of all government acquisitions in 2005/06 to 11% in 2006/07. Under the milk production and consumption modality, the average daily distribution increased from 0.65 to 0.78 million litres of milk between 2006 and 2007, with the number of producers increasing from 19 000 to 29 000. A new programme providing price support to family farms, the Programa de Garantia de Preços para a Agricultura Familiar (PGPAF), was established in December 2006. It is closely linked to PRONAF, covering many of the same crops and regional groupings. There are two aspects to the programme. First, it ensures that farmers receive a guaranteed price (based on the average regional production cost) for their product in the event of either a credit transaction amortisation or liquidation. The objective is to reduce the risk of indebtedness and capital impairment, thereby fostering an increase in production and income. Second, it provides a bonus to farmers if the state average market price for a commodity falls 10% below the guaranteed price. The cap limit for this bonus is BRL 3 500 (USD 1 800) per beneficiary for each crop. During 2007, the only support provided was bonuses for cashew nuts. Another relatively new scheme is the Prêmio Equalizador Pago ao Produtor (PEPRO) programme, introduced in 2005/06. It operates like a deficiency payment (classified under payments based on output) by paying the seller, whether a producer or an agricultural

48


w


Sisal Source: MAPA/SPA, 2008.

nl y

n.a. 12.9% 4.3% 0.3% 9.4% n.a. 39.2% n.a. n.a.

132 38 2 53 0 28 0 0 11 437 0 0 0 0 437 0 0 1 200 5 545 171 0 0 290 0 190 103 16 0 71 0 17 0 0 139 0 0 0 0 0 139 0 2 013 59 547 295 0 482 429 0 190 11

373 36 1 273 0 62 0 0 1 858 0 0 0 0 858 0 0 8 563 38 729 3 753 0 0 3 743 0 300 1 428 87 0 1 183 0 158 0 0 1 611 0 0 0 0 0 1 611 0 12 833 161 730 5 209 0 1 078 5 354 0 300 1

e

se

2 581 3 0 2 224 0 308 15 32 0 0 0 0 0 0 0 0 0 6 028 0 462 100 0 0 5 468 0 0 9 144 0 2 3 248 0 460 5 195 240 3 956 0 0 2 238 189 239 1 290 0 21 713 3 464 7 810 189 1 007 11 968 272 0 0

O

613 2 1 452 0 134 10 13 0 0 0 0 0 0 0 0 0 558 0 154 4 0 0 401 0 0 689 0 1 226 0 58 360 44 322 0 0 192 5 27 98 0 2 182 2 156 874 5 219 869 57 0 0

Volume (1 000 MT)

d

1 690 0 5 637 0 567 0 481 0 352 0 0 0 0 350 0 2 0 0 0 0 0 0 0 0 0 2 150 0 198 760 0 0 0 1 192 944 0 272 114 76 328 0 153 5 135 0 475 1 511 76 1 245 0 1 828 0 0

Value (BRL million)

ea

504 0 13 127 0 196 0 168 0 169 0 0 0 0 168 0 1 0 0 0 0 0 0 0 0 0 362 0 72 60 0 0 0 230 178 0 135 7 2 20 0 16 1 215 0 220 194 2 384 0 415 0 0

Volume (1 000 MT)

R

Value (BRL million)

O

Volume (1 000 MT)

u Lect

0.1% 16.0% 18.3% 0.7% 8.7% 22.8% 10.9% n.a. n.a.

u le

D Br o

Value (BRL million)

2006/07

EC

AGF Beans Cotton Maize Manioc Rice Soybeans Wheat Sisal Public option Beans Cotton Maize Manioc Rice Soybeans Wheat PEPRO Beans Cotton Maize Manioc Rice Soybeans Wheat Coffee PEP Beans Cotton Maize Manioc Rice Soybeans Wheat PROP Beans Cotton Maize Manioc Rice Soybeans Wheat TOTAL Beans Cotton Maize Manioc Rice Soybeans Wheat Coffee Sisal % of production Beans Cotton Maize Manioc Rice Soybeans Wheat Coffee

2005/06

An

2004/05 Support instrument

n

Table 2.4. Brazil: Expenditure and volume of product by output support instrument, 2005-07

r

5.0% 18.9% 10.1% n.a. 9.7% 9.2% n.a. 13.8% 0.0%



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co-operative, the difference between the guaranteed price and the price received at

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auction. It has been primarily used to support soybean and maize producers, and is being

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extended to support other products such as coffee beans.

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The government operates two programmes which support purchasers of agricultural

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commodities. Historically, the most important of these instruments is Prêmio para Escoamento

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do Produto (PEP) which pays commercial buyers the difference between the minimum

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guaranteed price and the price the buyer is willing to pay as determined by regional auctions organised by CONAB. Since its introduction in 1996, PEP was traditionally used to support

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cotton, maize and wheat; covered on average 0.8 million tonnes per annum over 1996-2002;

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u Lect rice and soybeans; and in 2005/06 supported 9.1 million tonnes of crops, predominantly and was inactive in 2002/03. However, it was reactivated in 2003/04; expanded to cover beans,

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soybeans and maize. In 2006/07 there was a considerable drop in the volume of product covered, almost all for maize. Prêmio de Risco para Aquisição de Produto Agrícola oriundo de Contrato Privado de Opção de Venda (PROP), introduced in 2004/05 works in the same way as the public sell option, except that private agents take the role of CONAB and the government pays these agents a “risk premium” if the market price falls below the “execution” price. The government has also taken steps to involve the private sector in the distribution of its buffer stocks. The Valor de Escoamento Produto (VEP) programme pays a subsidy to a defined consumer group (poultry raisers, cattle raisers, feed industries, pig raisers and others) for purchasing government stock and transporting it to a specified consumption region. An auction system is used to determine the subsidy value. During 2006, 386 000 tonnes of maize were sold with a premium of BRL 8 million (USD 4 million). In 2007, this increased to 700 000 tonnes of maize with BRL 83 million (USD 43 million) paid out. Table 2.4 indicates the expenditure and volume of product associated with various programmes, and shows the contrasting market conditions that existed in 2006 and 2007. There was a significant increase in market price support for soybeans and maize in 2005/06, with almost one-quarter of the soybean harvest directly involved in price support programmes. While there was a reduction in the quantity of product purchased during 2006/07, the level of funding provided for the programmes remained over BRL 2 billion (USD 1 billion). Maize and soybeans dominated in terms of volume, but cotton and rice were the most important in terms of expenditure. Although there were no intervention activities for wheat in 2006/07, action was taken to support coffee. Purchases made in 2006/07 have some effect on the 2006 PSE estimates, but are mostly reflected in the 2007 calculations. In order to reduce inflationary pressure, zero duties under the PIS/PASEP (Social Integration Programme Tax) and COFINS (Social Security Contribution) were extended in June 2007 to include skim milk powder, fermented milk, drinks with milk and milk compounds, infant formula, certain cheese, and whey for human consumption. In May 2008, wheat, wheat flour, common bread and mixes to make bread were also excluded until December 2008.

Input subsidies The provision of bank credit to agriculture in Brazil is dominated by the national rural credit system, Sistema Nacional do Crédito Rural (SNCR). The majority of lending to the sector comes from non-bank sources such as domestic agribusiness and international lenders which are typically unavailable for smaller agricultural producers without established links to markets. The major source of funding for SNCR comes from compulsory resources, under

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which banks are forced to choose between either (a) holding 25% of their sight deposits as obligatory reserves at the central bank at zero interest, or (b) lending to agricultural borrowers at below market interest rates. Other important sources of funding are the rural savings of co-

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The SNCR system provides directed credit at concessional interest rates under a range of programmes that fall into three categories: i) marketing and storage credit; ii) working capital; and iii) investment credit (classified respectively as payments based on output,

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operative banks, the national development bank BNDES and constitutional (state) funds. The interest rate charged to the borrower varies from programme to programme, depending on the source of the credit, the purpose of the borrowing, the income level of the borrower, etc.

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payments based on variable input use and payments based on fixed input use reflecting, among other things, the purpose and term of the loans). These last two categories can be further differentiated by two broad groups of beneficiary: a) medium and large-scale producers and their co-operatives (referred to here as the general system) and b) small

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agricultural producers – beneficiaries of PRONAF, agrarian reform settlers and family farmers, who comply with certain criteria. The level of credit provided through SNCR continued its upward trend through 2006 and 2007, rising to over BRL 50 billion or one-quarter of gross agricultural output (Table 2.5). The largest increases were for working capital which accounted for 60% of SNCR credit in 2007, with investment taking a share of 21%, and marketing and storage 19%. The share of SNCR credit that is distributed through PRONAF programmes has shown a steady upward trend over the period. During the last two years market interest rates (SELIC) have fallen from 19% to 12%. While concessional interest rates have also dropped, reducing farmers’ repayment requirements, the preferential margin provided by the system has decreased. In addition to a large increase in the amount of credit available and a lowering of concessional interest rates, a number of other adjustments were made to the programmes, including the following: ●

Allow the purchase of used harvesting and tractor machinery through MODERFROTA, the largest of the investment credit lines operated by BNDES.

●

The addition of a new BNDES credit line called PROLAPEC (Programa de Integração LavouraPecuária) in 2007/08 to fund investments in farming and livestock integration to reduce

Table 2.5. Brazil: Annual credit allocations in the SNCR, 2003-07 BRL million 2003

2004

2005

2006

2007

31 103

40 446

41 976

43 766

51 165

5 038

8 235

9 404

9 268

9 653

Working capital – General

16 596

19 694

19 672

20 351

24 175

Working capital – PRONAF

2 365

3 567

3 602

4 015

6 428

Investment – General

5 672

6 756

6 496

6 605

8 041

Investment – PRONAF

1 442

2 194

2 803

3 526

2 868

SELIC

23

16

19

15

12

Investment – General (average)

10

10

9

9

7

4

4

4

4

3

Total SNCR credit Marketing and storage

Selected interest rates

Investment – PRONAF (groups C and D) PRONAF as share of in Total SNCR (%)

12

14

15

17

18

Total SNCR as share of GAO (%)

18

22

24

25

25

Source: MAPA. statLink 2 http://dx.doi.org/10.1787/532065278466


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Increased the credit limit available to

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individual producers for working capital,

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investment and marketing credit financed from controlled resources. ●

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Merged three BNDES credit lines (PRODEFRUTA, MODERAGRO and PRODEAGRO) into a new programme MODERAGRO II in 2007/08 for the purpose of improving their performance, and expanding the repayment term for this new programme from five to eight years.

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environment degradation. This was merged in 2008/09 with the credit line provided through MODERAGRO for soil erosion and conservation to form a new credit line PRODUSA (Programa de Estímulo à Produção Agropecuária Sustentável), the Program for Fostering Sustainable Farming specifically targeting degraded soils.

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Increased the maximum income ceiling for producers to qualify for credit through the PROGER RURAL programme.

A number of adjustments were made to the PRONAF programme for the purpose of increasing its scope and efficiency. Most importantly, in the 2008/09 plan, the criteria determining the eligibility of “family farms” was both rationalised (e.g. from three different types down to one) and expanded (e.g. the maximum income level was increased), with the inclusion of fisherman and people working in the extraction, forestry and aquaculture industries. Two new special lines were added: (a) Renewable Energy and Environmental Sustainability Investment in 2007/08 – to fund the introduction of renewable energy generation technologies, environmental technologies such as effluent treatment, and soil conservation; and (b) “More Food” in 2008/09 – to finance maize, beans, rice, manioc, vegetables, fruits and milk products, with the aim to reach an additional 300 000 farmers with BRL 6 billion (USD 3 billion) in credit. Credit support is also provided to producers through debt rescheduling. Major debt rescheduling occurred during the later 1990s and early 2000s for both commercial and family producers (OECD, 2005). During 2006 and 2007 debt repayments were deferred in response to the financial difficulties faced by producers as a result of climatic events, the appreciation of the Real, pest and disease outbreaks and increased production costs. In 2006, the government announced the deferral of all investment credit instalments (capital and interest) due in 2006 for a period of 12 months, and a further 12 month extension for working capital credit that had already been granted a one year roll-over in 2005. Producers whose main income comes from cotton, rice, maize, soybeans, sorghum or wheat and who were considered credit worthy were eligible to apply for this deferral without the requirement of formal credit analysis. In addition, soybean, cotton, rice and maize producers who had taken out working capital credit for the 2005/06 season benefited from a partial four year extension of their borrowings. The one year extensions granted in 2006 were rolled over for another year in 2007. Further, a new law in 2007 authorised the use of the obligatory funds made available for agriculture from rural savings accounts and cash deposits as a credit line to farmers who were unable to renegotiate working capital debt owed to input vendors for the 2004/05 and 2005/06 crop seasons. As a result of the on-going concern about the indebtedness of the sector, limiting the capacity of producers to borrow, an extensive assessment of the rural debt situation was conducted in 2008. It found that almost BRL 18 billion (USD 9 billion) of the sector’s total debt balance of BRL 88 billion (USD 45 billion) was overdue, with just under 30% of producers with debt in default for at least a proportion of their repayment. In order to deal with the accumulating debt problem, a major debt settlement package was introduced at

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the end of 2008 involving reductions in default burdens, debt balances and interest rates;

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extension of repayment terms; and discounts for payment (Box 2.2).

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Because of the lack of private sector involvement, the government operates a range of

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farm insurance schemes. The traditional General Agriculture Insurance Programme

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(Programa de Garantia da Atividade Agropecuária – PROAGRO) has been dwarfed in recent

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years by schemes specifically targeting “family” or commercial farmers. The most

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significant of these is Seguro da Agricultura Familiar (SEAF), a sub-programme of PROAGRO.

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Established in August 2004, it assists family farmers enrolled in PRONAF to borrow working capital from commercial banks by guaranteeing full redemption of the liability in the event

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of a 30% or more drop in gross revenue caused by drought, flood, hail, wind, disease or

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plague. In 2007, the number of products covered by the programme increased from 5 to 20,

and in 2008, the maximum net earning compensation was increased to BRL 2 500 (USD 1 300). The number of farmers enrolled in the programme increased from 553 561 in 2004/05 to 601 854 in 2006/07, with the value of credit and net earnings covered rising from BRL 2.4 billion to BRL 2.8 billion (USD 1.0 to 1.4 billion). While producers contribute to the programme by paying a premium equivalent to 2% of the loan value, it is mostly funded through ad hoc extra-budgetary allocations.

Box 2.2. The 2008 debt settlement package in Brazil In recognition of the rising debt level of agricultural producers, including a growing level of overdue debt and an increasing number of producers in default for at least a portion of their debt, a major debt resettlement package was announced in May 2008 and approved as Federal Law No. 11.778 on 17 September. The package was drawn up jointly by the Ministry of Agriculture, Livestock and Supply (MAPA); the Ministry of Agrarian Development (MDA); the Treasury; and the Ministry of National Integration. The purpose of the package is to establish conditions so that farmers can settle their financial indebtedness so as to improve the long-term financial viability of producers and enable them to regain access to credit. The pack offers favourable conditions for the repayment of overdue debt. Furthermore, in order to avoid the accumulation of new overdue debt, the package also offers to reduce the financial burden of other debt that is coming due. The conditions vary according to the characteristic of each credit programme from which debt has been sourced, the current debt status of the producer, and the time frame over which the producer is willing to pay back the debt. Some of the provisions include a: ●

reduction in the additional levies charged on overdue debt;

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variable discount of up to 45% on the outstanding balance of both overdue and coming due debt for early repayment;

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fixed value discount of up to BRL 15 000 (USD 8 600) on the outstanding balance of both overdue and coming due debt for early repayment;

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extended repayment terms for the remaining balance if a proportion of coming due debt is repaid; and a

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reduction in interest rates charged on investment and working capital debt.

Despite the generous provisions, only a limited number of producers have enrolled in the scheme so far. The original deadline for enrolment was extended to mid-December 2008, and it was very likely that the cut-off date will be extended into 2009.


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The crop guarantee programme (Programa Garantia Safra), which began in 2002/03, is available to family farms enrolled in PRONAF who are located in arid areas and are producing non-irrigated staple crops and cotton. Participating farmers, who each contribute BRL 5.50 (USD 2.80) per annum, receive a payment of BRL 550 (USD 113) if they suffer a loss of at least half of their anticipated output through natural calamity. The number of farmers enrolled in the programme increased from 177 839 in 2004/05 to 346 327 in 2006/07, with the total value of payments to farmers through the programme increasing from BRL 39.3 million to BRL 185.5 million (USD 16 million to USD 95 million).

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The rural insurance premium programme (Subvenção ao Prêmio do Seguro Rural – SPSR) grants a subsidy to commercial producers who establish contracts with insurance companies listed by the government. Since it began in 2005, the value of support has risen from BRL 2.3 million to BRL 61 million (USD 1 million to USD 31 million) in 2007. While initially covering only eight crops, it was extended in 2006 to cover all agricultural and livestock activities, as well as forestry and aquaculture. The share of the insurance

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premium covered by the subsidy was increased for the original eight crops from between 30%-50% to between 40%-60%. The maximum subsidy per product was increased to BRL 32 000 (USD 16 000), with the annual ceiling per producer increasing from BRL 26 000 to BRL 192 000 (USD 13 000 to USD 98 000), i.e. producers are eligible to receive this subsidy for more than one product. The area covered by the programme has increased from 68 000 hectares in 2005 to 2.3 million hectares in 2007, with soybeans accounting for 73% of the area covered and 47% of the subsidy value in 2007. In order to increase private sector involvement in the agricultural insurance market (there are currently only four companies listed in the SPSR programme), the government made a proposal to Congress in 2008 to replace the Rural Insurance Stability Fund with a Catastrophe Fund. The objective of this new Fund is to protect private insurance companies against financial losses due to catastrophic events, with the anticipation that this will encourage growth in the private insurance market. The Fund will receive financial support from MAPA, with guarantees backed by the National Treasury.

Environment In addition to introducing lines of credit specifically designed to recover soils that have been degraded, the new PROLAPEC and subsequent PRODUSA programmes also include technical assistance to producers, training for technicians, field visits, creation of demonstration units and sustainability modelling. While standards for the production, classification, processing and packaging, importation, distribution, identification and certification of organic products were first published in 1999, it was only in December 2007 that a Presidential Decree formally established them. There are approximately 1 200 certified organic farmers in Brazil, and commercial production, estimated to be growing by 20% per year, is mostly in grains and vegetables. As a result of a greater policy focus, including stronger enforcement of existing regulations, annual rates of Amazon deforestation declined from over 27 000 km2 in 2004 to a low of less than 10 000 km2 in 2007. In December 2007, further laws were enacted to prevent, monitor and control deforestation. Finally, after several years of development, the Brazilian government launched the Sustainable Amazon Plan (Plano Amazônia Sustentável – PAS) in May 2008. SAP includes a variety of initiatives including an extensive research network to develop forest and aquatic products, mineral resources, biodiversity and ecosystem services, and the Amazon Fund to receive donations from the international

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advance the sustainable use of the Amazon forests.

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community to finance actions to prevent, monitor and fight against deforestation, and

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The Programme for Growth Acceleration (Programa de Aceleração do Crescimento – PAC)

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was launched in January 2007 to foster private investment and improve public sector

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investment in infrastructure. The goal of PAC is to see BRL 500 billion (USD 250 billion) invested over the five-year period 2007-11, with 87% coming from state owned companies

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and the private sector. The proposed transportation projects that are of importance to

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u c tthe (especially in the centre-west): the construction of locks on hydroways L (in e Pará); agriculture include: the renewal, paving, maintenance and construction of highways

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expansion of the railway network (such as the 2 258 km extension to the North-South railway); and dredging to increase the capacity of important ports (e.g. Rio Grande do Sul, Paraná, Santa Catarina, São Paulo, Espírito Santo, Bahia and Maranhão). Under PAC an additional BRL 3 billion of public funding will be spent on irrigation. Consequently, irrigation expenditure increased from BRL 236 million (USD 108 million) in 2006 to BRL 687 million (USD 350 million) in 2007. A total of BRL 12.7 billion (USD 6.5 billion) of investment is foreseen under the Light for All Program, which has a goal to provide electricity to an additional 5.2 million persons by 2011. PAC also foresees a total public/ private investment of BRL 17.4 billion (USD 9 billion) in biofuels, with 70% spent on building ethanol plants, 25% on a multi-fuel pipeline between Goiás and São Paulo, and the remaining 5% on biodiesel plants.

Biofuels There has been a strong government focus in recent years on developing the biofuel market. Other actions have included a substantial increase in BNDES lending to construct purpose built ethanol plants and modernise sugar cane mills; excise tax incentives to encourage the purchase of flexi-fuel vehicles; mandatory biofuel blending ratios for both petrol and diesel; a public auction system to distribute biodiesel; trade agreements to develop export markets; and the establishment of Petrobras Biocombustivel, a subsidiary of Petrobras, to increase the government’s involvement in the market. Ethanol production increased from 15 billion litres in 2004 to 22 billion litres in 2007, while biodesel production (80% from soybeans), which only commenced in 2005, reached 402 million litres in 2007. To accommodate the expansion in supply, the biofuel blending ratio for diesel, which only became effective on 1 January 2008 at 2% (target of 5% by 2013), was increased to 3% beginning 1 July 2008.

Biotechnology As a result of recent regulatory changes, biotechnology products are once again being approved for commercial use in Brazil. The National Technical Commission on Biosafety (CTNBio), established in 1995, had up until the enactment of the Biosafety Law in 25 March 2005 approved the commercial use of three biotech products: one each for corn, cotton and soybeans. The Law expanded the membership of CTNBio from 18 to 27 persons and established a two-third majority requirement to approve a product for commercial use. These changes created a major deadlock for the approval of biotech products for commercial use as enough members were opposed to their introduction, with a backlog of over 500 product requests, although approval for field testing continued AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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to be given. After much debate, amendments were made in March 2007 to the Biosafety

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Law requiring just a simple majority in CTNBio for approval of biotech products for

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commercial release. In 2007 CTNBio approval for commercial use was given to three

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biotech corn varieties (Liberty Link, MON 810 and Bt 11), all of which have been

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subsequently approved by the National Biosafety Council (CNBS) in 2008. Although

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approval was given by both bodies, there was not unanimous agreement among

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government ministries and Ministers. It is estimated that biotech products will account for 58%, 10% and 8% respectively of the 2008/09 soybean, corn and cotton crops. Surveys

Land reform and territorial development

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retailers and consumer groups.

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show a much greater acceptance of biotech crops by farmers than among food processors,

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Progress continues to be made in achieving the objectives of PNRA II, whose targets have been extended by subsequent PPAs. During 2007, 67 500 families were settled on approximately 6.4 million hectares of land confiscated, purchased or reclaimed by the government. Since PNRA II began in November 2003 almost 450 000 families have been settled on 38 million hectares. Legal changes were made to increase the maximum area of land for deed granting or use in rem from 100 to 1 500 hectares. The National Program for Land Credit (Programa Nacional de Crédito Fundiário – PNCF) was consolidated, leading to an increase in the number of families participating and the area of land purchased through low-interest loans. In February 2008, the government launched a major territorial development strategy, Programa Territórios da Cidadania, with the principal objective of overcoming rural poverty by generating work and income opportunities. The programme was developed and is implemented by 19 national ministries and five federal banks, including BNDES, in partnership with state and municipal governments, and civil society. Almost BRL 13 billion (USD 6.6 billion) was made available in 2008, with 50% allocated to territories in the Northwest region and 20% to those in the North region.

Agro-food trade policies Import measures The centrepiece of Brazil’s import policy is the common external tariff (CET) applied by Mercosur. The simple average MFN applied tariff for agriculture (WTO definition) was 10.3% in 2007, compared with an overall average tariff of 12.2%. Applied tariffs are generally well below WTO bound tariff levels: the simple average WTO bound tariff for agriculture is 35.5%. Brazil meets its two WTO tariff-quota obligations by applying MFN tariffs below the scheduled in-tariff quota rates. Brazil has a number of exceptions to the CET. In some cases, including fertiliser and pesticides, zero rates are applied; in others, notably several dairy products and rice, higher rates are levied (27% for milk powders, whey and cheese, and 18% for rice). In March 2006, the MFN applied tariff on garlic increased from 14% to 35%. In December 2007, the Mercosur Common Market Counsel authorised the extension of exceptions until December 2010, although the maximum number of exemptions in the case of Brazil must be reduced to 100 tariff lines by January 2009 and further to 50 tariff lines by August 2010.

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In order to reduce inflationary pressures on the domestic market, three temporary

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tariff reductions have been established: sardines – 2% tariff for 80 000 tonnes between

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16 April 2008 and 15 April 2009; wheat – 0% for 2 million tonnes registered by 31 July 2008

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1 August 2008 and 31 July 2009.

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and imported by 31 August 2008; and palm kernel crude oil – 2% for 72 500 tonnes between

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Brazil did not reserve the right to apply the special safeguards (SSG) for agriculture set

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out in the Uruguay Round Agreement on Agriculture (URAA), although it can and does impose standard trade remedies. No new antidumping or safeguard actions were taken on

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agricultural products during 2006 and 2007. Of the 12 in force in 2005, the measures

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u L e cintthe have been removed, although in the latter case there has been a substantial increase imposed on milk powder from Argentina and Uruguay and canned peaches from Greece

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MFN applied tariff (from 14% to 55%). The antidumping measure imposed on Chinese gliphosate was reduced from 25.8% to 2.9%, while that imposed on Chinese garlic increased from USD 0.48 kg to USD 0.52 kg.

Export measures While Brazil is one of 26 WTO countries that have reserved the right to subsidise agricultural exports under the URAA, it has not used this right since the signing of the URAA in 1995. However, agricultural exports do benefit from two general, economy-wide, export measures: duty drawback and export finance. Unfortunately, there is only a limited amount of information indicating the benefit provided to agricultural exports through these general measures. The duty drawback system, established in 1966, reduces the various taxes paid on imports that are subsequently used in, or as capital good for, the production of exports. Since its inception, duty drawback has been claimed on 10%-15% of imports. Moves were made during the period to streamline the electronic administration of the system. Brazil has three main export financing measures: BNDES ExIm; Programa de Financiamento a Exportação (PROEX); and the Fundo de Garantia a Exportação (FGE). Disbursements under BNDES ExIm, the largest of these programmes, fell by one-third between 2006 and 2007, from USD 6.4 billion to USD 4.2 billion (after increasing from USD 5.9 billion in 2005). Disbursements to farming exports represent just a small fraction of this total, USD 13 million in 2006 and USD 19 million in 2007, 0.2% and 0.4% respectively. In July 2007, BNDES reclassified the products able to be funded through this export credit programme, increasing the range of eligible agricultural products. Interest rate subsidies provided through the PROEX Equalisation modality also fell between 2006 and 2007, from BRL 449 million to BRL 383 million (USD 200 million to USD 197 million), a drop of 15% (BRL 609 million (USD 250 million) in 2005). Between 1991 and 2005, approximately 18% of support provided through this modality went to agricultural products. In addition to these programmes, the federal government allocated BRL 1.8 billion (USD 0.8 billion) to states in 2006 for the purpose of export promotion, with a further BRL 0.98 billion (USD 0.5 billion) in 2007. Two new export financing programmes were created in 2003, Proger Exportação and FAT Exportar. The former focuses on micro and small Brazilian companies (annual revenues of less than BRL 5 million) while the later is open to all firms but in this case the exported product must have a local content greater than 60%. Between 2005 and 2006 Proger Exportação and FAT Exportar disbursed BRL 15.2 million (USD 7.8 million) and BRL 4.9 billion (USD 2.5 billion) respectively. AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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In December 2006, the export tax of 9% applied to hides and skins was established for

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an indefinite term, reversing an earlier decision (December 2005) to progressively remove

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the export tax by January 2008. A comprehensive programme to revitalise the shoe, leather

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products, timber processing, ornamental stones, furniture, textile and clothing industries

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was launched in June 2007. Measures include new lines of credit, export support, tariff

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Trade agreements

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(caprine and ovine skins).

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increases for final products (textile, clothing and shoes), and tariff decreases for inputs

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tu L e clevel, formally, to promote South-South dialogue on trade policy issues. At the Mercosur Brazil continues to pursue a range of bilateral and regional trade agreements, and, less

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agreement on the inclusion of Venezuela as a full member was reached in 2006, with accession occurring in 2008. During 2005-07, Mercosur was active in 26 different negotiations with other countries. Among the most important was the first Mercosur Free Trade Extra-Regional Treaty which was signed with Israel in December 2007, with tariff reductions taking place either immediately or over four, eight and ten year periods. Improvements were made to the agreements with Chile and Bolivia which will achieve Mercosur preference rates for all products by 2011 or 2014, depending on the product. Special agreements for the establishment of Free Trade Areas were signed with Pakistan in 2006 and with Jordan and Turkey in 2008. Progress was made in the Mercosur-SACU (Southern African Customs Union) preferential trade agreement (conclusion was reached on the market access component) and with the Mercosur-ASEAN (Association of South East Asian Nations) agreement, but there was no substantial advancement in the Mercosur-EU negotiations. As the world largest exporter of ethanol, Brazil has placed great emphasis on developing trade opportunities for biofuels. In December 2006, a special working group for biofuels was established within Mercosur. In March 2007, a Memorandum of Understanding (MOU) was signed with the United States to foster private investment in the sector and set forth uniform standards and norms within the global market. In the same month, the major producing and/or consuming countries of biofuels (Brazil, China, EU, India, South Africa and the United States) launched the Biofuel International Forum (FIB) to foster the international market for biofuels, for example by co-ordinating initiatives for product technical standardisation. MOUs were also reached with South Africa, India, Mozambique, Chile, Panama, Mexico, Sweden, Denmark, the Economic and Monetary Union of West Africa, and the Netherlands.

Dispute settlement Brazil is an active participant in the WTO dispute settlement process. During 2006 and 2007, Brazil sought action on two agricultural issues, both against the United States. In August 2006, Brazil formally expressed dissatisfaction with the extent of US policy changes in response to the March 2005 WTO Dispute Settlement Body instruction to bring upland cotton subsidy measures into compliance with WTO obligations, and requested the establishment of an Article 21.5 Compliance Panel. In December 2007, the Compliance Panel found that the US actions were inconsistent with most, but not all, of its obligations. Both the US and Brazil appealed this decision. In June 2008, the Appellate report upheld the Panel’s findings that the US measures were still

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inconsistent with its WTO obligations, opening the way for sanctions to be imposed on the US.

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O Bibliography

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In 2007, Brazil initiated another complaint against the US, this time arguing that it had exceeded its domestic support commitment ceiling levels during 1999 to 2002 and from 2004 to 2005, and that export credit guarantees are made available on terms more favourable than those which are otherwise available in the market. After a period of consultation, a Panel was established in December 2007 at Brazil’s request.

u GAIN-BR8603 (2008), Brazil Temporarily Lowers Wheat Import Tariff, USDA FAS, February 8. Lect

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GAIN-BR8620 (2008), Annual Agricultural Biotechnology Report, USDA FAS, July 8. IBGE [Instituto Brasileiro de Geografia e Estatística] (2007), Census of Agriculture 2006, www.ibge.gov.br/ english/estatistica/economia/agropecuaria/censoagro/2006/default.shtm. MAPA [Ministry of Agriculture, Livestock and Food Supply] (2006), Agricultural and Livestock Plan 2006/07: Overcoming Rural Challenges. MAPA (2007), Agricultural and Livestock Plan 2007/08. MAPA (2008), Brazil Agricultural Policies. Marques, Vicente Azevedo (2008), “Report on Main Policy Developments in Brazil”, Report submitted to OECD. OECD (2005), OECD Review of Agricultural Policies: Brazil, OECD, Paris. WTO (2008a), WTO Secretariat Summary of Dispute DS267: United States – Subsidies on Upland Cotton, www.wto.org/english/tratop_e/dispu_e/cases_e/ds267_e.htm. WTO (2008b), WTO Secretariat Summary of Dispute DS365: United States – Domestic Support and Export Credit Guarantees for Agricultural Products, www.wto.org/english/tratop_e/dispu_e/cases_e/ ds365_e.htm.


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Chile

Evaluation of policy developments ●

Chile has a relatively open trade policy with support historically concentrated on a few commodities. The country operates a price band system (PBS) for wheat, wheat flour and sugar, but with high world prices and reforms to the PBS necessary in order to comply with WTO obligations, the economic significance of the PBS has diminished. Across the sector, price support has continued to decline and farm prices are now almost exclusively market determined.

●

Payments to farmers and spending on services to support agriculture more generally have continued to increase. The former category comprises mostly payments for on-farm irrigation, productivity and skills development programmes, and support for the recovery of degraded soils, while most of the latter consists of spending on infrastructure, research and development and inspection services.

●

As a result of these developments, the PSE has been more or less constant, averaging 4% of gross farm receipts in 2005-07, while the GSSE has increased steadily and now accounts for more than one-third of all support to the sector. Total support to the agricultural sector imposes a smaller burden on the economy than in most OECD countries, accounting for 0.31% of GDP between 2005 and 2007, compared with an OECD average of 0.97%.

●

Agricultural policies have not been modified in response to high world prices. Social policies, on the other hand, have been used to make a one-off payment of USD 35 to people enrolled in social programmes and who belong to the poorest 40% of households. From the standpoint of producers, the benefits of high prices have been partially offset by high energy costs and the appreciation of the Chilean peso. The government has sought to restrain the appreciation of the peso by purchasing US dollars. However, because of the financial crisis, only USD 5 750 million of a planned purchase of USD 8 000 million have been bought.

●

Overall, Chile has ensured that its agricultural policies remain well targeted on its principal objectives of improving sectoral competitiveness and facilitating smallholder development, and has avoided the use of distorting policies in pursuit of these objectives.

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Developments in Chilean agricultural policy reflect the government’s commitment to

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open markets: Chile’s agricultural trade policy is essentially liberal, observed in the low

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levels of market price support. The Chilean government has been increasingly active in

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adopting policies to boost competitiveness, help poorer and less competitive farmers, and

R

O

protect the country’s environment and natural resource base, through the provision of

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public goods and highly targeted policies. The Chilean response to rising food prices has focused on reducing demand (by raising interest rates) and a one-off cash subsidy to the

An

poorest segment of the population.

●

●

The share of single commodity transfers (SCT) in the PSE was 29% in 2005-07. The highest %SCTs were for sugar and wheat, with shares of 15% and 6% respectively. The cost to consumers (%CSE) has halved from an implicit tax of 8% in 1995-97 to an implicit tax of 3% in 2005-07.

●

Support for general services to agriculture (GSSE) comprise an increasing proportion of the total support estimate (TSE), rising from 16.5% in 1995-97 to 37% in 2005-07.

●

TSE as a burden to society has decreased over time from 0.64% of GDP in 1995-97 to 0.31% in 2005-07, about a quarter of the average in OECD countries (0.97%).


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% PSE 12

2

0.0

0

20

20

20

19

19

02 20 03 20 04 20 05 20 06 20 07

4

0.1

01

0.2

00

6

99

0.3

98

8

97

10

0.4

96

0.5

19

Prices received by farmers were on average only 1% above those observed on the world market in 2005-07, as shown by the producer nominal protection coefficient (NPC). In contrast, prices received by Chilean farmers were on average 7% higher in 1995-97.

MPS and budgetary support, billion USD 0.6

95

●

Support based on commodity output is delivered entirely in the form of market price support (MPS) since there are no output payments. The share of MPS in the PSE has decreased from 86% in 1995-97 to 30% in 2005-07. However, over the same period, support based on variable input use, has increased from 4% of the PSE to 14%.

Support based on commodity output (left scale) Budgetary transfers (left scale) % Producer Support Estimate (right scale)

19

●

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Figure 3.1. Chile: PSE level and composition over time

Support to producers as measured by the %PSE has declined from 8% in 1995-97 to 4% in 2005-07. Since 1995, the level of support has been considerably lower than the OECD average of 26% in 2005-07, and typically less than 10%.

19

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Figure 3.2. Chile: Producer SCT by commodity, 2005-07 MPS Payments based on output


Sugar Wheat Beef and veal Maize Milk Poultry Pigmeat Tomatoes Grapes Apple Other commodities SCT as % of PSE 0

5 10 15 20 25 30 % of commodity gross farm receipts

Note: There are no payments based on output. statLink 2 http://dx.doi.org/10.1787/530252723512


3 527 278

66 3 800 322 161 788 48 158 48 158 0 111 257 22 416 0 58 499 0 30 343 0 2 373 0 2 314 2 314 0 0 0 0 0 0 0 0 0 4 1.01 1.05 77 806 17 733 749 9 003 42 644 7 240 0 437 32.5 –97 175 –48 019 –50 129 0 974 –3 1.03 1.03 239 593 98 148 191 574 –50 129 0.31

62 3 710 845 179 243 82 003 82 003 0 95 804 17 935 0 54 615 0 23 254 0 1 436 0 1 436 1 436 0 0 0 0 0 0 0 0 0 5 1.02 1.05 68 643 15 164 771 7 126 38 105 7 015 0 461 27.7 –176 895 –82 003 –94 892 0 0 –5 1.05 1.05 247 886 176 895 165 883 –94 892 0.37

100

166

O

R

An


3 549 379

3 715 438

65 3 719 737 157 112 43 170 43 170 0 110 123 22 060 0 58 078 0 29 985 0 3 819 0 3 643 3 643 0 0 0 0 0 0 0 0 0 4 1.01 1.04 75 938 17 396 654 8 588 41 523 7 226 0 552 32.6 –69 457 –43 170 –28 866 0 2 579 –2 1.02 1.02 233 050 72 036 189 881 –28 866 0.30

70 3 970 384 149 008 19 300 19 300 0 127 844 27 252 0 62 804 0 37 788 0 1 863 0 1 863 1 863 0 0 0 0 0 0 0 0 0 4 1.01 1.04 88 836 20 638 822 11 294 48 306 7 478 0 298 37.4 –45 172 –18 885 –26 629 0 342 –1 1.01 1.01 237 844 45 514 218 958 –26 629 0.28

169

177

se

3 597 365

65 2 081 205 165 799 135 731 135 731 0 25 910 6 697 0 9 825 0 9 389 0 4 158 0 0 0 0 0 0 0 0 0 0 0 0 8 1.07 1.08 32 672 8 723 362 400 20 888 2 078 0 220 16.5 –165 715 –136 817 –30 565 0 1 667 –8 1.09 1.09 198 471 167 382 61 654 –30 565 0.63

2007

e

2 098 835

of which share of MPS commodities (%) Total value of consumption (at farm gate) Producer Support Estimate (PSE) Support based on commodity output Market Price Support Payments based on output Payments based on input use Based on variable input use with input constraints Based on fixed capital formation with input constraints Based on on-farm services with input constraints Payments based on current A/An/R/I,1 production required Based on receipts/income Based on area planted/Animal numbers with input constraints Payments based on non-current A/An/R/I, production required Payments based on non-current A/An/R/I, production not required With variable payment rates With fixed payment rates Payments based on non-commodity criteria Based on long-term resource retirement Based on a specific non-commodity output Based on other non-commodity criteria Miscellaneous payments Percentage PSE Producer NPC Producer NAC General Services Support Estimate (GSSE) Research and development Agricultural schools Inspection services Infrastructure Marketing and promotion Public stockholding Miscellaneous GSSE as a share of TSE (%) Consumer Support Estimate (CSE) Transfers to producers from consumers Other transfers from consumers Transfers to consumers from taxpayers Excess feed cost Percentage CSE Consumer NPC Consumer NAC Total Support Estimate (TSE) Transfers from consumers Transfers from taxpayers Budget revenues Percentage TSE (expressed as share of GDP)

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2006

O

2005

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2005-07

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1995-97

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CLP million

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Table 3.1. Chile: Estimates of support to agriculture

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150

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NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient. 1. A (area planted) / An (animal numbers) / R (receipts) / I (income). For the definition of OECD indicators of support to agriculture, see Annex A.1. Market price support is net of producer levies and excess feed cost. MPS commodities for Chile are: wheat, maize, apples, grapes, sugar, tomatoes, milk, beef and veal, pigmeat and poultry. Source: OECD, PSE/CSE Database, 2008. statLink 2 http://dx.doi.org/10.1787/532101121034


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3. CHILE

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Over the last ten years, the contribution of the agricultural sector to GDP has been

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constant at around 4%. The contribution of the sector to employment has decreased, from

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19% in 1990 to 12% in 2007, but remains high relative to the sector’s share of value added,

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suggesting low labour productivity in the agricultural sector. With regard to agricultural

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output, the livestock sector has grown more rapidly than the crop sector, as new export more rapidly than agro-food imports, with a net surplus exceeding 7.8 USD billion in 2007.

An

2006

2007

GDP (USD billions)

116

146

GDP growth (%)

6.3

4.3

5.1

12 173

12 997

13 885

Inflation (annual average, %) Exchange rate (annual average, local currency per USD) Population (million) Population in rural areas (%)

164

3.1

3.4

4.4

559.8

530.3

522.5

16

16

17

13.2

13.2

13.1

Share in GDP (%) Agriculture

3.8

3.9

3.8

Industry

39.6

44.5

44.5

Services

56.6

51.6

51.7

Agriculture

13.3

12.6

12.0

Industry

23.3

23.7

23.8

Services

63.4

63.7

64.2

n.a.

n.a.

22.1


20.0

15.9

12.0


6.7

7.2

7.0



Average share of income spent on food (%)

r

Total GAO annual rate of growth (right scale) Total GAO (left scale) Crops (left scale) Livestock (left scale)

Basic economic indicators

GDP per capita, PPP (USD)

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Figure 3.3. Chile: Evolution and annual changes of agricultural output, 1995-2007

Table 3.2. Chile: Basic economic and agricultural indicators, 2005-07 2005

e

sectors such as pork and poultry have been developed. Agro-food exports have grown much

1995 = 100 Annual rate of growth, % 160 16 140 14 120 12 100 10 80 8 60 6 40 4 20 2 0 0 -20 -2 -40 -4 -60 -6 5 96 97 98 99 00 01 02 03 04 05 06 07 9 19 19 19 19 19 20 20 20 20 20 20 20 20 statLink 2 http://dx.doi.org/10.1787/530328271845

Basic agricultural indicators

5 728

6 359

7 840


5.5

–1.4

–0.1


3.9

3.5

3.0


1.2

1.3

1.4

Average farm size1 (ha)

n.a.

n.a.

121.0

Agricultural land1 (million ha)

n.a.

n.a.

36.4


n.a.

n.a.

0.2


n.a.

n.a.

2.7

Natural resources and farm structure

n.a.: not available. 1. Includes agricultural land, forestry land, native forest and thicket land, idle land, sterile and non-usable soils. If only productive land is considered the average size would be 19.4 hectares. statLink 2 http://dx.doi.org/10.1787/532117558468 Source: Central Bank of Chile, 2008; FAO, FAOSTAT database, 2008; IMF, International Financial Statistics, 2008; INE, 2008; ODEPA, 2008; UN, UN Comtrade database, 2008; World Bank, World Development Indicators, 2008.

64

Figure 3.4. Chile: Agro-food trade, 1995-2007 Agro-food export (including fish and fish products) Agro-food import (including fish and fish products) Agro-food balance (including fish and fish products) USD billion 12 9 6 3 0 95 996 997 998 999 000 001 002 003 004 005 006 1 1 1 1 2 2 2 2 2 2 2

19



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Since the restoration of democracy in 1990, agricultural policy has centred around three main groups of objectives: first, the inherited goal of increasing competitiveness; second, achieving more balanced agricultural development by better integrating poorer less competitive farmers into commercial supply chains; and finally, reconciling these objectives with goals relating to the conservation of the environment and the sustainable use of resources. While the specific articulation of objectives has changed from one government to the next, these broad areas have provided a common focus of policy concerns. There has been some overlap, in that programmes targeted towards poorer farmers have focused mainly on improving their competitiveness, while smallholders are seen to have an important role to play in the pursuit of environmental objectives. There has also been a subtle evolution in the emphasis given to these concerns.

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In 2006, when Michelle Bachelet was elected president, her government further rearticulated the country’s agricultural policy objectives, with stated aims of 1) transforming Chile into an international agro-food and forestry power; 2) promote a more inclusive development for the support small-scale family agriculture (AFC); 3) modernising public agricultural institutions; 4) generating new sources of energy; and 5) ensuring a sustainable use of natural resources and protecting biodiversity. These objectives are broadly similar and compatible with those that were inherited, although the specific emphasis on generating new sources of energy is new. In general, Chile domestic policy choices have been conditioned by its open trade policy. Thus there has been relatively limited use of trade distorting policies. Market price support has declined over the last 13 years and it is only provided through the use of a uniform MFN tariff of 6% (although preferential access as a consequence of FTAs result in an average effective tariff of less than 2%); and through the use of a price band system (PBS) for wheat and sugar. The PBS has been modified several times since the WTO ruled against it in 2001, and is currently in the process of further reform. The main source of support arises from budgetary allocation, whether through input subsidies or through the provision of public goods or general services. Government expenditures on agriculture have more than quadrupled in real terms over the past ten years, aided by strong copper revenues from the largest copper company, which is state owned. About half of that spending is on public goods, while the other half consists of measures which aim to make Chile’s poorer farmers commercially competitive. The spending on public goods includes essential investments such as infrastructure in irrigation, animal and plant health, inspection services, etc., that help raise agricultural competitiveness and protect the country’s environment and natural resource base.


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Box 3.1. Food price inflation in Chile

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Food prices in Chile increased by 18.2% between March 2007 and March 2008, while the CPI rose by 8.3% over the same period. Within the food basket the products that exhibited the greatest price increases were fruits and vegetables (40%); followed by oils, butter, and fat (39%); bread and cereals (33%); eggs and dairy products (28%); and meats and deli-products (11%). In addition to the impact of higher world prices, the winter of 2007 saw parts of central Chile suffer from severe frost and adverse weather conditions. This reduced yields for vegetables, pulses and some fruits, raising their prices more or less until the end of 2007.

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Even though Chile is a net exporter of agricultural products, high international food prices had a large effect on domestic markets. This reflects the structure of Chile’s trade, where exports comprise predominantly fruits and value added products such as wine and more recently dairy products and some types of meat; while imports are characterised by products such as wheat, flour wheat, maize and rice, and some types of meat and oils.

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At the macro level, the Central Bank of Chile has increased interest rates to restrain demand and inflation. At the same time, in order to stop the significant appreciation of the Chilean peso with respect to the US dollar, the Central Bank decided to buy USD 8 000 million by the end of 2008. However, given the global financial crisis that developed during the second half of 2008, the Central Bank suspended the measure at the end of September 2008, and only USD 5 750 million were bought (70% of what was initially planned). Other measures implemented to alleviate the food price rise are: the implementation of a one-off bonus of CLP 20 000 (USD 35) to people registered in social aid programmes and belong to the poorest 40% of population. This payment aims to help families meet the problem of high prices for food, energy and fuel. Lastly, the Ministry of Agriculture (MINAGRI) through its Office of Agricultural Policies and Studies (ODEPA), weekly disseminates price information on fruits, vegetables and meats in strategic areas and markets of the capital city (Santiago), in order to avoid speculation. While producers of importable products benefited from higher international prices, these gains were partly offset by high prices for fuel and fertilisers, the appreciation of the Chilean peso against the US dollar (until about September 2008), and rising labour costs (in dollar terms). In the case of exportable products, there was little increase in prices and farmers terms of trade actually deteriorated.

Figure 3.5. Chile’s monthly wholesale prices of wheat and maize compared with world market prices, 2006-08 USD/tonne

600

Chile

World

Chile Wheat

350

World Maize

300

500

250

400

200

300

150 50

0

0 Ja n M . 06 ar. M 06 ay Ju 06 Se ly 0 pt 6 No . 06 v. Ja 06 n. M 07 ar M . 07 ay Ju 07 Se ly 0 pt 7 No . 07 v Ja . 07 n. M 08 ar M . 08 ay Ju 08 Se ly 0 pt 8 .0 8

100

100 Ja n M . 06 ar. M 06 ay Ju 06 l Se y 06 pt No . 06 v Ja . 06 n. M 07 ar. M 07 ay Ju 07 ly Se 07 pt No . 07 v Ja . 07 n M . 08 ar M . 08 ay Ju 08 l Se y 08 pt .0 8

200

Note: Wheat Hard Red Winter No. 2, FOB Golfo, USA; Maize Yellow No. 2, FOB Golfo, USA. Domestic prices refer to wholesale prices. Source: ODEPA, Ministry of Agriculture, 2008; INE, 2008. statLink 2 http://dx.doi.org/10.1787/530378672185

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Box 3.1. Food price inflation in Chile (cont.)

160 150

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Oil price

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Exchange rate

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Figure 3.6. Chile’s CPI compared with oil prices and exchange rate

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140 130 120 110 100 90 80

Ju

ne Ju 06 ly Au 06 g. Se 06 pt Oc . 06 t No . 06 v. De 06 c Ja . 06 n. Fe 07 b M . 07 ar. Ap 07 r M . 07 ay Ju 07 ne Ju 07 ly Au 07 g. Se 07 pt Oc . 07 t No . 07 v. De 07 c Ja . 07 n. Fe 08 b M . 08 ar. Ap 08 r M . 08 ay Ju 08 ne Ju 08 ly Au 08 g Se . 08 pt .0 8

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Source: Central Bank of Chile, 2008. statLink 2 http://dx.doi.org/10.1787/530400011026

Domestic agricultural policies The government’s ambitious agenda for agricultural development has led to a wide range of initiatives that involve budgetary expenditures. Budgetary transfers associated with agricultural policies have more than quadrupled in real terms since 1995, from CLP 33 000 million (USD 83 million) to CLP 218 000 million (USD 418 million) in 2007. Figure 3.7 shows the composition of agricultural spending by programme area in 2007. It is important to note that many of the policy instruments are designed to support small-scale agriculture (family agriculture and/or poor farmers), with these instruments accounting for around 45% of total expenditures. INDAP, the Ministry of Agriculture’s (MINAGRI) agency that deals exclusively with smallholders1, accounts for more than 30% of the total budget allocated to the sector. Three areas account for almost 60% of total budget allocation: irrigation programmes that provide subsidies for on-farm improvements and makes off-farm investments; productivity and skills development programmes which comprise on-farm productive investment; and rural development programmes which are limited exclusively to special poor areas and consists of a series of subsidies for productivity improvements, given through territorial development programmes and via land purchases for indigenous people. The programmes that comprise the remaining 40% are: the soil recovery programme; R&D, extension and training; animal and plant health, and standards programmes which include both on and off-farm measures and services; and lastly, marketing and promotion programmes. AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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d ea Irrigation subsidies and spending 22%

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R and D, training, extension 10%

O

Marketing and promotion 3%

Others 4%

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Credit subsidies 3%

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Figure 3.7. Chile: Shares of agricultural transfers by programme area, 2007

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An Animal and plant health, standards 12%

Productivity and skills development programmes 18% Soil recovery programme 12% Rural development programmes 16%

Source: OECD calculations based on data from DIPRES, 2008; MINAGRI, 2008. statLink 2 http://dx.doi.org/10.1787/530427807261

Price and income support policy Price support is provided exclusively through trade protection. Chile has a very open trade policy, with a uniform MFN tariff of 6%. Moreover, the conclusion of a wide range of preferential trade agreements provides exporters to Chile the benefit of tariff free access for the majority of tariff lines. In the case of agricultural products, this has led to an average applied tariff of less than 2% – a rate that is slightly lower than the average for manufactured goods. Chile’s MFN tariff of 6% provides an upper bound on the protection provided to producers for all products, except those covered by the price band system (PBS) and those for which contingency measures have been applied. The PBS was introduced in 1983 and originally applied to wheat and wheat flour, edible vegetable oils and sugar. The mechanism was discontinued for vegetable oils in 2001. Chile’s PBS for wheat, wheat flour and sugar has undergone reform and now has little impact on the prices of these commodities. Chile provides few direct income payments to farmers, and only one programme was functioning in 2007: the Subsidy for Auto-Consumption Agriculture implemented by the Social and Solidarity Investment Fund (FOSIS), an institution within the Ministry of Planning and Co-operation (MIDEPLAN). The Fund finances, in whole or in part, development programmes, projects and special activities that contribute to poverty reduction. Through this subsidy, FOSIS provides direct payments to poor small-scale farmers with the purpose of increasing their production for their own consumption. The programme started in 2006 with an initial budget of CLP 1 200 million (USD 2.2 million) and by 2007 the programme had increased its budget to CLP 2 398 million (USD 4.5 million). Other programmes that are under

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Input subsidies

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Irrigation programmes have been, and still are, among the most important of

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Chile’s agricultural policies, accounting for an average of 30% of transfers to the sector since 1990. While over the past ten years irrigation expenditures have averaged about

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CLP 40 000 million (USD 68 million) per year, in 2007 they reached CLP 48 000 million

An

c tu L esystems. the first case, farmers receive subsidies to install or improve existing irrigation (USD 91 million). These expenditures have both on-farm and off-farm components. In

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These payments account for 40% of the irrigation budget and are provided mainly by the Ministry of Agriculture through a specialised agency, National Irrigation Commission (CNR). In the case of off-farm investments, expenditures are designed to benefit an entire community, region or area. This accounts for 60% of the irrigation budget and is implemented by the Ministry of Public Works (MOP). Lastly, irrigation programmes need to be understood in the context of the country’s water management policies, as irrigation accounts for about 85% of national water use, a share that varies significantly by region. Programmes that aim to improve farm productivity have become more important in recent years. In 2007, around 73% of these subsidies were provided by INDAP, whose constituency is limited to smallholders (family agriculture). Of INDAP’s share, 60% is for investments to capitalise and modernise the agricultural sector. The remaining 40% is given with the goal of improving the productive, managerial and entrepreneurial capabilities of small-scale farmers, thereby assisting their integration into national and international markets. These two subsidies totalled CLP 30 000 million (USD 57 million) in 2007. The other 27% of the budget allocated to these programmes is executed by the Economic Development Agency (CORFO), which provides subsidies for improving productivity to all scale of farmers. The Soil recovery programme continues to be one of Chile’s most important agricultural policies. INDAP and the Agriculture and Livestock Service (SAG) are the two agencies in charge of the programme, with INDAP support limited to small-scale producers. In 2007, INDAP allocated 61% of the total subsidies equivalent to CLP 15 000 million (USD 29 million), the remaining 39% was managed by SAG. The programme comprises a set of subsidies used to finance activities to recover and/or improve degraded soils. Some of the activities are: phosphate fertiliser applications to restore the natural level of soil fertility; calcium fertiliser applications; the establishment and regeneration of grassland; soil conservation; soil rehabilitation and crop rotation. The ultimate aim of the programme is to raise the competitiveness of farming by improving soil conditions of the farm. The importance of INDAP as a credit provider agency for small-scale agriculture has increased steadily since 1990; with its credit allocations increasing from CLP 6 860 million in 1990 (USD 22 million) to CLP 33 000 million in 2007 (USD 63 million). Although INDAP is the state’s main agricultural credit institution, its share of the national agricultural loan portfolio is small and has declined to under 3% in recent years. In 2007, 59 446 farmers received direct credit from this agency. AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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INDAP has two instruments which aim to increase credit allocations to smallholders from the private financial sector. One is the financial co-ordination subsidy (BAF), which was created in 1996. This subsidy covers the transaction cost involved in a loan operation and is given to financial entities that channel credit to smallholders. The other is the fund of delegated cash management (FAD), which was created in 2004 and compensates banks for the risk of operating with small farmers. This subsidy is determined through an auction system; whereby banks compete for the interest rate they have to pay to INDAP in order to receive the funds that later will be lent to smallholders. In 2007, through the two instruments, a total of CLP 46 500 million (USD 89 million) in credit (almost 50% more than the value of direct credit given by INDAP in the same year) was lent to 44 485 smallholders. One interesting characteristic of FAD is that it has a mechanism of default risk coverage; meaning that INDAP deals with any risk from transactions that were previously assumed by banks. With the implementation of this fund, INDAP became a second-tier-bank, by providing credit indirectly to farmers.

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The agricultural insurance programme (COMSA) was created in 2000. Under this programme, a subsidy is given to farmers who take out crop insurance and pay a corresponding premium. The subsidy can pay up to 85% of the premium in case of smallscale farmers, and 50% for medium and large-scale farmers. Private financial institutions offer the agricultural insurance. Risks covered are those caused by climate hazards such as drought, excess or untimely rain, frost, hail, snow, and wind; while the products eligible for the subsidy are cereals, industrial crops, vegetables and legumes. The COMSA subsidy annually has averaged approximately CLP 1 000 million (USD 2 million). The importance of rural development programmes has increased over time. These programmes were designed to improve the economic conditions of poor (subsistence) farmers through the enhancement of their agriculture activities. INDAP and the National Corporation for Indigenous Development (CONADI) have implemented programmes that promote the development of indigenous farmers. In general these programmes equate rural development with agricultural development in poorer areas. In 2007, the combined resources from INDAP and CONADI accounted for 16% of budgetary transfers to agriculture, totalling CLP 34 000 million (USD 65 million). Just over 70% of this allocation is managed by CONADI. One particular function of CONADI is to purchase land which is given to indigenous people for the purpose of undertaking agricultural activities, and to acquire wells and waters rights. There are two ways in which land can be acquired: directly by individuals or communities with the aid of subsidies; or through the direct purchases of land by the State, which is then given to indigenous people who do not possess land or possess only limited land.

General services SAG is the institution responsible for plant and animal health and inspection services. Export certification and inspection activities have played a crucial role in the development of Chile’s agricultural exports over the past two decades. Most of the programmes and activities implemented by SAG are provided to the sector as a whole, although there are some on-farm services, such as pest and disease controls and subsidies for the improvements of sanitary conditions. In 2007, a budget of CLP 26 000 million (USD 50 million) was allocated by SAG to on and off-farm activities, excluding the soil recovery programme. Agricultural infrastructure is mainly in the form of irrigation works and rural roads, and is under the responsibility of MOP. The Wheat Marketing Enterprise (COTRISA) is the only stockholding infrastructure owned and operated by the State (MINAGRI). Chile has

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The Chilean system for the generation and adoption of agricultural technology involves a diverse set of institutions, foundations, universities and private companies, which operate with a high degree of autonomy. Research and development represented 10% of the budget allocation to agriculture in 2007, equivalent to CLP 21 000 million (USD 40 million).

Agro-food trade policies

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notified COTRISA as a state trading enterprise. COTRISA purchases wheat from Chilean producers on a non-discriminatory basis and does not usually engage in import or export transactions. Its effects on policy have come through implementing the PBS, rather than its existence as an STE per se. However, since the reforms to the price band system, its role has been limited to providing storage and selection services to small-scale producers of grains.

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Import measures By the time Chile returned to democracy in 1990, tariff protection was mostly uniform across sectors, with an MFN rate of 15%. This was lowered to 11% in 1991 and then reduced progressively to 6% by 2003. The price band system for wheat, wheat flour and sugar is the notable exception, and has meant that tariffs for these products have exceeded the MFN (and occasionally the bound) rate. The PBS was introduced in 1983 and originally applied to wheat and wheat flour, edible vegetable oils and sugar. In 2001, Argentina argued successfully at the WTO that Chile’s PBS was not in conformity with the tariffication requirements of the URAA. As a result, the PBS was modified. Following the WTO ruling, the system was discontinued for edible oils. The bound tariff for sugar was renegotiated and raised from 31.5% to 98%, and as a consequence Chile was obligated to open a tariff rate quota of 60 000 tonnes for refined sugar. Finally, the reference price and threshold calculations were changed for wheat, wheat flour and sugar, with limits imposed such that the payable duty would not exceed the bound tariff rates (31.5% in the case of wheat and wheat flour, and a revised rate of 98% in the case of sugar). In the case of wheat and wheat flour, a 1.5% reduction in duties was specified for each year until 2014, after which the PBS would be abolished. The new system for wheat was challenged by Argentina, and in December 2006 the WTO’s Dispute Settlement Body ruled that the modified PBS was still in contravention of WTO rules. Chile appealed against this decision, but that appeal was rejected in May 2007. As a result, further changes will need to be made to wheat policy. At present these changes carry few economic consequences, as in 2003, 2004, 2006 and 2007 a rebate was applied to the MFN tariff, and, with international prices at high levels, the PBS for wheat becomes irrelevant. Following the WTO verdict in May 2007, two elements characterise the proposed reform for the PBS of wheat, legal modification and preferential access: ●

Legal modification. Since the PBS is defined by Law (article 10 of Law 18.525), parliamentary approval is necessary for any changes. Under the proposal before parliament, the PBS mechanism is to be replaced with a specific tariff of USD 30 for wheat and USD 47 for wheat flour per tonne. The overall tariff will be the 6% MFN tariff plus these specific rates. In ad valorem terms, the final tariff will depend on international prices.

●

Preferential access. Given that the legal modification elevates protection, a bilateral protocol will be created that will grant tariff free access to imports of wheat and wheat flour subject to certain conditions of price. This will guarantee present conditions of access (0% tariffs for wheat, based on the high international prices). If prices fall, tariffs


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will be activated automatically for imports of wheat and wheat flour. Additionally, the

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protocol establishes that tariffs will decrease year by year under the same measures

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established by the FTA with the USA, to zero in January of 2015. This protocol will be

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applicable to all partners with preferential treatment (Canada, Central America, USA,

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Trans-Pacific SEP or P4 – Brunei, Chile, New Zealand and Singapore –, Peru, EU and

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MERCOSUR). Proposed chang es to the PBS were submitted to c ongress in

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approval by the upper chamber (senators).

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September 2007. These have been approved by the low chamber, and are awaiting

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After the WTO verdict favouring Argentina, Chile implemented provisional

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antidumping duties of 31.1% on flour wheat (1101.0000) imports from Argentina. The

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measure started on May 2007 and ended in May 2008. In July 2008, another provisional antidumping duty of 30.3% was established for the same product, which will last until the definitive measure is approved by the upper chamber. Another trade policy measure implemented by Chile is the tariff quota for sugar which

was introduced in 2002 following Chile’s WTO renegotiations following the Appellate Body’s finding against the PBS, and occurred in parallel with the bound tariff being increased to 98%. Tariff quotas are maintained on refined sugar, with an out-of quota rate equal to the MFN rate of 6% plus the duty payable under the PBS and an in-quota rate of 0%. Since 2006, no quotas have been used, as application of the PBS resulted in zero duties.

Export measures Chile does not apply export taxes or export subsidies. The only measure implemented is export promotion, undertaken by the Export Promotion Bureau (PROCHILE) which basically only reaches small and medium-sized enterprises. PROCHILE has a world-wide network, with trade offices and agencies located in over 35 countries, covering 90% of Chile’s export markets. The offices are run by specialised teams that use their market expertise to help Chilean export companies conduct their international operations. PROCHILE also possesses 12 domestic regional offices which foster the development of goods and services suitable for export throughout the entire national territory. These offices – along with regional governments, the private sector, universities and other organisations – work together to identify the range of regional products and services for export and to develop appropriate trade promotion plans. Through a common agreement with the ministry of agriculture established in 1996, part of PROCHILE is dedicated to the promotion of agricultural products. The budgetary allocation for agricultural export accounts for 4% of total budget to the sector CLP 7 500 million (USD 14 million). Export promotion has been one part of a range of policy and non-policy factors that have helped boost Chile’s agro-food exports over the past two decades. Among those factors are: trade liberalisation, the conclusion of trade agreements, the accomplishment of relative macroeconomic and political stability, the encouragement of FDI, extended periods of exchange rate depreciation, and supportive government policies, particularly within the later the SAG’s SPS control and tight measures, assistance of CORFO to producers in meeting the quality requirements of foreign markets, R&D provided by Fundación Chile to food and wine sectors, among others. Nevertheless, these policies have been rather marginal, and the agro-food exports have grown in the absence of an active government policy. The role of government has been limited to facilitating rather than directing economic activity.

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Trade agreements


As a complement to unilateral reform, the Chilean government has negotiated a series of

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trade agreements that, by offering better than MFN access, have further reduced the degree of

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protection. In general, preferential trade agreements have been seen as a practical way of

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improving Chile’s market access in a protectionist world. Chile has sought agreements with

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all its major trading partners in order to minimise the effects of trade diversion. Given the

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country’s low tariffs and the limited use of other protectionist instruments, Chile’s Free Trade Agreements (FTAs) and Economic Complementation Agreements (ECAs) have often had

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“WTO plus” characteristics, covering areas such as investment, trade remedies, intellectual

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tu c area include some exemptions from reforms on either side, and that agriculture is L thee main property and competition policy. The key point to note here is that most of these agreements

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in which those exemptions have been applied. The only agreements without exemptions are those with Colombia, MERCOSUR and the United States. Chile has FTAs with Australia, Canada, China, Costa Rica, El Salvador, Japan, Korea, the European Free Trade Association (EFTA), Mexico, Panama, and the United States. In addition, Chile has concluded ECAs with Bolivia, Colombia, Cuba, Ecuador, MERCOSUR, Peru, and Venezuela; association agreements with the European Union and New Zealand-BruneiSingapore, and a Partial Scope Agreement with India. These agreements collectively account for the vast majority of the country’s exports and imports. For countries with which Chile has an FTA, most tariff lines are covered and the average tariff levied is less than 1%. Chile is currently in negotiations with Malaysia, Thailand, Turkey, and Vietnam to sign FTAs.

Box 3.2. Structural changes: Preliminary results from the 2007 Agricultural Census in Chile An agricultural census was undertaken in 2007, ten years after the previous one. In overall terms, the total area available for agriculture and forestry appears to be close to its peak, and has been relatively constant at 36-37 million hectares over the past 30 years. Farm numbers decreased 8.6% between 1997 and 2007, with the implied average size of operation increasing from 111 hectares to 121 hectares. It is important to notice that the average size is large because it includes land used for agriculture as well as plantation forestry, native forest and thicket land, idle land, sterile and non-usable soils. If only productive land (agricultural and plantation forestry) is considered the average size is reduced to 19.4 hectares.

Table 3.3. Number and area of agricultural and forestry operations by type in Chile, 1997 and 2007 Number of farms

Average size3 (ha)

Area (ha)

1997

2007

% change

1997

2007

% change

290 997

258 388

–11.2

14 217 480

12 800 546

27 917

29 118

4.3

4 041 338

2 259 241

Corporate farms2

7 779

11 990

54.1

7 476 481

11 544 839

54.4

961

963

0.2

Publicly owned farms

2 574

1 295

–49.7

9 095 704

7 677 320

–15.6

3 534

5 928

67.8

286

478

67.1

1 807 354

2 157 587

19.4

6 319

4 514

–28.6

329 553

301 269

–8.6

36 638 357

36 439 533

–0.5

111

121

8.8

Individual producers Associated producers1

Indigenous and historical communities Total

1997

2007

% change

–10.0

49

50

1.4

–44.1

145

78

–46.4

1. Associated producers are farm associations without legal contracts, and communal producers. 2. Corporate farms are limited companies and other societies with legal contracts. 3. In the total average size is included idle, sterile and unusable land. Source: Elaborated by ODEPA and OECD using preliminary results from the 2007 Agricultural Census and the 1997 Census results. statLink 2 http://dx.doi.org/10.1787/532130444011


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Box 3.2. Structural changes: Preliminary results from the 2007 Agricultural Census in Chile (cont.)

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Over the past 10 years, there has been an important shift in the structure of farm ownership, with a decline in the number farms operated by individuals (–11%) and a similar fall in the area accounted for by these farms (–10%). This implies little change in average size of individual farms (50 hectares). At the same time, there has been a 54% increase in the number of corporate farms, and a similar rise in area (54.4%); with the average size of these operations increasing slightly to 963 hectares. The main cause of increasing farm sizes has therefore been the rise of corporate farming rather than changes in the scale of either individual or corporate farms. Another factor influencing these results has been the decrease in the area operated by publicly owned farms.

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Total agricultural and forestry area declined in two of the 15 regions of Chile (Regions V to IX), but increased in regions to the north and south. Excluding forestry plantations, the number of operations declined in all regions except Region VIII, which now contains more farms than any other region.

Table 3.4. Agricultural and forestry land use in Chile, by activity, 2007 Hectares 1997

2007

Difference

Change (%)

Annual and permanent crops

1 403 782

1 303 015

–100 767

–7.2

Improved pasture

1 472 619

1 462 361

–10 258

–0.7

445 307

419 714

–25 593

–5.7

Forestry plantations

2 226 014

2 656 307

430 293

19.3

Total productive land

5 547 722

5 841 398

293 676

5.3

Other use, sterile and other unusable soils1

31 090 635

30 601 481

–489 154

–1.6

Total land

36 638 357

36 442 879

–195 478

–0.5

Fallow

1. Include natural and native forests and thicket, natural pastures, idle land, etc. Source: Elaborated by ODEPA using preliminary results from the 2007 Agricultural Census and the 1997 Census results. statLink 2 http://dx.doi.org/10.1787/532182425335

Only a minority of Chile’s total land is used with annual and permanent crops (1.3 million hectares), with this area falling by 7.2% between 1997 and 2007. However, this decline masks important regional differences: cultivated area increased by 60% in Region IV and by 18% in Region V, but fell to varying degrees in Regions VI to X. The area allocated to vineyards increased by 58% to 129 000 hectares, and the area covered by fruits by 38% to 324 000 hectares. All other crops except seeds and flowers showed declines in cultivated area, with the area in cereals falling by 26%. There was a slight decline in the area under pasture. While cattle numbers decreased by 9.2%, there was a 5.2% increase in sheep numbers and a 71.6% increase in the number of pigs. Changes in the type of farm operation, location of production and the product mix have been associated with changes in technology. A 17.8% decline in the use of gravitational irrigation (a reduction of 171 000 hectares) was more than offset by the rapid emergence of micro irrigation, which increased by nearly 300% from 62 000 to 247 000 hectares. The use of mechanical irrigation also increased from 31 000 to 57 000 hectares. Source: INE, 2008.

Notes 1. Smallholders are those with a maximum of 12 hectares of basic irrigation land, regardless of land tenure; that possess an asset value not greater than 3 500 Unidades de Fomento (UF); and that have agricultural activities as the main source of income. Basic Irrigation Hectares (Hectáreas de Riego Básico, HRB) are the area equivalent to the potential production of an irrigated hectare from the Maipo river valley (Metropolitan Region), classified as Class I according to its carrying capacity. To determine the HRB, each hectare is multiplied by a conversion coefficient estimated, based on soil

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Bibliography

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conditions and water availability, for each community and region across the country (INDAP, 2007). The Unidad de Fomento (UF) is an indexed unit of account used to price items for sale or to specify amounts to be repaid in the future. The exchange rate between the UF and the Chilean peso is constantly adjusted for inflation so that the value of the Unidad de Fomento remains constant. In 2007, one UF was around CLP 18 800 (USD 36).

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CNR (2008), Balance de gestión Integral 2007, Santiago, Chile.

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Ce ntral Bank of Chile (20 08), Base de Datos Estadístic os 2 008 , http ://si2 .bcentral. cl/ Basededatoseconomicos/951_portada.asp?idioma=E.

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DIPRES (2008), Informe de Ejecución Trimestral, Cuarto Trimestre, Período 2007, Budget Department, Chilean Ministry of Finance.

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DIRECON (2008), Acuerdos de Libre Comercio, www.direcon.cl/cuadro_resumen.html. ECLAC (CEPAL) (2002), The Chilean Strategy of Trade Liberalization and Market Access, Santiago, Chile. FAO (2008), FAOSTAT, http://faostat.fao.org/site/567/default.aspx#ancor. INDAP (2008), INDAP – Balance de Gestión Integral, Año 2007, Ministry of Agriculture, Government of Chile. INE (2008), Censo Agropecuario, 2007, National Statistics Institute, Chile. INE (1998), Censo Agropecuario, 1997, National Statistics Institute, Chile. ODEPA/INDAP (2002), “Agricultura Chilena: Rubros Según Tipo de Productor y Localización Geográfica”, Documento de Trabajo (Working Document) No. 8, Ministry of Agriculture, Government of Chile. ODEPA/INDAP (2005), “Agricultura Chilena: Características Sociales de los Productores Según Tipología, Sexo y Localización Geográfica”, Documento de Trabajo (Working Document) No. 9, Ministry of Agriculture, Government of Chile. ODEPA (2008), Estadísticas y Precios/Económicas, www.odepa.gob.cl/odepaweb/jsp/estadisticas/ economicas.jsp. OECD (2008), OECD Review of Agricultural Policies: Chile, OECD, Paris. SAG (2008), Informes de Gestión 2007, Santiago, Chile. World Bank (2008), World Development Indicators 2008, http://ddp-ext.worldbank.org/ext/DDPQQ/ member.do?method=getMembers&userid=1&queryId=135.


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Chapter 4

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China Evaluation of policy developments ● China increased the market orientation of its agricultural sector prior to its WTO accession in 2001, but since then this trend

has slowed and for some markets even reversed. In particular, grain markets have been exposed to multiple government interventions, further exacerbated by the rise in global prices for agricultural commodities in 2006-08, which intensified inflationary pressures and food security concerns. ● Compared to the OECD average, the level of support to agricultural producers (%PSE) remains low, but has increased since

2000. The structure of support continues to be dominated by market price support and input subsidies, the least efficient and most trade distorting ways of providing agricultural assistance. OECD analysis shows that only a small part of this type of support is effectively received by farmers. Moreover, the overuse of fertilisers, partly resulting from input subsidies, has made agriculture the main source of non-point water pollution in China. ● Domestic and trade policy initiatives in 2007-08, relying on much stronger budgetary support for agricultural inputs and

constraints on grain exports, sent mixed signals to grain producers as the former tend to stimulate production but the latter weaken supply incentives by depressing domestic vis-à-vis world market prices. Such price policies provide implicit support for consumers, but tax producers. ● While developments on China’s domestic agro-food markets would not suggest that the country could be considered as one

of the main causes for the recent food price hikes on global markets, China’s reaction to the food crisis through various measures limiting trade, in particular exports of grains, may have delayed adjustments and postponed a fall of prices on international markets, in particular for rice. ● China continues to strengthen farmers’ legal rights to land as evidenced by the Property Law adopted in 2007. However,

mortgage of farmland rights is still strictly prohibited. Allowing the use of long-term land lease contracts as collateral could at least partly improve farmers’ access to credit. More efforts are also needed to implement existing laws. In particular, compensation paid to farmers for lost access to land should reflect the market value of land and not the much lower estimated value based on the returns to crops produced on that land in preceding years as currently practised. ● Recent changes in China’s agricultural policy need to be seen within a broader context of policies affecting the rural

population at large, including farmers. Such policies are discussed in detail in other OECD studies (OECD, 2009), but China’s increasing effort to improve rural infrastructure and to improve access to basic public services such as education, health care, social security combined with the recent agricultural tax reform and further relaxation of labour markets can be commended as policies addressing the core of the rural-urban divide and contributing to more balanced development of the Chinese economy in the mid-term.

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●

According to the %CSE, the implicit tax on consumers increased from 2% in 1995-97 to 4% in 2005-07.

●

Support for general services provided to agriculture (GSSE) increased in nominal terms, but fell as a share in total support (TSE) from 41% in 1995-97 to 27% in 2005-07.

●

Total support to agriculture as a percentage of GDP increased from 1.60% in 1995-97 to 2.23% in 2005-07. This is higher than the OECD average of 0.97% in 2005-07.

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07

20

06

05

20

04

20

03

20

02

20

01

20

00

% PSE 12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3


Figure 4.2. China: Producer SCT by commodity, 2005-07 MPS Payments based on output


Cotton Sugar Maize Sheepmeat Soybean Poultry Rapeseed Apple Peanuts Eggs Rice Pigmeat Wheat Beef and veal Milk Other commodities SCT as % of PSE -30 -20


20

99

20

98

19

19

Producer Single Commodity Transfers (SCT) as a share of commodity gross farm receipts are the highest for cotton, sugar, maize and sheepmeat. The share of SCT in the total PSE was 32% in 2005-07.

97

●

96

Prices received by farmers were on average 4% higher than those observed on the world markets in 2005-07, while they were just 1% higher in 1995-97 (NPC). Farm receipts were 10% higher than they would have been at world prices in 2005-07 compared to 3% higher in 1995-97 (NAC).

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●

% Producer Support Estimate (right scale) MPS and budgetary support, billion USD 60 55 50 45 40 35 30 25 20 15 10 5 0 -5 -10 -15

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The share of the most distorting forms of support (based on commodity output and variable input use) in the total PSE decreased to 52% in 2005-07 from 62% in 1995-97.

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Support based on commodity output (left scale) Budgetary transfers (left scale)

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Figure 4.1. China: PSE level and composition over time

Support to producers (%PSE) increased from 3% in 1995-97 to 9% in 2005-07 reflecting both increased MPS and growing budgetary support for farmers. The level of support is still considerably below the OECD average of 26% in 2005-07.

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While broad-based rural development to combat the rural-urban divide remains China’s priority, policy developments in 2007-08 were dominated by responses to global increase in food prices. New policy measures included the suspension of export rebates on grain and grain products, which were later reinforced by provisional export taxes and export licences on grains. Other policy measures included duties on fertiliser exports, increased budgetary support for agriculture, new subsidised insurance programmes, an increase in minimum guaranteed prices for grains, food price caps and consumption subsidies.

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-10 0 10 20 30 40 50 % of commodity gross farm receipts



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3 563 221

3 292 420

73 2 053 919 64 122 22 325 22 325 0 31 931 17 115 0 10 816 0 3 999 0 3 866 3 866 0 0 0 6 000 0 6 000 0 0 0 0 0 3 1.01 1.03 46 121 447 3 303 2 214 10 773 0 29 384 0 41.1 –30 670 –14 390 –12 691 2 101 –5 691 –2 1.02 1.02 112 345 27 081 97 955 –12 691 1.60

63 3 996 844 347 021 108 478 108 478 0 140 673 69 725 0 49 410 0 21 538 0 45 369 17 484 27 885 0 0 22 122 0 22 122 30 379 30 379 0 0 0 9 1.04 1.10 129 375 2 229 20 160 7 319 41 336 11 58 320 0 27.2 –166 489 –140 918 –45 844 90 20 183 –4 1.05 1.04 476 485 186 762 335 567 –45 844 2.22

63 3 439 235 272 075 86 251 86 251 0 106 081 45 364 0 42 124 0 18 593 0 25 738 12 538 13 200 0 0 22 173 0 22 173 31 831 31 831 0 0 0 8 1.04 1.08 117 507 1 990 16 256 6 108 39 407 0 53 746 0 30.2 –109 813 –108 298 –20 383 93 18 775 –3 1.04 1.03 389 675 128 681 281 377 –20 383 2.12

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1 996 250

of which share of MPS commodities (%) Total value of consumption (at farm gate) Producer Support Estimate (PSE) Support based on commodity output Market Price Support Payments based on output Payments based on input use Based on variable input use with input constraints Based on fixed capital formation with input constraints Based on on-farm services with input constraints Payments based on current A/An/R/I,1 production required Based on Receipts / Income Based on Area planted / Animal numbers with input constraints Payments based on non-current A/An/R/I, production required Payments based on non-current A/An/R/I, production not required With variable payment rates With fixed payment rates Payments based on non-commodity criteria Based on long-term resource retirement Based on a specific non-commodity output Based on other non-commodity criteria Miscellaneous payments Percentage PSE Producer NPC Producer NAC General Services Support Estimate (GSSE) Research and development Agricultural schools Inspection services Infrastructure Marketing and promotion Public stockholding Miscellaneous GSSE as a share of TSE (%) Consumer Support Estimate (CSE) Transfers to producers from consumers Other transfers from consumers Transfers to consumers from taxpayers Excess feed cost Percentage CSE Consumer NPC Consumer NAC Total Support Estimate (TSE) Transfers from consumers Transfers from taxpayers Budget revenues Percentage TSE (expressed as share of GDP)

2007

3 318 872

4 078 370

64 3 810 610 390 387 159 467 159 467 0 135 722 65 013 0 48 176 0 22 533 0 44 404 18 204 26 200 0 0 22 593 0 22 593 28 200 28 200 0 0 0 11 1.06 1.12 129 845 2 142 21 194 7 436 41 406 17 57 650 0 25.0 –214 346 –185 465 –52 980 94 24 005 –6 1.07 1.06 520 326 238 445 334 860 –52 980 2.46

63 4 740 687 378 601 79 715 79 715 0 180 216 98 798 0 57 929 0 23 489 0 65 964 21 709 44 255 0 0 21 600 0 21 600 31 106 31 106 0 0 0 9 1.03 1.09 140 772 2 554 23 029 8 411 43 196 17 63 564 0 27.1 –175 308 –128 990 –64 170 82 17 770 –4 1.04 1.04 519 454 193 159 390 464 –64 170 2.08

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Table 4.1. China: Estimates of support to agriculture

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NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient. 1. A (area planted) / An (animal numbers) / R (receipts) / I (income). For the definition of OECD indicators of support to agriculture, see Annex A.1. Market price support is net of producer levies and excess feed cost. MPS commodities for China are: wheat, maize, rice, rapeseed, soybean, peanuts, sugar, apple, cotton, milk, beef and veal, sheepmeat, pigmeat, poultry and eggs. Source: OECD, PSE/CSE database 2008. statLink 2 http://dx.doi.org/10.1787/532244702330


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Agriculture is an important sector of the Chinese economy, but while its share in total

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growth, China became a net food importer in the mid-2000s. As food prices increased, the share of food in total living expenditures increased slightly to 38% in 2007.

2007


Basic economic indicators 3 280

42.6

40.8

23.8

25.2

26.8

Services

31.4

32.2

32.4

39.3

37.9

38.2


3.6

3.2

3.0


4.3

4.0

4.3


–1 464

–960

–4 350

Average share of income spent on food (%) Basic agricultural indicators


5.7

5.4

3.9


427.8

451.0

456.3


69.4

70.9

68.7

Natural resources and farm structure Average farm size (ha) Agricultural land (million ha) Arable land per capita (ha) Land sown to crops (million ha)

0.5

0.6

0.6

556.3

n.a.

n.a.

0.1

0.1

0.1

155.5

152.1

153.5

n.a. not available. statLink 2 http://dx.doi.org/10.1787/532253271668

Source: China Statistical Yearbooks, NBSC, various editions; China Customs Statistics, 2008; FAO, FAOSTAT Database, 2008; IMF, International Financial Statistics, 2008; UN, UN Comtrade Database, 2008; World Bank, World Development Indicators, 2008.

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44.8

Industry

06

Agriculture

20

40.1


05

40.0

20

40.0

04

48.6

Services

20

11.3

48.7

20

11.3

47.5

03

12.5

Industry

02

Agriculture

20

55.1

01

56.1

Share in GDP (%)

20

57.0


00

7.5 1 320

20

8.0 1 312

Annual rate of growth, % 24 22 20 18 16 14 12 10 8 6 4 2 0

99

8.2 1 305


1995=100 240 220 200 180 160 140 120 100 80 60 40 20 0

20

4.8

98

1.5

19

1.8

19

5 345

97

4 682

96

11.9

4 088

19


11.6

95

Inflation (annual average, %)

2 658

10.4

19


2 244

19

GDP growth (%)


Figure 4.4. China: Agro-food trade, 1995-2007 Agro-food export (including fish and fish products) Agro-food import (including fish and fish products) Agro-food balance (including fish and fish products) USD billion 45 40 35 30 25 20 15 10 5 0 -5 -10

19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07

GDP (USD billions)

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Figure 4.3. China: Evolution and annual changes of agricultural output, 1995-2007

Table 4.2. China: Basic economic and agricultural indicators, 2005-07 2006

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average income per head was 3.3 fold higher in urban areas than in rural areas. Agriculture is much less integrated with global markets than the rest of the economy as shown by its 3% share in total China’s exports and 4% share in imports. As a consequence of economic

2005

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employment is still high at 40.8%, its contribution to GDP fell to 11.3% in 2007 (including forestry and fishing). Agricultural labour productivity is low, at only one-fifth of the level in the rest of the economy, contributing to a record rural and urban income gap in 2007:



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The key priority for the current 11th Five Year Plan (2006-10) is to “build a new socialist countryside”. Within this broad framework, food security through 95% self-sufficiency in grain production, doubling rural households’ income by 2020, improved food safety, environmental protection, agricultural competitiveness, and improved social and technical infrastructure in rural areas can be identified as major objectives related to agriculture, farmers and the countryside (so called three nongs). For the five consecutive years of 2004-08, “No. 1 Documents”, the top priority documents adopted jointly at the beginning of each year by the Central Committee of the Communist Party and the State Council, concentrated on various aspects of the three nong issues.

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Market price support provided through tariffs, tariff rate quotas (TRQ) and state trading, combined with minimum guaranteed prices for rice and wheat, is the main channel for providing support to Chinese farmers. The second major channel is through input subsidies for agricultural chemicals (in particular fertilisers), improved seeds and agricultural machinery. Support to grain producers is further reinforced by direct payments based on area sown to rice, wheat and corn. Alternatively, payments for returning farmland to forests (known as the “grain for green” programme) reflect environmental concerns. Within general services, the most important expenditures relate to agricultural infrastructure, primarily for irrigation and drainage facilities, and to public stockholding of grains. Consumer support measures are based on food price subsidies. China’s institutional framework for the formulation and implementation of agricultural policies is complex, with at least 16 central government institutions involved. Co-ordination amongst these agencies is attempted at the level of joint Communist Party and State Council bodies, but it is difficult as their functions often overlap and budgets at their disposal often serve similar objectives. In addition, since the reform of the fiscal system in 1994, subnational governments have been required to co-finance certain elements of policy-related costs from their own budgets. Due to the differences in financial capacity of sub-national governments across China, the implementation of some national policy programmes is adjusted by local governments to match local conditions. Thus, although they have no specific policy formulation role, sub-national governments have considerable control over how policy is actually implemented within their jurisdiction (WTO, 2008).


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Box 4.1. Food price inflation in China

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In 2007, China’s CPI increased by 4.8%, which was the highest level over the past ten years. Food prices, which account for about one-third of China’s CPI, rose by 12.3%, with consumer prices for grains rising by 6.4%, meat and poultry products by 31%, edible fats and oils by 26.3%, eggs by 21.8% and fresh vegetables by 7.9%. The government set a target CPI of 4.8% for 2008, but by mid-2008 prices had already increased by 7.9%. However, monthly CPI rates have decelerated from a high of 8.7% y/y in February to 4.0% in October 2008, and monthly price indexes for food from 23.3% (12-year high) to 8.5%, respectively.

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High food inflation in China partly reflects global market developments. As the country has been basically integrated with global markets, domestic prices are to a large extent guided by those on international markets, in particular for commodities on which China is strongly import-dependent such as oilseeds and vegetable oils. However, there was a number of domestic short-term factors which emerged from longer term trends such as increasing demand for food, higher farm input costs (energy, fertilisers and water) and shrinking availability of agricultural land and, seasonally, of labour. Short-term domestic supply shortfalls in certain food categories had a more immediate impact on food prices. The most important one was an outbreak of Porcine Reproductive and Respiratory Syndrome (PRRS), or Blue Ear Disease, in May 2007 which caused a loss of an estimated 40 million pigs and resulted in a pork price increase of 45% compared to 2006 (GAIN-CH8025, 2008). The fall in pork supply shifted demand to other meats thus inflating their prices, in particular of poultry. Maize production was adversely impacted by persistent drought in north-eastern China in May-July 2007. The worst snow storms in almost 50 years, which hit China from mid-January to early February 2008, and the disastrous earthquake in Sichuan in May 2008 also stimulated expectations of further increases in food prices.

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Curbing inflation and stabilising food prices became the primary tasks for the government in the first half of 2008. Some policy measures applied were of a macroeconomic nature, such as allowing an appreciation of the CNY to shield domestic markets from growing commodity prices on international markets, but a wide range of policy measures targeted directly agricultural and food markets (most of these measures are presented in a greater detail in other sections of this chapter): ●

Disincentives for grain exports: in December 2007, the government removed grains, soybeans and their derived flour products from the VAT export rebate; in January 2008 provisional export taxes on the same group of products were imposed; in addition, grains and grain flour products became subject to export licence management.

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Disincentives for ethanol exports: in January 2007 the government removed the 13% VAT rebate on ethanol exports; the government also stopped approving any new grain-based biofuel processing plants in 2007 and 2008.

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Disincentives for fertiliser exports: in mid-February 2008 the government imposed export duties on four kinds of fertilisers; for the period of April-September 2008 this measure was further reinforced by a 100% special duty on fertilisers and related material exports.

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Incentives for food imports: in May 2008, the government temporarily reduced import tariffs on selected food products.

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Increased budgetary support for agricultural production in 2008: higher support for farm machinery purchases; increased subsidies for inputs such as fuels, fertilisers and improved seeds; increased direct payments for grain producers; new pilot insurance schemes for crop and livestock producers.

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Increased supply of grains from the government-held stocks and a request to increase frozen meat reserves at the province level.

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Increase in minimum purchase prices for wheat and rice in 2008.

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Food price caps and consumption subsidies: to reduce inflation expectations, in January 2008 the government announced price controls on cooking oil, pork, eggs, instant noodles, milk and grains in addition to temporary price freezes on gasoline, natural gas and electricity.

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Box 4.1. Food price inflation in China (cont.)

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Inflationary pressures eased during the course of the year, partly due to a fall in commodity prices on global markets. Disincentives for grain exports and trade controls led to a significant fall in domestic prices for wheat and rice relative to international levels thus benefiting consumers but taxing agricultural producers and weakening supply responses. Export restrictions contributed to a deterioration in China’s agro-food trade balance in the first half of 2008. It is worth noting that while domestic wholesale prices for importable oilseeds and for politically less sensitive maize largely followed world market developments, domestic prices for wheat and rice became almost completely delinked from world markets in 2007/08 (Figure 4.5). As food prices and overall inflation edged downwards during the course of the year, the government removed controls on food prices and reduced export taxes on grains and grain flour products as from 1 December 2008.

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Figure 4.5. China’s monthly wholesale prices of wheat, rice, maize and soybeans compared with world market prices, 2006-08 CNY/tonne China Wheat

World

3 000

6 000

2 500

5 000

2 000

4 000

1 500

3 000

1 000

2 000

500

1 000

0

0

Maize

Soybeans

2 500

6 000

2 000

5 000

1 500

Rice

Ja n M . 06 ar. M 0 ay 6 Ju 06 Se ly 0 p 6 No t. 06 v. Ja 06 n. M 07 ar M . 07 ay Ju 07 Se ly 0 pt 7 No . 07 v Ja . 07 n. M 08 ar M . 08 ay Ju 08 ly 08

7 000

Ja n M . 06 ar. M 06 ay Ju 06 Se ly 0 pt 6 No . 06 v. Ja 06 n. M 07 ar M . 07 ay Ju 07 Se ly 0 p 7 No t. 07 v Ja . 07 n. M 08 a M r. 0 ay 8 Ju 08 ly 08

3 500

4 000 3 000

1 000

2 000

0

0

Ja n M . 06 ar. M 06 ay Ju 06 l Se y 06 p No t. 06 v Ja . 06 n. M 07 ar M . 07 ay Ju 07 Se ly 0 p 7 No t. 07 v Ja . 07 n M . 08 ar M . 08 ay Ju 08 ly 08

1 000

Ja n M . 06 ar. M 06 ay Ju 06 Se ly 0 pt 6 No . 06 v Ja . 06 n M . 07 ar M . 07 ay Ju 07 Se ly 0 p 7 No t. 07 v Ja . 07 n. M 08 ar. M 08 ay Ju 08 ly 08

500

Domestic prices refer to the national wholesale prices; for international prices: wheat is US HRW price; rice is 5% broken, Thailand; Corn (US), no. 2, yellow, f.o.b. US Gulf ports; soybeans (US), c.i.f. Rotterdam. Source: China Zhengzhou Wholesale Market and World Bank Commodity Price Data, September 2008. statLink 2 http://dx.doi.org/10.1787/530605401234

Domestic agricultural policies Price and income support policy Prior to 2004, state pricing, supported by a state procurement system, was in operation for major agricultural commodities. Since then, centrally fixed prices are only applied to tobacco, which remains under a state monopoly resulting in strict control over the production, marketing and trade of tobacco products. AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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Minimum prices for grains are set every year by the National Development and Reform Commission (NDRC) in consultation with other governmental institutions. The marketing entities responsible for intervention purchases at minimum prices are SINOGRAIN (China Grain Reserves Corporation) and its branches, and provincial grain reserve corporations. Purchases at minimum prices are funded by loans from the Agricultural Development Bank. The loans are recovered by commodity sales later in the same marketing year or in subsequent years.

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In May 2004, China allowed qualified firms to buy and sell grains on the open market, and largely liberalised grain prices on domestic markets. However, the government continues to regulate the grain market through national grain stocks, minimum purchase prices, state trading enterprises, tariff rate quotas management, export taxes and changes in export VAT refunds for grains. In addition, grain producers are benefiting from a growing range of budgetary transfers such as direct payments and input subsidies (see below).

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The minimum prices were first announced in 2004 for early indica rice and japonica rice (Table 4.3). The level of prices was maintained in 2005 but the coverage was extended to include middle and late indica rice. In 2006, the level of prices remained unchanged, but the coverage was further extended to include wheat. As wheat market prices fell below the minimum levels during the harvest period, China’s government engaged in a large-scale intervention purchases which accounted for about 40% of total wheat production. Intervention purchases of early indica rice were much smaller and covered about 2% of production. In 2007, the level and the coverage of intervention prices remained unchanged, but to cap the rise in market prices for wheat, the government held regular auctions at provincial wholesale markets releasing about 40 million tonnes of wheat from its stocks. In 2008, the minimum prices were increased by 4%-7% for wheat and by 9%-10% for rice, but they remained below the domestic market prices and much below the world market prices for these commodities (Figure 4.5). The purchases of grains at minimum prices are geographically limited to provinces being major rice and wheat producers and in which the above mentioned qualified marketing agencies operate (SINOGRAIN and its branches, and the provincial grain reserve corporations). These are four provinces for the early indica rice: Anhui, Hubei, Jiangxi and Hunan; seven provinces for other types of rice (the middle and late indica as well as for the Japonica rice): Jilin, Heilongjiang, Anhui, Jiangxi, Hubei, Hunan and Sichuan (in 2008, Liaoning has also been added to the list); and six provinces for wheat: Hebei, Jiangsu, Anhui, Shandong, Henan and Hubei.

Table 4.3. Minimum purchase prices for grains in China, 2004-08 Per tonne 2004

2005

CNY

USD

1 400

169

CNY

2006 USD

CNY

2007 USD

2008

CNY

USD

CNY

USD

223

Rice Early indica paddy rice

1 400

171

1 400

176

1 400

186

1 540

1 440

176

1 440

181

1 440

191

1 580

229

1 500

183

1 500

188

1 500

199

1 640

238

White wheat

1 440

181

1 440

191

1 540

223

Red and mixed wheat

1 380

173

1 380

183

1 440

209

Middle and late indica paddy rice Japonica paddy rice

1 500

181

Wheat

Source: Li, X., 2008. statLink 2 http://dx.doi.org/10.1787/532254535465

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Minimum prices for grains are closely linked with China’s grain reserve system which

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is under the overall responsibility of the State Grain Administration (SGA). The grain

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reserve system consists of four levels: central (national), provincial, prefecture, and county.

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The national level reserve is handled by SINOGRAIN while sub-national reserves are under

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the responsibility of local grain reserve corporations. SINOGRAIN is responsible for

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purchases of grains at market or minimum prices (when it is above market price), storage,

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delivery, processing, and import/export operations for the central grain reserves. Government stocks consist mainly of wheat, rice and maize. According to the “Outline of

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Middle and Long Term Plan for Grain Security (2008-20)” released by the government in

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tu less than 70%. Data on overall grain stocks in China are not readily available. In LMarch e c2008, November 2008, the share of wheat and rice in the central reserve should increase to no

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China’s Prime Minister announced that China’s grain stocks amounted to 150-200 million tonnes, which is an equivalent of 3-5 months of overall use of grains in China for both human consumption and feed. In addition, Chinese farmers keep on-farm post-harvest stocks, which in total could be close to the stocks kept by the government agencies. Selected other agricultural commodities are also subject to government-led interventions on domestic markets. For example, while the cotton market has been largely liberalised, the reserve system is still used to intervene on the domestic market to stabilise prices and the Agricultural Development Bank of China continues to provide targeted loans on favourable terms for purchasing cotton. In January 2007, the China State Cotton Reserve Corporation purchased a total of 300.8 thousand tonnes of cotton through open bidding. Roughly the same amount was then released to the market in July 2007 when cotton was in short supply (GAIN-CH8037, 2008). Similarly, state sugar reserves are used to mitigate price fluctuations on the domestic sugar market. Disruptions on the domestic market for pork, due to PRRS and natural disasters such as the May 2008 earthquake in Sichuan Province, led the Ministry of Commerce to increase frozen meat reserves to guarantee adequate supply and to request provincial level government reserves be large enough to supply China’s urban population of above 500 million for seven days (GAIN-CH8078, 2008). Direct payments were initiated as a trial in 2002 and implemented nationally in 2004 to support grain production and to increase grain producers’ incomes. Payments are based on current area sown to rice, wheat or corn and are financed from the National Grain Risk Fund. Initially, payments were targeting 13 major grain producing provinces, but later were extended to almost all provinces. However, not all sown areas are covered by the subsidy scheme. It is up to the local government to determine the “major producing area” which can obtain the subsidy. In general, the payment rate is CNY 10-15 per mu (1/15 ha) (USD 22-33/ha), but this can vary between localities as central government funding can be supplemented from local sources, e.g. in Beijing and Shanghai the payment can exceed 50 CNY/mu (USD 109/ha). Central government funding for direct payments shows an upward trend, from CNY 11.6 billion (USD 1.4 billion) in 2004 to 13.2 billion (USD 1.6 billion) in 2005, 14.2 billion (USD 1.8 billion) in 2006 and 15.1 billion (USD 2 billion) in 2007 and 2008. Taking into account that an average wheat yield was around 5.3 tonnes per hectare and that an average purchase price of wheat was CNY 1511 (USD 201) per tonne in 2007, it can be estimated that direct payments at an average of CNY 190 (USD 25) per hectare constituted just 2.3% of wheat producers’ gross revenues in 2007. The impact of direct payments on grain producers’ revenues is therefore quite limited. AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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In response to the reduction in pig production in 2007, the government implemented a subsidy for reproductive sows. The original subsidy was CNY 50 (USD 6.6) per sow but this doubled to CNY 100 (USD 14.5) in 2008. The total amount allocated for this subsidy was CNY 1.125 billion (USD 150 million) in 2007. Other payments aimed at stimulating livestock production included subsidies for the artificial insemination of dairy cows, and payments of CNY 500 (USD 72.5) for each high quality dairy cow heifer produced from pure-bred breeding stocks with registered bloodlines. In addition, a new regulation on corporate income tax was issued, effective 1 January 2008, exempting companies involved in animal and poultry rearing from paying corporate income tax, while lowering tax rates for other domestic companies from 33% to 25% (GAIN-CH8078, 2008).

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c tu Until the end of the 1990s, Chinese farmers paid various taxes and fees which L e became

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a heavy burden on them. In 2000, the government implemented a pilot rural tax reform, which was then extended to the whole territory of China in 2003. It started by incorporating most agricultural taxes, fees and charges into one tax, and then capped the tax at a maximum rate of 8.4% relative to the annual grain-equivalent value of agricultural output for the previous year. Other reforms included the removal of the animal slaughter tax and of the special agricultural tax on all products except tobacco. In 2004, the government announced that the agricultural taxes would be phased out over five years. In fact, the reforms were implemented faster than anticipated, and at the beginning of 2006 the government announced that agricultural taxes, including charges and fees, had been discontinued. Currently, in addition to the tobacco leaf tax (20% of the purchase price for tobacco leaves) and VAT (13%), the only agriculture-related taxes are the deed tax (charged when land contract is transferred) and the tax on the use of cultivated land or farmland occupation tax (charged when arable land is used for non-agricultural purposes) (WTO, 2008). To compensate local authorities for lower tax revenues due to the reform, the central government arranged transfers which increased from CNY 52.4 billion (USD 6.3 billion) in 2004 to CNY 66.2 billion (USD 8.1 billion) in 2005, and then to CNY 100 billion (USD 13.3 billion) each year in 2006 and 2007. Around three-quarters of these transfers are financed by the central government, with the rest transferred from provincial and prefectural governments to local authorities at the county and the township levels. While the level of transfers is large and known, the actual agricultural subsidy component is probably negligible. In fact, it can be argued, that before the reform, farmers were paying taxes which would not be due had general tax rules such as minimum taxable income been applied to agriculture. For example, in 2007, the minimum taxable personal income in China was CNY 1 600 (USD 213) per month. With an average monthly net income per person in rural households of CNY 345 (USD 46), and assuming that out of an average rural family of four persons, two are economically active, this gives an average monthly income per economically active person of CNY 690 (USD 92), which is well below the minimum taxable income level. The “grain for green project” (officially called the Returning Farmland to Forests Programme) was launched in 1999. Under this programme, cultivated lands in environmentally fragile areas are retired from crop production (mainly grains), and converted to pasture or forest. Up to 2003, participating farmers were provided with grains and cash subsidies according to the area of damage-susceptible land they “retire”. In 2004, the grain allocation was converted to a cash equivalent. The period for which “retired” land is subsidised is set at two years for land returned to pasture, five years for land converted to “economic” forests and eight years for land converted to “ecological” forests. In addition, farmers are provided with a one-time cash subsidy to purchase seeds or tree seedlings for

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planting, and a yearly subsidy for tending and miscellaneous expenses on the newly converted land. Funds are also provided to the forestry agencies to cover technical support and programme design. Between 1999 and 2005, “grain for green project” covered 22.9 million hectares in 25 provinces, including 9 million hectares of cultivated land converted to forests, 12.6 million hectares of afforested deserted land and 1.3 million hectares of forest planted in the mountains. The programme slowed significantly after 2003 due to an increase in grain prices and to growing concerns over grain security. While the programme has been continued within the “11th Five Year Plan” (2006-10), at a total cost of CNY 137.7 billion (USD 19.7 billion), the majority of the funds are to be spent on the land already converted within the 10th Five Year Plan and the total new area to be afforested has been reduced to 15.7 million hectares. In addition, new forests will be planted mostly in the deserted and mountain areas, and just 2.3 million hectares are foreseen to be converted from crops to forests. In 2007, the budgetary allocation for this programme amounted to CNY 28.9 billion (USD 3.9 billion).

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Input subsidies The centrally funded comprehensive subsidy on agricultural inputs was introduced in 2006 to compensate farmers for an increase in prices of agricultural inputs such as fertilisers, pesticides, plastic films and diesel. Costing CNY 12 billion (USD 1.5 billion) in its first year, the amount more than doubled in 2007 to CNY 27.6 billion (USD 3.7 billion). In 2008, it increased to CNY 63.8 billion (USD 9.2 billion), thus becoming one of the most important budgetary transfers supporting agriculture. The targeted key beneficiaries of this subsidy are grain producers, as the amounts transferred to provinces depend on grain planting areas. In fact, as these payments are made per unit of land, their implementation is similar to direct payments discussed above. In addition to the comprehensive input subsidy, there is a set of policy measures aimed at lowering prices of chemical fertilisers and at increasing their domestic supply. These measures include preferential prices for electricity and natural gas used by fertiliser producers, preferential transportation prices for fertilisers, an exemption from the rail construction fund and an exemption from VAT. To control prices of fertilisers, the government implements a guiding price regulation. The basic ex-factory price of fertilisers is set by the government and prices can float within a range of 15%. Enterprises are requested to strictly abide by this regulation. For prices of some fertilisers already liberalised, the government implements an application and registration system to control the range and frequency of price increases. The total profit margin is controlled within 7% from the ex-factory to the retail level, 1% at the first wholesale level, 3% at the second wholesale level and 3% at the retail level. The Chinese government also implements a policy of “encouraging import and limiting export” of fertilisers. To encourage imports, as from 1 January 2008, imports of diamine phosphate were exempted from VAT, and imports of sulphur were exempted from an import tariff of 1.5% and from 13% VAT. To curb fertiliser exports, the government abolished the tax rebate for urea exports in March 2004 and began charging an export tariff on urea in 2005. At the end of 2007, the General Administration of Customs decided to increase the export tariff on urea to 30% for the period from January to March 2008; to 35% from April to September; and to 25% from October to December. In April 2008, the government decided to charge an additional 100% special tax on exports of fertilisers. However, as export taxes depressed exports and lowered domestic prices for fertilisers, AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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international prices became even more attractive for potential exporters. To further

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chemical fertilisers have increased around four-fold since 1980. China now ranks among countries with the highest intensity of fertiliser use in the world. The law of diminishing

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plateau, while fertiliser use continued to rise. The overuse of fertilisers in China is

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makes fertilisers one of the leading causes of surface and groundwater pollution. Farmers are often misled by input suppliers who have a vested interest in selling more fertiliser, and are not sufficiently informed about the merits of reducing fertiliser use. Discontinuation of fertiliser subsidies and the provision of adequate information and training by research, education and extension services to farmers would be effective in terms of both increasing farmers’ incomes and reducing environmental damage. Nominally, farmers enjoy preferential prices for electricity and water. For example, official data suggests that, in 2005, average electricity tariffs for farming were CNY 0.375/KWh (USD 0.05) compared to CNY 0.448/KWh (USD 0.06) for household users and CNY 0.816/KWh (USD 0.1) for business users (WTO, 2008). However, as end user tariffs are determined by taking into account the cost of electricity generation, the electricity loss during transmission, the electricity transmission price, and are adjusted to reflect the increase in the price of coal and are differentiated regionally, the actual subsidy component for farming is not certain. Also for water, the subsidy component is difficult to measure. In addition to the usual difficulties associated with differences in water supply costs and water quality for various end users, price comparison is complicated by the fact that the regulated price of water is measured on a per cubic meter basis while water fees paid by farmers are frequently paid on a per planted/sown area basis. Subsidies to support the sowing of improved quality seeds started in 2002. The amounts transferred for this purpose increased every year from CNY 100 million (USD 12 million) in 2002 to CNY 4.07 billion (USD 0.51 billion) in 2006, then to CNY 6.66 billion (USD 0.88 billion) in 2007 and almost doubled to CNY 12.1 billion (USD 1.75 billion) in 2008. Wheat, rice, maize and soybeans were initially covered by the scheme, with rapeseeds and cotton added in 2007. While the unit subsidy has remained unchanged in recent years, at CNY 10 per mu (USD 22/ha) for wheat, soybean, maize, early indica rice and rapeseed, and at CNY 15 per mu (USD 33/ha) for cotton, middle and late indica rice, the subsidised area increased substantially. For example, for wheat, the area covered doubled from 100 million mu (6.7 million hectares) in 2007 to 200 million mu (13.3 million hectares) in 2008. For maize, the area jumped from 30 million mu (2 million hectares) mu to 200 million mu (13.3 million hectares) over the same period. The whole area of 440 million mu (29.3 million hectares) planted to rice was planned to be covered in 2008. The actual implementation mechanism of this subsidy may vary depending on commodity and province, but normally takes the form of either direct payments or reduced seed prices. As a direct payment to farmers, it is provided per unit of land at the above mentioned rates and it is not monitored to determine whether the payment is used for

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seed purchases or for other expenses. In other cases, it may be a payment to the seed

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scheme, the cost of insurance fees is shared by the central government, local government

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tu Land ec insurance fee was covered by central government, 40% by local government 25% by and farmers themselves. For example, in 2008, in Sichuan province, 35% of the crop

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farmers themselves. The ratios for reproducible sows were at 50%, 30% and 20%, respectively. Since 2004, the government has provided a subsidy for the purchase of agricultural machinery. The subsidy is available to individual farmers as well as so called specialised households and agricultural machine service delivery organisations. The subsidy fund i n c re as e d f ro m C N Y 4 8 0 m i l l io n ( U S D 5 8 m i l l io n ) i n 2 0 0 4 t o C N Y 3 . 3 b il l i on (USD 439 million) in 2007, of which CNY 2 billion (USD 266 million) was provided by central government and CNY 1.3 billion (USD 173 million) from local governments. In 2008, the central government contribution alone increased to CNY 4 billion (USD 580 million) and the geographical coverage extended from around two-thirds of agricultural counties to all counties in China. The programme compensates the cost of purchases by reimbursing the purchaser or compensating the seller for 20% to 30% of the purchase price. The programme is implemented at the provincial level, and it is up to local governments to decide on the machinery and models eligible for the subsidy. The subsidy has been used primarily to target the mechanisation of wheat harvesting and rice planting, but in 2007, trials started to include support for the mechanisation of corn harvesting. Preferential loan rates for state marketing organisations to fund purchase and storage of key agricultural commodities were terminated in February 2006. Preferential loans for poor regions and for poverty alleviation in rural areas were continued at the rates of about half of the commercial rates. In June 2008, the government announced that the allocation of these loans would be shifted from the sole responsibility of the Agricultural Bank of China (ABC) to multiple banks and that the interest rates would be in line with the prevailing commercial rates. There are a large number of programmes, mostly under the responsibility of the NDRC and the Ministry of Finance, that combine support for agricultural infrastructure and for on-farm investment. The most important one, under the responsibility of the State Agriculture Development Office within the Ministry of Finance, is the National Agricultural Comprehensive Development Funds and Projects. This provides support to so called main agricultural areas and main grain production areas determined on the basis of output of key agricultural commodities at the province level. Provinces that are not eligible for such support are able to designate counties within their jurisdiction which can benefit from these funds. This programme is focussed on improving land productivity through support for a wide range of local projects, but preference is given to the construction and upgrading of small-scale water supply systems for agricultural production. Support can also be provided e.g. for adjusting waste-land for agricultural production, construction and upAGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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grading of local roads important for the transportation of agricultural commodities, local aforestation initiatives, improvement of storage capacities for agricultural commodities, dissemination of new technologies for agricultural production, etc. All projects are cofinanced by central government, provincial governments, county and township level authorities (those designated for the poverty relief funding are not requested to provide any funding), rural collectives and farmers. According to the available data, transfers for this programme increased from CNY 20.5 billion (USD 2.6 billion) in 2006 to CNY 36.4 billion (USD 4.8 billion) in 2007.

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Work Relief Programme, financed by the NDRC, also provides support for a wide range of local projects, with the main focus on rural and agricultural infrastructure in poor areas. A total of CNY 6 billion (USD 0.8 billion) was raised for this purpose in 2007. Other programmes tend to focus on individual commodities or group of commodities. The most important one is High Quality Grain Production Project launched in 2004 and financed by the NDRC. It operates in 13 main grain production provinces and provides support for land amelioration projects, creation of specialised large-scale grain production units, promotion of modern technologies and machinery, dissemination of high quality grain varieties. On average about CNY 7.8 billion (USD 1 billion) per year has been allocated for financing investments undertaken within this programme.

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Land policies Arable land continues to shrink in China, from 130 million hectares in 1996 to 121.8 million hectares in 2006. As grain security remains the top priority for the government, the “strictest farmland protection” policy has been implemented. A “red line” on arable land at no less than 120 million hectares has been set and the conversion of farmland for non-agricultural use is strictly controlled. The land tenure system has not changed in recent years, with farmland being owned by village collectives, which extend land-use contracts to individual households, currently for 30 years. However, China’s Property Law of 2007 further formalised farmers’ land use rights. Consequently, the scope of Chinese farmers’ formal rights for farmland is considered as essentially no different from farmland rights possessed by farmers in countries with a private land ownership regime except that mortgage of farmland rights is still strictly prohibited under Chinese laws (Li, P., 2008). This limits farmers’ access to credit. In addition, an implementation of these pro-farmer laws continues to be problematic because of collective cadres’ interests in keeping farmland under their control. While officially released reports suggest that the number of registered conflicts between farmers, village collectives and local authorities over land use rights has declined, there are still many reported cases in which local authorities force farmers to abandon their contracted land to rent it out to external investors or for the construction of large-scale commercial farm units. While compensations paid to farmers are typically based on the value of crops produced on the transferred land in preceding years, rents paid by external users are market based. The difference has become an important source of revenue for local authorities. These issues were addressed during the October 2008 third plenary session of 17th Party Congress of Communist Party of China (CPC) which approved a document called “The Decision on Major Issues Concerning the Advancement of Rural Reform and Development”. Among other things, the document says that “markets for the lease of contracted farmland and transfer of farmland use rights shall be set up and improved to

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or even to mortgage the rented land. It remains to be seen if and how the document will be

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Import measures China’s applied tariffs on agricultural products are at the WTO bound levels. With the exception of some poultry parts (HS 07), agricultural products are subject to ad valorem tariff rates. The average applied MFN tariff on agricultural products remained unchanged between 2005 and 2007 at 15.3%, higher than the overall average applied MFN tariff of 9.7%. While tariffs on grains (33.9%), sugar (29.9%) and tobacco (26.9%) remain significantly higher than the average, tariffs on fruits, vegetables and animal products, those for which China is considered to have comparative advantage, are lower than the average (WTO, 2008). Occasionally, tariffs are adjusted to balance domestic supply and demand. For example, to meet strong consumer demand and to compensate supply shortages after the May 2008 earthquake, tariffs were seasonally lowered for six commodities covering 26 tariffs lines, mainly for food and medical supplies. From 1 June to 31 December 2008, import tariffs for pork were reduced from 12% to 6%; for cod fish, pistachios, infant foods, whey, and yeast from 6%-25% to 2%-10%; and for soybean and peanut meal from 5% to 2%. From 1 June to 30 September 2008, the import tariffs for coconut and olive oil were reduced from 10% and 9%, respectively, to 5%. Imports of agricultural products are subject to VAT. The rate levied on agricultural products is at 13%, 4 percentage points less than the general VAT rate. Domestic agricultural commodities produced and sold directly by small-scale farmers are still exempted from VAT which gives them some advantage over imported products on which VAT is charged (WTO, 2008 and OECD, 2005). Imports of grains, sugar, wool, cotton and some fertilisers are subject to tariff rate quotas (TRQ). In total, 45 tariff lines at the eight-digit level were covered by TRQs in 2007, down from 55 lines in 2005. In 2006, China eliminated TRQs on vegetable oils thus implementing a tariff only arrangement. Imports under TRQs are strongly differentiated, with fill rates ranging from 100% for cotton, 98% for wool and 70% for sugar, to between 1% and 14% for wheat, maize and rice in 2006 (WTO, 2008). Commodities such as rice, wheat, sugar, tobacco, cotton and fertilisers are subject to state trading. Vegetable oils were removed from this list in 2006. With the exception of tobacco, these commodities are also subject to TRQs. China's TRQ system includes criteria for allocating part of the quota to a state-trading enterprise (STE) and part to a private enterprise. In 2007, STEs had the right to import 90% of the wheat quota, 60% of corn, 50% of rice, 70% of sugar, and 33% of cotton. Imports of tobacco remain under the state monopoly. AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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Agricultural imports are subject to automatic or non-automatic licences. While

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(WTO, 2008). China maintains the right to apply export taxes. In general, China doesn’t levy such taxes on agricultural products with very few exceptions, such as a 20% tax on exports of raw hides and skins of goats. However, to curb domestic food price inflation and to guarantee domestic grain supplies, the government levied provisional export taxes on grains and their flour products beginning January 2008. The export tax rates ranged from 5% to 25%, with the rates for wheat and wheat flour at 20% and 25%, respectively. The export tax rate for maize, paddy rice, milled rice and soybeans was 5% and the rate for maize, rice, and soy flour products was 10%. However, according to a separate notice by the State Council, grain and flour exports to Hong Kong, Macao and Chinese Taipei were not subject to such taxes. This step followed the December 2007 removal of the VAT export rebate for the same products (see below). In addition, the government also announced that exports of wheat, corn and rice flour products would be subject to export license management beginning January 2008. The license regime was intended to cap exports in the event that flour product exports remain viable despite a high export tax rate (GAINCH8025, 2008). As grain prices on world markets fell during the course of 2008 and domestic inflationary pressures eased, on 1 December 2008 the government removed the export taxes on corn, soybeans and corn-based flour, and reduced the export taxes on wheat and rice to 3%, and on wheat flour to 8%. China continues to impose global (i.e. irrespective of destination) and destinationspecific export quotas. In 2007, global export quotas applied to cotton, grains (maize, rice, and wheat) and tea. Destination-specific quotas remain in place for exports of live cattle, live swine, and live chicken to the Special Administrative Regions of Hong Kong and Macao. Non-automatic licences are used to distribute these quotas. Other exports, including meat products, are subject to automatic licensing for statistical purposes (WTO, 2008). State trading is applied for the export of rice, maize, cotton and tobacco. These products are also subject to export quotas. Part of these quotas, with the exception of tobacco, can be exported by private enterprises had such exports been approved. As for other products, exporters of agricultural products are entitled to VAT rebates at the time of exportation. Rebates vary across commodities and are often lower than the statutory VAT rate, which can be considered as a levy on exports. While the statutory VAT on agricultural goods is 13%, the “usual” export rebate rate for agricultural products is 5%. In 2007, to promote the use of agricultural commodities for exports, export rebates for products containing agricultural inputs were increased from 5% or 11% to 13% (WTO, 2008). However, as from 20 December 2007, the government decided to remove the export rebates

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China acceded to the WTO on 11 December 2001, and since then significantly accelerated various initiatives to conclude Free Trade Agreements (FTA) with its trading partners. Under the Framework Agreement on Comprehensive Economic Co-operation between China and ASEAN, which entered into force in July 2003, both parties agreed to negotiate the establishment of an ASEAN-China Free Trade Area (ACFTA) within ten years. An Agreement on Trade in Goods and an Agreement on Comprehensive Economic Co-operation between ASEAN and China entered into force on 1 January 2005. Reduction in tariffs resulted in a significant increase in trade between China and the ASEAN countries. China is also party to the Asia-Pacific Trade Agreement (APTA), a preferential trading arrangement between developing countries in the Asia-Pacific region. Under the agreement, 1 652 tariff lines carry rates that are lower than the MFN rates. China has also signed a number of bilateral FTAs, including with Chile (2005), Pakistan (2006) and New Zealand (2008). Negotiations on FTAs with Australia, Iceland, Peru, Singapore and the Arab states from the Gulf Co-operation Council are in progress. Co-operation frameworks, with a view to establishing FTAs, have been established with India and Korea (WTO, 2008).

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on 84 products including wheat, paddy rice, rice (milled), corn, other cereals, soybeans, and their derived flour products to curb growing food prices. The rebate on exports of vegetable oils was also removed, effective 13 June 2008.

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Bibliography Cheng, Guoqiang (2008), “Updates for OECD PSE Database”, Report submitted to OECD. CPC (2008), http://english.cpc.people.com.cn/66102/6517721.html, News of the Communist Party of China, [accessed on 20 October 2008]. GAIN-CH8025 (2008), Peoples Republic of China: Agricultural Situation, Increasing Food Prices, USDA FAS, April 21. GAIN-CH8037 (2008), Peoples Republic of China: Agricultural Situation, Cotton and Products, Annual, USDA FAS, May 23. GAIN-CH8062 (2008), Peoples Republic of China: Agricultural Situation, Grain and Oilseeds Market Situation Update, USDA FAS, July 31. GAIN-CH8078 (2008), Peoples Republic of China: Agricultural Situation, Livestock and Product, USDA FAS, September 12. Li, Ping (2008), “Optimizing Land Policy and Land Use”, Report submitted to OECD. Li, Xiande (2008), “Report on Agricultural Policy Developments in China: 2006-2008”, Report submitted to OECD. OECD (2005), OECD Review of Agricultural Policies: China, OECD, Paris. OECD (2009), OECD Rural Policy Reviews: China, OECD, Paris. WTO (2008), Trade Policy Review. Report by the Secretariat, China, WT/TPR/S/199, 16 April.


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India Evaluation of policy developments ● Compared to the robust growth in other sectors of the economy, the performance of Indian agriculture remains rather poor

as indicated by slow and erratic growth rates since the mid-1990s. This has become a key concern of the government as confirmed by the main objective of the 11th Five Year Plan for 2007-12, to make growth more inclusive. ● The agricultural sector in India has undergone significantly less liberalisation than other sectors of the economy. Concerns

about food security and poverty with respect to the second largest population in the world, lead the government to remain strongly involved in regulating India’s agriculture through fixing prices for key agricultural products at the farm and consumer levels; high border protection; bans on, or support for, exports; and massive subsidies for key inputs such as fertilisers, water and electricity. ● OECD indicators of agricultural support are not calculated for India due to a lack of participation in the agricultural policy

review process by the government of India. However, evidence from other studies indicates large fluctuations in the nominal rate of assistance around a slightly increasing long-term trend, with a substantial increase between the second half of the 1990s and the first half of the 2000s. The most recent evaluations, related to the first half of the 2000s, would suggest that the level of assistance became higher than that for other emerging economies reviewed by the OECD but below the OECD average. At the same time, the overall liberalisation of the Indian economy, in particular less protective policies for manufacturing, should, over the longer term, lower input costs for agricultural production. ● The government’s reactions in 2007 and 2008 to higher global food prices confirm a long-term practice of countercyclical

policies aimed at stabilising domestic prices and insulating domestic markets from fluctuations in world prices. As a result, domestic prices for key agricultural commodities remained significantly below world market levels, thus supporting consumers but taxing agricultural producers. ● Considerable input subsidies, in particular for fertilisers, paid to input suppliers to cover the difference between the supply

cost and the price controlled by the government, are not an effective way of providing income support for farmers as only a small fraction of such transfers is effectively received by farmers. Moreover, such payments do not encourage farmers or suppliers to improve efficiency and lead to an overuse of inputs with negative environmental effects. ● The budgetary cost of input subsidies and other direct and indirect subsidies for agriculture is significant, which in turn

may limit the availability of funding for more effective types of support such as public investment in rural infrastructure and research. The Bharat Nirman programme focuses on rural infrastructure and provides a positive example of a comparatively effective measure. Pressures on scarce land may be relieved by providing alternative avenues of employment and income such as development of the rural non-farm sector, but also through further diversification of agricultural production. In particular, horticulture and food processing industries provide promising options. ● India’s WTO commitments with respect to agriculture are characterised by relatively high bound tariffs and permitted levels of

support. These give India substantial flexibility in terms of choosing the type of agricultural policy to best serve its interests. In light of agriculture’s relatively poor performance, in contrast to other sectors being progressively liberalised, the government could usefully move in the direction of more market-driven policies combined with the reallocation of budgetary support from inputs to infrastructure and rural development.

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Pursell et al. (2007) consider India’s agriculture with the main focus on the measurement of distortions to agricultural prices due to price, trade and exchange rate policies that create a gap between actual domestic prices and those under a hypothetical free market. The study computes Nominal Rates of Assistance (NRA) for farmers, including adjustments for direct interventions on inputs such as subsidies for fertilisers and electricity. To compare results with distortions in other sectors of the economy, the study also provides aggregate NRA for non-agricultural tradables and then calculates a Relative Rate of Assistance (RRA) as a ratio of the level of assistance for agriculture to that for nonagricultural tradables (Anderson et al., 2008). The period studied is 1965-2004. The commodities covered are milk (classified as an importable product) and rice, wheat, maize, sorghum, groundnut, rapeseed, soybean, sunflower, sugar, cotton, chickpea plus the category “fruits and vegetables” (classified as mixed products, meaning that they are exportables, non-tradables or importables depending on their status each year). Figures 5.1 and 5.2 present basic results.

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The weighted average NRA across covered products shows a slight upward trend over the 40 years under study and reached 15.8% in 2000-04.

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The average NRA for importables has been significantly above that for exportables, but the difference has narrowed since the reforms began in the early 1990s. While the NRA for importables averaged 62% in the 25 years to the end of the 1980s, it fell to 32% in the subsequent 15 years. The corresponding NRA averages for exportables were –25% and –11%, respectively.

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The NRAs fluctuate strongly around their trend values. This might be seen as the result of the Indian government’s policies aimed at stabilising domestic prices through insulating domestic markets from fluctuations in world prices. In particular, the average NRA for both importables and exportables were lowest in 1974, when international food

Figure 5.1. Average Nominal Rates of Assistance in India, 1965-2004

Figure 5.2. Nominal Rate of Assistance in India by commodity, 2000-04

Per cent

Per cent

Importables Non tradable

Exportables Total

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9

90 -9 19

4

85 -8 19

9

80 -8 19

4

75 -7 19

70 -7 19

19

65 -6

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100 80 60 40 20 0 -20 -40 -60

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Rape/mustard seed Sugar Wheat Milk Rice Chickpea Sorghum Sunflower Groundnut Cotton Maize Soybean Fruit and vegetables -10

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20

30

40

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60 70

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The impact of input subsidies, particularly for fertilisers and electricity used in pumping irrigation water, on the NRA for covered products has been steadily increasing.

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The Relative Rate of Assistance fluctuates, but shows an upward long-term trend. It was strongly negative from the mid-1960s to the mid-1980s, reflecting much stronger assistance to producers of non-agricultural tradables compared to that to farmers. But as reforms progressed, leading to substantial cuts in manufacturing protection, combined with the slightly upward trend in assistance for agricultural producers, the RRA turned positive at the beginning of the current decade.

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Historically, the dispersion of NRAs across the products covered has been wide, but it has narrowed considerably since the reforms began in the early 1990s.

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prices were at record highs, and highest around 1987, when international food prices were record lows in real terms. This insulating role of policies is particularly evident for rice, India’s main food staple, whose domestic price in real terms has been kept surprisingly stable during the period under study.

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Orden et al. (2007) measure the level of support by using several variants of market price support and Producer Support Estimates (PSEs). The study covers the period of 19852002 and includes eleven agricultural commodities (rice, sugar, wheat, corn, sorghum, groundnuts, rapeseed, soybeans, chickpeas, cotton and sunflower). The key conclusion is that the level of support for agriculture in India has been largely countercyclical to world prices. It increased when world prices were low (as in the mid-1980s and the period 1998– 2002), but decreased when world prices were high (as in the early and mid-1990s). The results also show steady increases in budgetary payments for input subsidies, which at the end of the period studied counterbalanced negative support through prices. Depending on the method of calculation, the percentage PSE for 2002, the last year under study, varied between 11% and 19.2%. Gopinath (2008), using the WTO methodology (the Aggregate Measurement of Support-AMS) and referring to the last official Indian notification to the WTO on its domestic support to agriculture (1997-98), updates domestic support calculations from 1998-99 through 2005-06 and then constructs projections for 2015-16. The author concludes that green box support has grown to nearly USD 8 billion in 2005, which is equivalent to about 7% of the value of agricultural production. The two major reasons for the growth in green box support are public stockholding expenditure and relief payments for natural disasters. The product-specific AMS remained negative and was at about minus USD 4 billion in 2005, mostly because of the wide gap between external reference prices and administered support prices. The non-product-specific AMS, with the allocation of 80% for fertiliser, electricity and irrigation subsidies under special and differential treatment (as India did in its 1997-98 notification), accounted for about 1% of the value of agricultural production. Even under alternative definitions and measurements of some product specific and non-product specific payments, India would still remain well below the de minimis exceptions (10% of value of agricultural production). According to the author, the projected value of India’s agricultural production is expected to be about USD 163 billion in 2015. Under the assumption that India’s domestic support is again to be limited by the de minimis exemptions only, as it is currently the case, India’s support could grow up to USD 32-33 billion. The projected de minimis exemptions would be about USD 16.3 billion each for product-specific and non-product specific AMS, thus still giving India substantial flexibility in setting and implementing domestic support policies.


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GDP per capita, PPP (USD) Inflation (annual average, %) Exchange rate (annual average, local currency per USD) Population (million) Population in rural areas (%)

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Figure 5.3. India: Evolution and annual changes of agricultural output, 1995-2007

Table 5.1. India: Basic economic and agricultural indicators, 2005-07

GDP (USD billions)

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Agriculture accounted for 18% of India’s GDP in 2007 and provided employment to more than half a billion people, 52% of the total workforce. It is dominated by small-scale farming and is characterised by low labour productivity, at about one-sixth of the level in other sectors of the economy. This in turn contributes to low living standards and a high incidence of poverty in rural areas. In the period 2004/05, 34% of India’s population lived on less than USD 1 a day and as much as 80% lived on less than USD 2 a day (WB, 2007). Agriculture’s importance in India’s trade is declining, but it still provides about 10% of India’s total exports and remains a significant net provider of export earnings. The share of food in total consumption expenditures is high at around 54% for rural households and 42% for urban households.

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9.2

9.7

9.0

2 230

2 489

2 753

Annual rate of growth, % 15.0

1995=100 160

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1 110

1 123

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19.3

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Services

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25.0

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n.a.

n.a.

50.4


10.4

10.5

11.2

Figure 5.4. India: Agro-food trade, 1995-2007


3.6

3.7

3.5

Agro-food export (including fish and fish products)


5 374

6 342

8 591

Agro-food import (including fish and fish products)

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4.2

4.8

240.0

242.9

252.1

6.0

6.1

6.3

Natural resources and farm structure Average farm size (ha) Agricultural land (million ha) Arable land per capita (ha) Land sown to crops (million ha)

1.3

n.a.

n.a.

193.3

n.a.

n.a.

0.1

n.a.

n.a.

190.9

n.a.

n.a.

n.a. not available. statLink 2 http://dx.doi.org/10.1787/532256168668

Source: Ministry of Agriculture, Government of India, 2008; FAO, FAOSTAT Database, 2008; IMF, International Financial Statistics, 2008; UN, UN Comtrade Database, 2008; World Bank, World Development Indicators, 2008.

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Agro-food balance (including fish and fish products) USD billion 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0

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Average share of income spent on food




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Food security remains the key agricultural policy objective and the main cause for heavy involvement of the Indian government in regulating the agricultural sector. The policy is intended to ensure adequate supplies of food staples at remunerative prices for farmers, and to provide food at stable and affordable prices to consumers.

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The broad policy guidelines and allocation of funds are set within a framework of five-year plans. The current, Eleventh Five-Year Plan runs from 2007/08 to 2011/12. Its main theme is “Towards Faster and More Inclusive Growth” with agricultural development being considered as one of the critical areas to ensure the inclusiveness of growth. The central target is to accelerate the growth of agricultural GDP to 4% per annum, representing an increase from the disappointing average of 2.5% during the two preceding five-year plans. Within the National

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Food Security Mission, the plan aims at increasing production of cereal and pulses by 20 million tonnes over a five-year period. Stronger growth is to be achieved through higher yields underpinned by an expansion in irrigated land under the Bharat Nirman programme, improved water management of existing irrigation schemes, support for research leading to higher yields in rain-fed areas, diversification to higher value outputs such as fruits, vegetables, flowers, herbs and spices, promotion of animal husbandry and fisheries, provision of easier access to credit at affordable rates, and improvement of incentive structures and functioning of markets (Planning Commission, 2008). At the central level, the Ministry of Agriculture formulates and implements the policy within the five year plan system. The Ministry and other central government institutions are responsible for key decisions such as those relating to research and development, facilitating infrastructure and investment, credit and trade. However, under the Constitution, agricultural policy implementation is in the purview of the individual states, therefore they may make adjustments in line with their needs (WTO, 2007). The regulatory framework governing agriculture has been liberalised since the early 1990s, but less than for other sectors of the economy. This framework includes a wide range of instruments and laws. Two notable examples are the Essential Commodities Act of 1955 (ECA), which gives the authority to the central and state governments to regulate and control production, distribution and pricing of commodities listed as essential for consumers, and the Agricultural Produce Marketing Committee Act (APMC), which regulates the establishment of markets and the marketing of agricultural produce at the state level to ensure that all trade between farmers and initial buyers goes through a regulated market. Other instruments for market intervention include minimum support prices on essential commodities (26 as of September 2008), minimum intervention prices for some other crops, buffer stocks and the Targeted Public Distribution System (TPDS) that distributes subsidised food to India’s poor. Domestic prices are also affected by high import tariffs on agricultural products (40.8% on average), ad hoc export bans on some products and export subsidies on some others. Budgetary support is provided primarily for inputs (fertilisers, water, electricity and seeds) and agricultural infrastructure (irrigation, water supply, roads and electrification). In 2007, a National Policy for Farmers (NPF) was announced aiming at a holistic approach to the development of the farm sector. Compared to the National Agriculture Policy (NAP) approved by the government in 2000, the NPF suggests a greater focus on the economic well-being of farmers and rural development, rather than just on agricultural production. AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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Consumer price inflation in India as measured by the Consumer Price Index for Industrial Workers (CPI-IW) increased from 5.5% year on year in December 2007 to 9.8% in September 2008. Higher food prices, accounting for 46.2% of the consumer price index, together with oil and other commodity prices are considered as major factors contributing to the accelerated rate of inflation, but they emerged within a wider context of rising wages and high budget deficit at above 4% of GDP in 2008. As India’s domestic markets for key agricultural commodities have been largely isolated from price movements on international markets, domestic factors appear to be driving the food price increases in 2007 and 2008. In particular, in recent years growth has slowed in agricultural production, including stagnation or even falls in wheat production in 2003-06. Moreover, food grain stocks have fallen below the buffer requirements during the period from mid-2005 to early 2008.

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Box 5.1. Food price inflation in India

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Emphasis is to be given to empowering farmers with access to assets, providing farmers with a wide range of support services and developing appropriate price policy and risk management measures. The Agriculture Co-ordination Committee under the chairmanship of the Prime Minister is to oversee and co-ordinate the implementation of this programme (MoA, 2007).

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While the Reserve Bank of India (RBI) reacted through several increases in repo rate (the rate at which RBI lends funds to the banks) to suck out liquidity and curb price rises, the government adopted a series of measures targeting food prices and agriculture. These can be summarised as follows (detailed descriptions can be found in other sections of this chapter): ●

Incentives for grain imports: cuts and then zero import duties on wheat, rice, maize and pulses to improve grain stocks and relieve price pressures.

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Disincentives for grain exports: export bans on wheat, corn and pulses; an export ban then replaced by a minimum export price and then again by an export ban on nonbasmati rice; minimum export price combined with an export duty on basmati rice.

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Ban on futures trading in wheat, rice, soya oil, rubber, two varieties of lentils, potato, and chickpea to avoid speculative transactions.

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Increase in the Minimum Support Prices (MSPs) for almost all eligible commodities.

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Stable Central Issue Prices (CIPs) for consumers.

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Strong increase in input subsidies, in particular for fertilisers.

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Strong increase in food subsidies to cover the difference between growing MSPs and stable CIPs.

These measures led to the isolation of domestic wholesale prices from international price movements for agricultural commodities, reflecting India’s long-standing approach of adopting countercyclical policies (Figure 5.5). In particular, increases in domestic prices for wheat and rice were just a tiny fraction of changes on international markets. Substantial increases in minimum support prices for the 2008/09 season coincided with a fall in prices on international markets and may prolong inflationary pressures in India, while export bans may undermine confidence of traditional India’s grain importers. The increase in fertiliser subsidies and rapidly growing food subsidies will have substantial budgetary costs. Robust domestic agricultural output in 2008, rebuilt buffer stocks of grains, a fall in international prices for agricultural commodities and political pressure from exporters, encouraged the Indian government to ease some disincentives for exports at the end of the year. For example, partial relaxation of the ban on non-basmati exports was announced and edible oils exports in packs were allowed in November 2008.

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Box 5.1. Food price inflation in India (cont.)

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Rice

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200

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150

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Wheat

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December 2006 = 100

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Figure 5.5. India’s monthly wholesale prices of wheat, rice, maize and soybeans compared with world market prices, 2007-08

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Maize

200 180 160 140 120 100 80 60 40 20 0

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Domestic prices refer to the national wholesale prices; for international prices: wheat is US HRW price; white rice is Thai 100% B second grade, f.o.b. Bangkok; Corn (US), no. 2, yellow, f.o.b. US Gulf ports; soybeans (US), c.i.f. Rotterdam. Source: http://eaindustry.nic.in/ and World Bank Commodity Price Data, September 2008. statLink 2 http://dx.doi.org/10.1787/530888187888

Domestic agricultural policies Price and income support policy India implements various mechanisms to stabilise prices for agricultural commodities. The most important ones are: the Minimum Support Price (MSP) for key products, the Market Intervention Price (MIP) and Buffer Stocks Operations. In addition, at the state level, there are regulations which limit free movement of grains across state borders, so called “zoning”. Under the Price Support Scheme (PSS), the Commission for Agricultural Costs & Prices (CACP) recommends the Minimum Support Prices, currently for 26 commodities: paddy, maize, coarse cereals (jowar and bajra), pulses (arhar, moong, urad, gram, and masur), cotton, groundnuts, sesamum, niger seed, wheat, barley, rapeseed/mustard, safflower, sunflower seed, soybean, toria, copra, de-husked coconut (newly added), jute, sugar cane and tobacco. The Commission considers the cost of production including the


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cost of paid-out inputs, imputed value of family labour and land rental. The MSPs are normally announced before the commencement of sowing operations of the particular crop, and have usually been remunerative and significantly higher than the cost. The MSP, by definition, becomes the floor price and farmers are assured of getting that price. Intervention takes place when market prices of the relevant commodities fall below the MSP, resulting in procurement at the MSP by the Food Corporation of India (FCI) for cereals, the National Agricultural Cooperative and Marketing Federation of India (NAFED) for pulses and oilseeds, the Cotton Corporation of India and NAFED for cotton, and the Jute Corporation of India for jute.

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tu one-third compared to the preceding season. For other commodities, the increase ranged Lec The MSPs were revised substantially in 2007/08, with the MSP for wheat price rising by

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from 0-1% (tobacco and sugar cane) to 15% (barley). Newly announced prices for the 2008/09 season suggest much more significant changes (Table 5.2). For some commodities the increase ranges between 29% and 94%. Only for copra and sugar cane, the MSPs are to remain at similar levels to the previous season. For commodities not covered by the MSPs, the government arranges for market intervention upon specific request from the states for a specific quantity at a mutually agreed Market Intervention Price (MIP). The losses, if any, are borne by the national government and the states on a 50:50 basis. Horticultural and other perishable agricultural commodities can be procured through this arrangement. Interventions are carried out by NAFED and agencies designated by the state governments concerned. Buffer stocks of food grains are under the responsibility of the FCI. Seasonallyadjusted buffer stock requirements (buffer norms) constitute the basis for FCI action to accelerate procurement, turn to imports or allow for food grain exports. Between mid-2005 and early 2008, actual food grain stocks were consistently below buffer norms, requiring India to import significant volumes of wheat, particularly in 2006. In January 2008, buffer norms were at 20 million tonnes, which was 9.1% of India’s food grain production in 2007/08, and actual stocks were at 19.2 million tonnes, including 7.7 million tonnes of wheat and 11.5 million tonnes of rice (GOI, 2008). As India’s procurement of rice and wheat in 2008 exceeded the buffer norms, India will be in a fairly comfortable position with respect to availability of grains for the TPDS and even for resuming grain exports in 2008/09. However, at the end of 2008, domestic prices for grains started to exceed falling international prices,

Table 5.2. Minimum support prices in India for selected commodities, 2005-09 Per tonne 2005-06

2006-07

2007-08

2008-09

Commodity INR

USD

INR

USD

INR

USD

INR

USD

Paddy (common)

5 700

128

5 800

134

6 450

155

8 500

198

Maize

5 400

121

5 400

125

6 200

149

8 400

195

17 600

394

17 700

581

Cotton (F-414/H-777/J34)

408

18 000

432

25 000

Wheat

6 5001

145

7 5002

173

10 000

240

10 800

252

Barley

5 500

123

5 650

130

6 500

156

6 800

158

795

18

802.5

19

811.8

19

811.8

19

Sugar cane

1. An additional incentive bonus of INR 500 (USD 11) per tonne was payable above the MSP. 2. An additional incentive bonus of INR 1 000 (USD 23) per tonne was payable above the MSP. Source: Ministry of Agriculture (MoA): http://agricoop.nic.in/ [accessed on 8 October 2008]; Press Information Bureau, Press Releases 29 January 2009. statLink 2 http://dx.doi.org/10.1787/532267633558

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reducing the prospect of exports. This will place additional pressure on the government procurement system which is obliged to purchase grains at high MSPs.

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India’s marketing policies for grains used to be based on the “zoning” provision, whereby sale of food grains outside a zone was prohibited. The purpose was to “bottle up” the grain surplus regions and facilitate state purchase of grains at a previously announced procurement price. In effect, zoning led to “balkanisation” of the domestic grain market. Recent reforms include the abolition of zones, partly through the adoption of the Agricultural Produce Marketing Committee Act (APMC) of 2003.

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The Ministry of Agriculture circulated a model APMC Act to states and suggested amendments to the State APMC Acts so as to promote investment in marketing infrastructure, motivate the corporate sector to undertake direct marketing and to facilitate a nationally-integrated market. The Ministry requested that states complete the process of modification of the state-level APMC Acts by 2007/08. However, progress made by states in reforming their agricultural markets varies considerably. For instance, in Maharashtra and

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Uttar Pradesh, channelling of produce through the regulated markets is still strictly enforced and the number of products for which prior permission has to be sought before they can be traded across states (so called notified commodities) is still large at 593 in Maharashtra and 347 in Uttar Pradesh. By contrast, in Tamil Nadu, except for 15 commodities, there is no restriction on where and to whom farmers can sell their products. In addition, in 2006, the Food and Safety Standards Act was approved by parliament, rationalising the complex and overlapping web of regulations governing the processing of food products. The Department of Food and Public Distribution is also promoting the development of a negotiable warehouse receipt system to increase liquidity in rural areas. To provide the legal framework for the warehouse receipt system, the Warehousing (Development and Regulation) Bill has been enacted in 2008. The Forward Contracts (Regulation) Amendment Bill was also submitted to parliament in 2006 but not approved as of October 2008. Its main objective is to permit and regulate financial instruments that would enable the buyers and sellers of commodities to effectively manage the risks of price fluctuation.

Input subsidies Input subsidies for farmers are provided primarily through subsidising fertilisers, electricity, irrigation water and, occasionally, seeds. In addition, commercial banks, co-operatives and regional banks are required to provide credit to agricultural producers for input purchases at interest rates below the market rate. Fertiliser subsidies are usually the most important component of budgetary support for agricultural inputs. To encourage the use of fertilisers and to make them available to farmers at affordable prices, prices at which fertilisers are sold to farmers are controlled by the government. As they are lower than the cost of production, the difference is compensated to fertiliser producers. While there were plans to disburse the fertiliser subsidy directly to farmers, this has not been implemented due to practical difficulties. Under the so-called New Pricing Scheme, flat rates of subsidy are determined for various groups of fertiliser manufacturers, depending on production methods and age of manufacturing plants. An extra freight subsidy is paid to cover the transportation costs. Some amounts are also budgeted each year to cover the difference between the price of imported urea and retails prices (WTO, 2007). In 2005/06, fertiliser subsidies amounted to USD 4.1 billion and accounted for 35% of the total allocation for agricultural input AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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Electricity subsidies are paid from state budgets to the providers of electricity, and result from the difference in the cost of electricity provision and fixed charges paid by farmers. In most states these fixed charges are just lump sums based on the declared horse power of irrigation pumps. As these subsidised charges do not reflect the actual cost, they encourage overuse of electricity and lead to overexploitation of ground water. In 2005/06,

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subsidies. Within an overall package to support agriculture in the 2008/09 budget, the amount foreseen for fertiliser subsidies increased to INR 309.9 billion (USD 7.8 billion), but in view of some policy announcements, the actual amount spent might be significantly larger at perhaps INR 1 250 billion (USD 27.5 billion), which would be INR 200 billion more than India’s defence budget (GAIN-IN8111).

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subsidies in that period. However, it then increased to USD 7.1 billion in 2007/08. The amount foreseen for 2008/09 is at around USD 7.6 billion. Irrigation water subsidies are the third largest and amounted to USD 3.2 billion in 2005/06, 27% of total amount allocated for input subsidies. The subsidy covers losses incurred by the government irrigation systems resulting from the excess of operating costs over the gross revenue. India’s institutional agricultural credit system includes an extensive network of co-operative, public sector and commercial banks, but still a large percentage of farmers, most often small landholders, remain dependent on traditional moneylenders or other non-institutional sources of credit. According to government data, 49% of farm households are indebted, with 58% of outstanding loans sourced from institutional channels (including government) and 42% from private informal moneylenders. While there is a wide range of reasons for the so called agrarian distress, high debt levels are among the most important factors leading to large numbers of farmers’ suicides in recent years. To improve credit flows to the agriculture sector, the government initiated a number of policy measures. One of them was the Kisan (Farmer) Credit Card (KCC) Scheme launched in 1998/99. Under this scheme, credit cards were distributed to about 70.8 million farmers by November 2007. The scheme is currently being extended to include a wider scope of credits and clients. In 2006, the government announced a package for the revival of the Short-Term Rural Co-operative Credit Structure involving financial assistance of INR 135 billion (USD 3.23 billion). The National Bank for Agriculture and Rural Development (NABARD) has been designated as the implementing agency for the purpose. States are required to sign a Memorandum of Understanding with NABARD committing to implement the legal, institutional and other reforms as envisaged in the revival package. In the crop season 2006/07, farmers were eligible for short-term crop loans up to a principal amount of INR 300 000 (USD 7 150) at the preferential interest rate of 7%. The government provided an interest subsidy of 2% to NABARD and other banks. This policy was continued in 2007/08 and the amount of INR 16.8 billion (USD 400 million) was allocated for this purpose from the 2007/08 budget. In the 2008/09 fiscal year, the subsidy amount is to remain roughly at the previous year level and the preferential interest rate is to remain at 7% per annum. The target for the agricultural credit disbursement through formal agencies (banks and cooperative credit agencies) has been set at INR 2.8 trillion (USD 70.1 billion) for 2008/09. To address the issue of farm indebtedness, at the end of February 2008, Finance Minister announced a massive Scheme of Debt Waiver and Debt Relief for farmers. The

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budgetary cost was initially foreseen at INR 600 billion (USD 14.3 billion). In line with the announced scheme, all loans disbursed by scheduled commercial banks, regional rural banks, and co-operative credit institutions to small and marginal farmers (farms below two hectares) up to 31 March 2007, which were overdue as of 31 December 2007 and remained unpaid as of 29 February 2008, were to be completely waived. This measure was to cost the government INR 500 billion. For medium and large farmers (farms above two hectares), there would be a one-time settlement programme for all loans that were overdue for the above period by paying 75% of the amount, thus providing a 25% rebate. This would cost the exchequer another INR 100 billion. However, in May 2008, the government further expanded the coverage of the scheme to include plantations, horticulture, dairy and poultry farming, as well as other agricultural loans such as taken under the Kisan Credit Card scheme and within self-help and joint-liability groups. Therefore, the original total of INR 600 billion was to be increased to INR 716 billion (USD 17 billion).

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The implementation of the debt-relief scheme was planned to be completed by 30 June 2008 and all bank branches would be given instructions to prepare a list of beneficiaries for display at their respective premises. The central government would take over the debts and reimburse the banks. The Finance Minister assured bankers that the government would take care of banks’ liquidity. Farmers benefiting from the relief would be entitled to new agricultural loans from banks in accordance with normal rules. It is expected that the scheme would cover institutional debts of all small and marginal farmers, and 60%-65% of large farmers. As the loan waiver is confined only to loans taken from formal institutional channels, the scheme does not address the issue of farmers' indebtedness to informal lenders. The loan waiver scheme launched a debate in India, with many observers concluding that it may end up crippling the agricultural credit system, as happened with a similar loan waiver of 1990. The co-operative credit sector has still not fully recovered from that move and even the commercial banking sector became wary of disbursing crop loans for a long time after the previous waiver. It is argued that the current scheme will destroy the discipline of any functioning credit system. Moreover, the scheme may end up compounding, rather than alleviating, the woes of defaulters and heavily indebted farmers, by making them eligible for fresh credit despite their being unable to earn enough to repay their existing loans (Kaur, 2008). There are a number of commodity-specific programmes within which the government provides support for inputs and general services. The most important one is the National Horticultural Mission, launched in 2005/06, to stimulate horticultural production through research, adoption of improved technologies, improved post harvest management and marketing, export promotion, and adding value through processing. In 2008/09, the programme is to cover 340 districts in 18 states and two Union Territories at a budget cost of INR 11 billion (USD 262 million). The National Agricultural Insurance Scheme (NAIS) covers small-scale crop producing farmers who can benefit from a 10% subsidy on their premium payments. The total amount of subsidy foreseen for this scheme in the 2008/09 budget is INR 6.4 billion (USD 144 million). In addition, the Weather-Based Crop Insurance Scheme (WBCIS) has been implemented in selected areas of Karnataka on a pilot basis. WBCIS intends to provide insurance protection to farmers against adverse incidents, such as deficit or excess rainfall. It has the advantage of settling claims within the shortest possible time. The WBCIS is based on actuarial premium rates, but to make the scheme attractive, the


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The distribution of subsidised food to poor consumers is at the core of India’s food security system. It is operated through the Indian Targeted Public Distribution System (TPDS) and managed by the Food Corporation of India (FCI), which is also responsible for procurement and buffer stocks (see above). With a network of around 478 000 Fair Price Shops, distributing food to about 160 million families, the TPDS is the largest distribution network of its kind in the world. Major commodities distributed include wheat, rice, coarse grains, sugar and kerosene.

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premium actually charged to farmers has been restricted to “at par” with NAIS. WBCIS is planned to be implemented in 2008/09 on a larger scale in selected areas of five states and the total subsidy is planned at INR 0.5 billion (USD 12 million).

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The key instruments applied by the FCI for food management are the Minimum Support Prices (MSPs) for procurement and the Central Issue Prices (CIPs), the rates at which the FCI disperses food grains to states and union territories for distribution under TPDS. The difference between the economic cost of procured commodities (in addition to the MSP, this includes state taxes, levies, market fees, commissions, transportation and storage charges) and the issue price is reimbursed to FCI. The level of subsidised prices at which wheat and rice are sold to consumers is differentiated depending on the income of the family: highest for families above the poverty line (APL), lower for families below the poverty line (BPL) and lowest for the poorest-of-the-poor (antyodaya ann yojana – AAY). As the MSPs have been raised (see above) and the CIPs have been kept unchanged since 2002, the cost of food subsidies has increased from INR 240 billion (USD 5.8 billion) in 2006/07 to INR 315 billion (USD 7.6 billion) in 2007/08, and to a budgeted INR 327 billion (USD 8.2 billion) in 2008/09 (GAIN-IN8020, 2008). One additional way of supporting consumers is the relatively low VAT rate on food, typically at 4% as compared to 12.5% for other commodities. Moreover, essential commodities, such as grains, are exempt from VAT.

Infrastructure To make India’s growth more inclusive and equitable, the improvement of rural infrastructure has been given a high priority. The most important programme in this respect is Bharat Nirman, which is a time-bound business plan for action in rural infrastructure over the four year period (2005-09). The total cost of INR 1 740 billion (USD 41 billion) is to be covered by the central government, states, external aid and market borrowing. Specific targets include:

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Irrigation – to create 10 million hectares of additional irrigation capacity.

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Rural roads – to connect all remaining habitations with population above 1 000 (500 in hilly and tribal areas) with all weather roads.

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Rural housing – to construct 6 million houses for rural poor.

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Rural drinking water – to provide potable water to all uncovered habitations and to provide safe water to all water-quality-affected habitations.

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Rural electrification – to provide electricity to all un-electrified villages and to connect 23 million households below the poverty line.

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Rural telephony – to connect all remaining villages with a public telephone system.


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There are several programmes focused on the provision of water for agriculture, some of them components of Bharat Nirman. The most important one is the Accelerated Irrigation Benefit Programme with an allocation of INR 200 billion (USD 4.8 billion) in the 2008/09 budget. Within the Micro Irrigation Programme 0.4 million hectares is to be covered and an outlay of INR 5 billion (USD 119 million) is foreseen in the 2008/09 budget. A Rain Area Development Programme aims at developing agriculture in the non-irrigated areas with a budgetary allocation of INR 3.5 billion (USD 83 million).

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In addition, India implements a number of so called flagship programmes targeting rural areas. Among them, the National Rural Employment Guarantee Programme (NREGP) is the most important. NREGS, launched in 2005, guarantees 100 days of employment in a financial year to any rural household whose adult members are willing to do unskilled manual work. The programme has successively been expanded, and in 2008/09 is to cover all 596 districts in the country compared to 330 in 2007/08. The financial outlay budgeted for 2008/09 is INR 160 billion (USD 3.7 billion).

Land policies Indian agriculture is dominated by a large number of small-scale farms that are predominantly occupied by their owners. The number of farms continues to increase due to the fast growing population in the country, limited possibilities to move out of agriculture, and the law of inheritance under which all sons and daughters are equally entitled to a share in the ancestral property. Thus even large agricultural estates get divided and sub-divided with every generation. In addition, existing legislation imposes ceilings on land holdings. They are differentiated across states, and range between 10 and 18 hectares for irrigated land with two crops, 10 and 30 hectares for irrigated land with one crop, and 15 and 70 hectares for dry land. Ceilings are of two kinds: for existing holdings, land above the limit is declared surplus and taken over by government on payment of compensation; for future acquisitions, the upper limit constraints the amount of land that an individual or a family may acquire with a view to enlarging existing holdings. The surplus land is distributed among small farmers, tenants, land labourers or handed over to village committees or co-operative farming societies. Within this framework, the average size of farm holdings declined from 1.4 hectares in 1995-96 to 1.3 hectares in 2000/01 (the latest available data), and the average ranged from 7.3 hectares in Nagaland to just 0.2 hectares in Kerala. Moreover, while the share of land operated by so called marginal farms (below 1 hectare) and small farms (1-2 hectares) tended to increase, the share of land operated by larger farms (above 10 hectares) tended to decline. These trends clearly indicate that fragmentation of the land use pattern in India is progressing. Although marginal and small holdings up to 4 hectares account for more than 90% of the total number of holdings, the area operated by them is about 60% of the total. This underlines the fact that the bulk of the peasantry subsists on marginal holdings, and unless these marginal farmers are provided with alternative non-agricultural employment or are employed in medium and large farms, the chances of addressing poverty in rural India will remain bleak.


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As male-dominated outmigration from rural areas and feminisation of agriculture continue, there is a need for further land reforms to make tenancy legal and to give well defined rights to tenants and to women farmers. Measures to facilitate the leasing of land for cultivation could help to prevent cultivated land from turning fallow due to migration of owners to urban areas. The lack of recognised tenancy rights makes it difficult for de facto tenants to get credit from formal sources and discourages them from investing in the land. Similarly, a woman without property title is unable to get credit when male family members are away.

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of displacement of farmers due to land acquisition moves and losses of fertile agricultural land to development. Concerns over land acquisition and displacement of farmers led to extreme violence at Nandigram (a village in West Bengal) in March 2007. Some consider that monetary compensation for the land is not a sufficient solution and that more general social impacts must also be taken into account and addressed adequately.

Biofuels India has spent about INR 410 million (USD 9.5 million) on the research and development of alternative fuels during the last three years. The Ministry of New and Renewable Energy has been given the responsibility for preparing the national policy on biofuels and setting up a National Biofuel Development Board. The draft policy aims at promoting the cultivation, production and use of biofuels to partially replace petrol and diesel for transport. The general government policy is to base the biofuel production on waste lands and not divert land from the traditional cultivation for biofuels. India has around 35 million hectares of waste land that can be used for the production of biofuel feedstock.

Agro-food trade policies Import measures While India’s simple average applied MFN tariff has halved in recent years, falling from 32.3% in 2001/02 to 15.8% in 2006/07, the simple applied tariff on agricultural products remained unchanged and was 40.8% in 2006/07. The average WTO bound rate on agricultural products, 117.2% in 2006/07, is almost three times higher than the average applied rate, thus providing the government with a considerable scope to change tariffs and, hence, creating unpredictability for traders. With the exception of almonds, tariffs on agricultural products are all ad valorem. However, for some commodities India applies “reference prices” fixed by authorities to calculate customs duty applicable on imports instead of the price quoted by the importer. This applies, inter alia, to palm oil and crude soybean oil (WTO, 2007). Applied tariff rates range from 0% to 182%, with above average rates for beverages, spirits and vinegar, miscellaneous edible preparations, coffee and tea, animal or vegetable fats and cereals. While some of these rates are fixed at bound levels, for the majority of tariffs there is a considerable gap between the applied and bound rates, ranging from 10% to 300%.

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Tariff rate quotas: bound tariff rate quotas are maintained on milk powder, maize, sunflower seed and safflower oil, and rape, colza or mustard oil (14 tariff lines at the HS 8-digit level). In addition, tariff rate quotas are applied on imports of selected products, e.g. on tea and pepper, under the free-trade agreement with Sri Lanka.

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State trading: continues to be used for imports of cereals (wheat, rice, maize, rye, oats, and coarse grains), copra and crude coconut oil.

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Monitoring: imports of a number of agricultural products considered to be sensitive, including edible oils, cotton, silk, milk and milk products, cereals, fruit and vegetables, spices, tea, coffee and alcoholic beverages are monitored by the government. Depending on the market situation, the government adjusts applied tariff rates within the ranges of respective bound rates.

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Within this range of instruments, import requirements are frequently modified to ensure sufficient domestic supply of basic foodstuffs, particularly for grains. The most recent examples of such changes, mostly triggered by the recent food price hikes on global markets, are as follows (GAIN-IN8015, 2008 and GAIN-IN8045, 2008): ●

Wheat: in June 2006 the import duty was reduced from 50% to 5%, and subsequently to 0% from September 2006 until December 2007. In addition, at the end of 2007, the government permitted duty-free imports of wheat flour until 31 March 2009. Under the Essential Commodities Act, the government has also permitted states to impose wheat stock limits on the private trade and has banned futures trading to check wheat prices.

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Rice: the import duty was abolished from 21 March 2008 through 31 March 2009.

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Maize: the import duty was abolished in January 2007 until December 2007 and the tariff rate quota (TRQ) restrictions were removed. Previously, corn imports were subject to a TRQ, under which up to 0.5 million tonnes were permitted to be imported at a 15% tariff, and quantities above this level were subject to a 50% duty.

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Pulses: in June 2006, the government exempted pulses from the applicable 10% import duty through end March 2009. The government also authorised government agencies/ trading companies to import 1.5 million tonnes of pulses through December 2007. Imports by these agencies would qualify for a subsidy of up to 15%.

Export measures India’s agro-food export policy is balancing between an objective of stimulating farmers’ income through encouraging exports in particular of horticultural products and a food security objective leading to ad hoc restrictions on exports of commodities regarded as essential for domestic consumers. With the primary objective of boosting agricultural exports, the government of India announced in 2001 a policy of setting up of Agri-Export Zones (AEZs) across the country. The objective was to utilise various support schemes in a co-ordinated manner, selecting particular products for the purpose of developing and sourcing the raw materials in a specified area, and then linking this with their processing and packaging for export. The


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zones receive support from the central and state governments as well as from various governmental agencies, in particular for the development of infrastructure like storage, transport, processing and value addition facilities, but also in the form of research and development, extension services and inputs. So far, 60 such zones have been established across 20 states. They are monitored by the Agricultural and Processed Food Products Exports Development Authority (APEDA). However, of the total investment of INR 17.18 billion (USD 390 million) envisaged over 2002-07, just 64% has been realised. Export performance has been better, as the total exports from the zones amounted to INR 106.9 billion (USD 2.4 billion) by March 2008, which was 90% of the value envisaged for 2002-07 (APEDA, 2008).

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tu in 2004, promotes exports of fruits, vegetables, flowers, minor forest produce,L dairy, poultry ec The Vishesh Krishi Upaj Yojana (special agricultural production scheme), introduced

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and related value-added products produced domestically. Under the scheme, exporters of the eligible products are entitled to an import duty credit equivalent to 5% of the f.o.b. value of exports in the previous year beginning 1 April 2004, but the government reserves the right to remove any of the products from this scheme. In addition, under the Advance Licence scheme, duty-free import of agricultural inputs required for export production are allowed with an obligation to export associated agricultural products. India last notified its export subsidies to the WTO in March 2002 for the period 1996/97 2000/01. Since then, no official notification was submitted to the WTO (WTO, 2007). Nevertheless, products such as cereals, sugar or cotton, procured at Minimum Support Prices, are occasionally supported by export incentives to cover the cost of handling, processing and internal transportation. For example, in April 2007, the central government announced an export incentive of INR 1 350 (USD 34.2) per tonne for sugar mills in the coastal states and INR 1 450 (USD 36.7) per tonne for non-coastal states. The incentive was a transport subsidy (both internal and ocean freight) initially for sugar exported from 19 April 2007 to 18 April 2008, but then the period was extended until 30 September 2008. The sugar for export was also exempted from local taxes and fees imposed on domestic sugar which total INR 950 (USD 24) per tonne. In addition, sugar exporters were eligible for a duty drawback benefit on the export value (at 5% of export value for white sugar and 4% for raw sugar) for imports of goods under an open general license. On top of support provided by the central government, the government of the coastal Maharashtra state provided an extra subsidy of INR 1 000 (USD 25.5) per tonne of sugar exported by sugar mills located in the state in 2006/07. Then, the subsidy was extended for the 2007/08 season (GAIN-IN8034, 2008). Since the beginning of the 1990s, India has gradually removed prohibitions, licensing, and other restrictions on exports. However, to balance domestic supply and demand for commodities considered as crucial for food security and to stabilise domestic prices, notifications are made periodically to restrict exports or lift export restrictions on selected agricultural commodities (WTO, 2007). While in 2006, such cases were relatively infrequent, they grew significantly in 2007-08 with the rise of food prices on international markets and with growing inflationary pressures on the domestic market. Export restrictions concerned in particular grains and pulses (GAIN-IN8045):

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Wheat: in February 2007, the government banned exports of wheat and wheat products until 31 December 2007, which was then extended indefinitely.

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Basmati rice: to limit exports, the MEP was gradually increased from USD 900 per tonne on 5 March 2008, to USD 1 100 per tonne on 27 March 2008, and to USD 1 200 per tonne on 1 April 2008. At the end of April 2008, an export duty of USD 200 per tonne was imposed on top of the MEP. In January 2009 the tax was abolished and MEP reduced to USD 1 100 per tonne.

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major rice exporting states in India, the government decided to establish a minimum export price (MEP) of USD 425 per tonne on 31 October 2007, which would permit exports of high quality rice, not required for distribution through the public distribution system. However, at the end of December 2007, the government increased the price to USD 500 (INR 20 000) per tonne and further to USD 650 per tonne on 5 March, to USD 1 000 per tonne on 27 March 2008, and completely banned exports as from 1 April 2008. The ban was partly relaxed in November 2008, but only for limited amounts from two states.

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Corn: export ban effective as from 3 July 2008 to 15 October 2008.

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Pulses: export ban imposed in June 2006, originally in force up to end of March 2008, but then extended again for 12 months.

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In addition to temporary restrictions, India prohibits exports of certain agricultural products for health, environmental, and religious reasons. For example, for social and religious reasons such a prohibition is applied for exports of beef and offal of cows, oxen and calves. In turn, export licensing is applied for live animals and some animal products, seeds, seaweed and other algae, residues and waste from food industries, as well as pure races of silk worm and silkworm seeds. State trading is applied for onions and gum karaya. India’s export of sugar is subject to tariff rate quotas applied by the United States and the EU, which are implemented through a sugar producer’s co-operative called the Indian Sugar Exim Corporation Limited. An export tax applied to various products including coffee, spices, tobacco and other agricultural commodities, usually at the rate of 0.5%, was repealed by the Cess Laws (Repealing and Amending) Act, 2005 enacted in 2006 (WTO, 2007).

Trade agreements India attaches great importance to the multilateral trading system, but is also moving to promote bilateral and regional trade agreements. Its first real free trade agreement (FTA) was signed in 2000 with its neighbour Sri Lanka. Since then, the number of FTAs signed by India increased substantially, mostly within the region (South Asian Free Trade Area – SAFTA; Asia Pacific Trade Agreement – APTA) or with selected Asian countries (in addition to Sri Lanka, also with Bangladesh, Nepal, Singapore and Thailand). Most recently, negotiations between India and the Association of South East Asian Nations (ASEAN) have been completed with the objective to sign a comprehensive free trade treaty in December 2008. Negotiations for a free trade agreement between India and the European Union are on track and are expected to be completed in 2009. Both the coverage and tariff concessions provided by India to its agricultural sector within these agreements are rather limited. In terms of coverage, India's offer ranges from 8.4% of its agricultural tariff lines (WTO definition of agriculture) for members of APTA to 92.5% in the case of the agreement with Sri Lanka. Tariff concessions are even smaller, as the average preferential agricultural tariff ranges from 37.2% for SAFTA to 40.6% for APTA compared to the MFN average at 40.8%. However, for Sri Lanka the average is significantly


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Also under the India-ASEAN agreement, India’s negative list of agricultural commodities for which no tariff concessions would be exchanged is long and includes honey, cut flower, vegetables, coconut, cashew nut, most fruits, grains (wheat, maize, rice, millet), peanuts, copra, soybeans, cotton, sunflower seed, castor oil, sesame seed, mustard seed, beer, wine, whisky, rum, gin, vodka, tobacco and products, milk and milk products, fish and fish products, poultry and poultry products, processed food, fruit juices and natural rubber. Imports under this negative list would not exceed 5% of total bilateral imports by India from any other ASEAN member country. Some preferences would

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smaller at 7.6%, and for the least developed country members of the SAFTA (Bangladesh, Bhutan, Maldives, and Nepal) the agricultural tariff is 30.0% (WTO, 2007).

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tu increase during the implementation period beginning 2009 until 2018. For example, L e cIndia’s

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import duty on palm oil would come down to 37.5% from the bound level of 80%; on refined palm oil to 45% from the current 90% bound level; on black tea, pepper, and coffee to 40% from the current 100% (GAIN-IN8105).

Bibliography Anderson, K., M. Kurzweil, W. Martin, D. Sandri and E. Valenzuela (2008), “Methodology for Measuring Distortions to Agricultural Incentives”, Agricultural Distortions Working Paper, No. 02, World Bank, Washington, DC, revised January. APEDA (2008), www.apeda.com/apedawebsite/trade_promotion/Agri_Export_Zone.htm; http:// dgft.delhi.nic.in/, accessed 1 October 2008. GAIN-IN8015 (2008), India, Grain and Feed Annual, USDA FAS, 20 February. GAIN-IN8020 (2008), India, Indian Budget IFY 2008-09: Agricultural Highlights, USDA FAS, 11 March. GAIN-IN8034 (2008), India, Sugar Annual, USDA FAS, 11 April. GAIN-IN8045 (2008), India, Grain and Feed, Quarterly Lock up Report: May, USDA FAS, 6 May. GAIN-IN8105 (2008), India,Weekly Highlights & Hot Bites, #36, USDA FAS, 10 September. GAIN-IN8111 (2008), India, Weekly Highlights & Hot Bites, #39, USDA FAS, 1 October. Gopinath M. (2008), “Improving WTO Transparency: India’s Shadow Farm Support Notifications”, conference draft, IFPRI. Government of India (GOI, 2008), Economic Survey 2007-08 and previous issues, Annual, Ministry of Finance, New Delhi, at http://indiabudget.nic.in. Kaur, S. (2008), “India’s Agricultural Policy Developments: 2006-08”, Report submitted to OECD. Landes, M. (2008), “The Environment for Agricultural and Agribusiness Investment in India”, Economic Information Bulletin No. 37, USDA/ERS, July. Ministry of Agriculture (2007), National Policy for Farmers 2007, Department of Agriculture and Cooperation, Ministry of Agriculture, Government of India. Ministry of Agriculture (2008), http://dacnet.nic.in/eands/msp/msp_5sept08.pdf/, accessed 5 October 2008. Orden D., F. Cheng, H. Nguyen, U. Grote, M. Thomas, K. Mullen, D. Sun (2007), “Agricultural Producer Estimates for Developing Countries. Measurement Issues and Evidence from India, Indonesia, China, and Vietnam”, Research Report 152, IFPRI. Planning Commission (2008), Eleventh Five Year Plan 2007-12, Vol. III: Agriculture, Rural Development, Industry, Services, and Physical Infrastructure, Planning Commission, Government of India, Oxford University Press, New Delhi. Pursell, G., A. Gulati and K. Gupta (2007), “Distortions to Agricultural Incentives in India”, Agricultural Distortions Working Paper, No. 34, December. WB (2007), World Development Report 2008, “Agriculture for Development”, World Bank, Washington, DC. WTO (2007), Trade Policy Review, Report by the Secretariat, India, 18 April.

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Russia Evaluation of policy developments ● Russia maintains high border protection for key agricultural imports and budgetary transfers to the agricultural sector are

increasing. With high economic growth boosting consumer incomes and raising government revenue, the government has pursued an increasingly protective policy. The level of producer support rose in the current decade compared with the recent low which followed the 1998 financial crisis. ● The majority of producer support derives from border protection. The meat and sugar sectors in particular benefit from high

protection, which is tightening further. This support is borne by domestic consumers who buy products at prices above international levels. The export-oriented grain sector, in contrast, faces prices below world levels. Infrastructural deficiencies result in export opportunities being less than fully exploited and in turn depress local prices. Recently, grain exports were also directly taxed as part of efforts to combat food price inflation. ● Around two-thirds of budgetary transfers to producers are directed to support the purchase of inputs and investments, largely

through lowering the interest rate for credit. The government’s broad goal is to boost domestic production and competitiveness, with stronger emphasis being placed recently on support for improvements in farm technologies, animals and crops. ● A new and welcome feature is the attention to developing services for producers, such as consulting, extension, and

information systems. Allocations for agricultural research, education, infrastructure and marketing increased slightly in real terms. ● A stronger policy orientation to broader development issues is notable. Sustainable rural development and sustainable use

of agricultural land have been brought to the top of the policy agenda. Special government programmes have emerged to tackle these issues. Large public investments are planned in rural electrification, gas networks and improvement of rural settlements. Rural dwellers have been given access to low-cost credit for housing construction and diversification of activity. ● A longer-term policy framework emerged following the introduction of several large mid-term support programmes. While

the federal government maintains a large role in the formulation of key policy objectives and in financing a core set of support measures, regions have discretion in defining their specific sets of support measures, which are now also subject to more clearly defined co-financing rules. ● The new policy programmes foresee a boost in public spending for the agricultural sector. However, there is a concern that

the allocation of public funds may become an objective on its own, over-riding an appropriate evaluation of the capacity of potential beneficiaries to absorb funds. Furthermore, much of these public funds are destined for lowering the interest rate for credit to producers and therefore expose the agricultural sector to higher levels of debt. The current financial crisis which has spilt over into the real sector further increases the vulnerability of agriculture to debt risks. ● A strong reliance on state-controlled companies in implementation of some support policies, such as concessional credit and

leasing, may impede the development of competitive services in these areas. ● Despite greater emphasis being given recently to the sector’s modernisation and sustainable development, inefficient

support, which distorts input and output prices, continues to dominate. A substantive re-allocation of resources towards measures improving the efficiency and competitiveness of the sector would in the longer-term provide superior gains to producers, while at the same time benefiting consumers.

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Figure 6.1. Russia: PSE level and composition over time

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Support to producers (%PSE) was 14% in 2005-07, compared to 19% in 1995-97. After a substantial drop in the late 1990s, the level of support increased, but remains well below the OECD average of 26% (in 2005-07). The %PSE fell in 2007 as smaller quantities received price support. There was also a considerable strengthening in world prices reducing the gap between world and domestic prices for import-competing products. Also, taxation on key export commodities increased. The most distorting forms of support (based on commodity output and variable input use) accounted for almost 84% of the total PSE in 2005-07. Prices received by farmers were on average 10% above those observed on the world markets in 2005-07 (producer NPC), compared to 9% in 1995-97. Farm receipts in 2005-07 were 16% higher than if they had been realised at world prices (producer NAC). This differential is somewhat smaller compared to 1995-97 when it was 24%. Single Commodity Transfers (SCT) comprised 69% of the total PSE in 2005-07. Poultry, pigmeat, beef and sugar receive high support, with %SCTs for these products ranging from 24% to 40%. At the same time, the grain sector faces negative transfers. The large variation of %SCT across commodities reveals a misallocation of resources in the sector. As shown by the %CSE, agricultural policies placed an implicit tax on consumers of 15% in 2005-07, a significant increase compared to 1995-97 when this tax was 7%. In 2005-07, support for general services to agriculture (%GSSE) comprised around 22% of the total support to agriculture (TSE). This share has risen in most recent years. Total support to agriculture amounted to 1% of the country’s GDP in 2005-07 (%TSE) – a notable reduction compared to 1995-97 when it was almost 3%.

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A Programme for Development of Agriculture for 2008-12 was launched to succeed the National Priority Project for Development of the Agro-Industrial Complex implemented in 2006-07. A significant increase in public spending for the sector is budgeted, as well as steps to improve social conditions in rural areas. The meat sector benefited from a tightening of border protection and additional assistance is foreseen. Ad hoc fuel subsidies were provided in 2006-08 to mitigate higher energy prices; in 2008 a five-year agreement on fertiliser price restraint was reached with the fertiliser industry. WTO consultations continued but accession is not imminent. In late 2007, measures to combat food price inflation were applied, including export taxes on grains, a reduction of import tariffs on key foodstuffs and restraints on retail food prices. Since mid-2008, cash flow problems in the agro-food sector have become a preoccupation, prompting the government to contemplate specific relief measures.

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Figure 6.2. Russia: Producer SCT by commodity, 2005-07 MPS Payments based on output


Pigmeat Sugar Poultry Beef and veal Milk Oilseeds Eggs Wheat Other grains Maize Other commodities SCT as % of PSE -40

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0 20 40 60 80 % of commodity gross farm receipts



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1 210 507

66 1 831 548 210 499 147 429 140 963 6 467 52 318 30 260 0 21 348 0 710 0 4 410 1 282 3 117 0 0 0 0 0 0 0 0 0 6 342 14 1.10 1.16 58 217 3 400 10 705 16 477 14 216 475 1 308 11 635 21.7 –268 260 –136 596 –121 625 0 –10 040 –15 1.16 1.17 268 716 258 221 132 120 –121 625 0.99

66 1 658 549 169 648 114 131 108 746 5 385 48 645 30 824 0 17 487 0 333 0 2 681 251 2 395 0 0 0 0 0 0 0 0 0 4 191 13 1.09 1.15 39 126 2 792 10 076 10 410 13 945 581 268 1 052 18.7 –211 667 –97 833 –103 657 0 –10 177 –13 1.14 1.15 208 773 201 490 110 941 –103 657 0.97

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64 1 874 682 260 281 211 917 206 277 5 640 40 094 22 664 0 16 249 0 1 181 0 4 965 2 115 2 850 0 0 0 0 0 0 0 0 0 3 305 18 1.16 1.21 63 356 3 259 10 450 17 560 12 111 376 1 067 18 533 19.6 –328 925 ––195 381 –123 672 0 –9 872 –18 1.21 1.21 323 637 319 053 128 255 –123 672 1.20

67 1 961 414 201 570 116 241 107 865 8 376 68 215 37 291 0 30 308 0 616 0 5 585 1 479 4 106 0 0 0 0 0 0 0 0 0 11 529 11 1.06 1.12 72 168 4 149 11 588 21 462 16 592 467 2 589 15 321 26.4 –264 188 –116 573 –137 546 0 –10 069 –13 1.15 1.16 273 738 254 119 157 165 –137 546 0.83

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63 259 391 45 300 22 512 17 775 4 737 20 758 13 211 0 7 388 0 159 0 438 0 438 0 0 0 0 0 0 0 0 0 1 593 19 1.09 1.24 10 186 329 934 827 1 639 124 0 6 333 18.4 –23 610 –14 512 –6 791 0 –2 307 –7 1.09 1.10 55 487 21 303 40 975 –6 791 2.88

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of which share of MPS commodities (%) Total value of consumption (at farm gate) Producer Support Estimate (PSE) Support based on commodity output Market Price Support Payments based on output Payments based on input use Based on variable input use with input constraints Based on fixed capital formation with input constraints Based on on-farm services with input constraints Payments based on current A/An/R/I,1 production required Based on Receipts / Income Based on Area planted / Animal numbers with input constraints Payments based on non-current A/An/R/I, production required Payments based on non-current A/An/R/I, production not required With variable payment rates With fixed payment rates Payments based on non-commodity criteria Based on long-term resource retirement Based on a specific non-commodity output Based on other non-commodity criteria Miscellaneous payments Percentage PSE Producer NPC Producer NAC General Services Support Estimate (GSSE) Research and development Agricultural schools Inspection services Infrastructure Marketing and promotion Public stockholding Miscellaneous GSSE as a share of TSE (%) Consumer Support Estimate (CSE) Transfers to producers from consumers Other transfers from consumers Transfers to consumers from taxpayers Excess feed cost Percentage CSE Consumer NPC Consumer NAC Total Support Estimate (TSE) Transfers from consumers Transfers from taxpayers Budget revenues Percentage TSE (expressed as share of GDP)

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Table 6.1. Russia: Estimates of support to agriculture

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NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient. 1. A (area planted) / An (animal numbers) / R (receipts) / I (income). For the definition of OECD indicators of support to agriculture, see Annex A.1. Market price support is net of producer levies and excess feed cost. MPS commodities for Russia are: wheat, maize, other grains (barley, rye and oats), sugar, oilseeds (sunflower), milk, beef and veal, pigmeat, poultry and eggs. Source: OECD, PSE/CSE Database, 2008. statLink 2 http://dx.doi.org/10.1787/532272316260


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Agriculture contributed around 5% to GDP and absorbed 10% of total employment in 2007.

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imports. The sector’s output is steadily recovering after a deep fall in the 1990s. The farm

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many of them suffer social decline and depopulation. On average, 28% of household consumer expenditure was spent on food in 2007.

Figure 6.3. Russia: Evolution and annual changes of agricultural output, 1995-2007 2007



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Figure 6.4. Russia: Agro-food trade, 1996-2007 Agro-food export (including fish and fish products) Agro-food import (including fish and fish products) Agro-food balance (including fish and fish products)

7

6

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5

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

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statLink 2 http://dx.doi.org/10.1787/532276673772 Source: FSSS, Federal State Statistics Service of the Russian Federation, 2008; IMF, International Financial Statistics, 2008; UN, UN Comtrade Database, 2008; World Bank, World Development Indicators, 2008.

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Annual rate of growth, % 10

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GDP (USD billions) 765 991 1 291 GDP growth (%) 6.4 7.4 8.1 GDP per capita, PPP (USD) 11 861 13 205 14 743 Inflation (annual average, %) 12.7 9.7 9.0 Exchange rate (annual average, local currency per USD) 28.3 27.2 25.6 Population (million) 144 143 142 Population in rural areas (%) 27.0 27.0 27.0 Share in GDP (%) Agriculture 5.4 5.0 4.6 Industry and construction 32.9 31.9 31.7 Services 56.4 58.0 57.9 Share in employment (%) Agriculture 11.3 10.8 10.2 Industry and construction 21.7 21.3 21.2 Services 59.6 60.2 60.8 Average share of food in households’ consumer 33.2 31.6 28.4 expenditures (%) Basic agricultural indicators Agro-food exports (% of total exports) 1.7 1.7 2.6 Agro-food imports (% of total imports) 17.0 15.1 13.8 Agro-food trade balance (USD million) –12 755 –15 831 –18 518 GAO (% change from previous year) 2.3 3.6 3.3 Total cereal production (million tonnes) 78.2 78.6 81.8 Total meat production (million tonnes) 4.9 5.2 5.6 Natural resources and farm structure Agricultural land per farm (ha):1 Large and medium agricultural organisations n.a 3 834.0 n.a. Small agricultural organisations n.a 1 164.0 n.a. Family-type ("peasant") farms n.a 85.0 n.a. Household plots n.a 0.4 n.a. Agricultural land (million ha) 192.6 191.7 190.6 Arable land per capita (ha) 0.8 0.8 0.7

97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07

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Table 6.2. Russia: Basic economic and agricultural indicators, 2005-07 2005

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The federal Law on Development of Agriculture (2006) defines six objectives of agricultural policy: i) improvement of the competitiveness and quality of agricultural products; ii) sustainable rural development and improvement of the living standard of the rural population; iii) conservation and reproduction of natural resources used in agriculture; iv) formation of an efficiently functioning agricultural market and development of market infrastructure; v) creation of a favourable investment climate in the agro-food sector; and vi) support of agricultural input-output price parity. This Law is a broad framework document, while the government’s action plan is set out in the State Programme for Development of Agriculture for 2008-12 (see below). This programme explicitly takes up the first three of the six objectives above, i.e. competitiveness, rural development and resource conservation. These objectives are translated in the Programme into specific targets for implementation over the five-year period with the underlying policy actions and financing. The general thrust of the Programme is two-fold – to stimulate domestic agricultural production and to improve the social and demographic situation in rural areas. Both processes are viewed as mutually reinforcing. Among the means to achieve the stated goals, priority is given to facilitating access to finance for agricultural producers and rural people. A special emphasis is given to capitalisation and technological modernisation of production, and improvements in social infrastructure in rural areas. The Programme also sets out specific assistance measures for small-scale farms and rural households. A new feature is the explicit focus on services to producers, such as consulting, extension, and information.

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In recent years, the Russian government has moved to put in place a new regulatory and administrative framework for agricultural policies. First, this concerned new principles of interaction between the federal centre and the regions. With the federal government maintaining a large role in the formulation of key policy objectives and in financing the core set of support measures, regions received freedom to define their specific sets of support measures, but with that, additional financing responsibilities. Second, a series of large federal programmes were launched, meaning that a programming approach was widely applied to the implementation of support (Box 6.1). Russia uses a wide range of agricultural policy instruments. The country is a large agro-food importer and applies border protection, complemented by direct price subsidies. Market interventions and export duties are used in export-oriented sectors. The bulk of budgetary support is destined for interest rate subsidies, subsidies for purchased variable and capital inputs and capital grants. Agricultural producers also benefit from implicit support through debt forgiveness or restructuring and various preferences on taxes and social contributions. In 2007-08, food price inflation was one of the major concerns and agricultural policy measures constituted part of the government’s anti-inflation campaign (Box 6.2).


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Box 6.1. New regulatory and administrative framework for agricultural policies in Russia

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As part of the broad administrative reform initiated in 2004, a new division of responsibilities between the federal and regional levels emerged in the implementation of agricultural policy.1 Under these reforms the federal authorities remain responsible for the formulation of strategic agricultural policy directions, agricultural market interventions, and the development and financing of federal (nationwide) agricultural support programmes. The implementation of federal programmes in regions is the responsibility of regional authorities. They can adopt any particular set of support measures among those determined in the federal programmes. However, for a large part of these measures regions are required to provide co-financing in order to receive federal funds. The federal part is transferred as federal subventions to the regional budgets. Regions can also implement additional local support measures and finance them from their own resources. This distribution of responsibilities between the federal and regional authorities resembles that between the European Union and its member states in implementation of the EU’s Common Agricultural Policy. These administrative changes resulted in the emergence of three broad groups of support policies in Russia: i) those defined and financed by the federal government, ii) those co-defined and co-financed by federal and regional authorities, and iii) support measures defined and financed exclusively by regional authorities.

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Along with the administrative changes described above, a longer-term policy framework emerged. Until the middle of the current decade, agricultural support was implemented on the basis of annual laws and government resolutions, usually focused on some specific issues. However, several large documents have been recently adopted, together forming a longer-term policy framework for agricultural policy. This includes the Federal Law on Development of Agriculture (adopted in December 2006), the National Priority Project for 2006-072 and the State Programme for Development of Agriculture for 2008-12.3 Two other federal programmes – on Social Development of Rural Areas and the Soil Fertility Programme,4 initiated in 2002, were extended for a new term until 2012. Apart from these large programmes, five “special issue” federal programmes were launched in 2008 for the period up to 2010: the creation of a common information space for the agro-food sector; three support programmes for the flax, rapeseed, and wine sectors, and a programme for prevention and treatment of cattle diseases. 1. Here and elsewhere in the text the term “region” is understood to be the sub-federal territorial units forming the Russian Federation – oblasts, krais and autonomous republics (officially named “subjects of the Federation” in the Russian legislation). 2. The National Project for Development of the Agro-Industrial Complex was one of the four so-called federal National Priority Projects implemented in 2006-07; the other three concern health, education and housing (see OECD, 2007 for more detail). 3. The full official name is the State Programme for Development of Agriculture and Regulation of Markets for Agricultural Food and Fibre Products and Foodstuffs for the Period 2008-12. 4. The full official name is the Federal Programme for Soil Fertility Enhancement and Rehabilitation of Agrolandscapes as Russia’s National Heritage for 2006-10 and up to 2012.

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Box 6.2. Food price inflation in Russia

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Food (together with energy) was a major inflation driver. Food prices jumped by 15.6% by December 2007 compared to December 2006, and in September 2008 prices were 30% above the end-2006 level. Family budgets were strongly affected given that food takes up 28% of an average household’s expenditure and this share rises to 50% for the lowest income group (in 2006).

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High inflation has been an on-going concern in recent years amid high economic growth and rising commodity prices. Monetary and fiscal policies balanced between fighting inflation and constraining the real appreciation of the rouble. From mid-2007, inflation began to rise and particularly accelerated between October 2007 and May 2008 (Figure 6.5). In June 2008, price rises slowed down.

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The government responded with a series of anti-inflation measures, including: ●

Monetary tightening: the refinancing rate of the Central Bank of Russia (CBR) was increased and the reserve requirements in the banking system tightened.

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Export restraints: duties on grain exports were imposed (between November 2007 and June 2008).

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Import incentives: import duties on several key foodstuffs (milk and milk products, cheese, some types of vegetable oil and vegetables) were temporarily reduced.

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Retail price freezes: an agreement was reached with the large food processors and retailers to freeze prices for six “socially important” foodstuffs, including bread, milk and fermented milk, sunflower oil and eggs; originally the agreement was to be in effect between end-October 2007 and end-January 2008, but was extended until end-April 2008.

Among the principal foodstuffs the strongest price increases in 2008 occurred for bread and bakery products, milk products, sunflower oil and potatoes (Figure 6.6).

Figure 6.5. Russia: Consumer price indices in 2007-08 December 2006 = 100 Total CPI

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07 Ap r. 07 M ay 0 Ju 7 ne 07 Ju ly 07 Au g. 0 Se 7 pt .0 7 Oc t. 07 No v. 07 De c. 07 Ja n. 08 Fe b. 08 M ar. 08 Ap r. 08 M ay 08 Ju ne 08 Ju ly 08 Au g. 08 Se pt .0 8

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Box 6.2. Food price inflation in Russia (cont.)

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Figure 6.6. Russia: Retail price growth rates for key food items

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60 50 40 30 20 10 0 Bread and bakery products

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Source: FSSS, Federal State Statistics Service of the Russian Federation, 2008. statLink 2 http://dx.doi.org/10.1787/531145424363

State Programme for Development of Agriculture in 2008-12 The State Programme for Development of Agriculture in 2008-12 is the key document establishing government actions on agricultural support. It succeeded the National Priority Project, which was implemented in 2006-07, and continues the main support measures of that Project. Other policy measures existing over and above the National Priority Project were also incorporated into the State Programme. It is planned to allocate RUB 551.3 billion (USD 22 billion) from the federal budget for implementation of the Programme over a five-year period. For many items, the federal spending is conditioned by co-financing from the regional budgets and non-budgetary sources. The State Programme incorporates five components: (1) Sustainable Development of Rural Territories; (2) Creation of Basic Conditions for Agricultural Production; (3) Development of Priority Sub-sectors of Agriculture; (4) Achieving Financial Sustainability of Agriculture; and (5) Regulation of Markets for Agricultural Food and Fibre Products and Foodstuffs (Figure 6.7). Each component is further detailed into specific sets of tasks and actions. This is complemented by a five-year budget plan and a set of evaluation criteria for each of the tasks. The execution of financial targets is monitored by the federal Ministry of Agriculture. The Programme’s first component on rural development deals with improvements of rural settlements, infrastructure and housing for rural people. The second component on

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Figure 6.7. Russia: Components of the State Programme for Development of Agriculture in 2008-12 Financial sustainability of agriculture

Development of priority agricultural sectors

Creation of basic conditions for agricultural production

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Source: GFR, Government of the Russian Federation, 2007. statLink 2 http://dx.doi.org/10.1787/531162748522

creation of basic conditions for agriculture contains measures for land conservation and development of farm services. The component on development of priority sub-sectors establishes support for breeding of pedigree animals, elite seed production and development of specific activities, such as production of flax, rapeseed, perennial plantations, sheep and horse breeding, and some other activities. The component on financial sustainability is the largest in terms of budget, with most of the spending destined for interest rate subsidies on loans to agricultural producers and rural households (Figure 6.8). The fifth component on market regulation includes financing for grain

Figure 6.8. Russia: Expenditures under the Financial Sustainability Component of the State Programme Percentage of aggregate spending for 2008-12

Risk reduction in agriculture 11%

Capitalisation of Rosagroleasing 2%

Interest rate subsidies 84%

Agricultural organisations 59%

Small producers 12% Capitalisation of Rosselkhozbank 3%

Technological modernisation 13%

Source: GFR, Government of the Russian Federation, 2007. statLink 2 http://dx.doi.org/10.1787/531223406215


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interventions; development of standards for meat products and monitoring of supply and disappearance situation for key agricultural commodities.

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Price and income support policy

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The majority of policy measures discussed in the following sections are implemented within the framework of the State Programme.

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The main instrument of price support in Russia is border protection, but there are also several domestic policies.

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tu L e cmeat, Direct per tonne payments are provided from regional budgets for marketed

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milk, eggs and wool. About 74% of these payments went to milk in 2006-07. In 2008, following a sharp rise in feed costs, poultry and pigmeat producers received additional per tonne subsidies from the federal budget. In the crop sector, a federal per tonne subsidy is available to growers of flax and hemp, while some regions also provide payments for grains, potatoes and some other crops. Overall, per tonne payments represent a small share of total support to producers – they comprised on average 3% of PSE in 2006-07. Since 2001, Russia has implemented grain market interventions, which are carried out by the Federal Agency for Regulation of Food Market. The mechanism is based on a band between established minimum and maximum prices. When market prices fall below the lower band level, the government begins withdrawals of grain from the market (a purchase intervention). When market prices rise above the upper band level, grain is released onto the market (a commodity intervention). The release of grain is done at maximum prices. The withdrawal can be implemented either through purchasing grain at minimum prices or providing loans against pledged grain. The intervention price bands are established separately for milling wheat, feed wheat, rye, feed barley, and maize. During the purchase intervention the government may restrict imports of grain, while during the commodity intervention exports may be restricted. The possibility of grain pledge loans during the periods of low prices is a new feature stipulated in the 2006 Law on Development of Agriculture. Operational procedures for this mechanism have not yet been defined. Another important change in the intervention mechanism is the exclusion of middlemen/traders from intervention purchases. This involves new logistical arrangements for accepting grain directly from producers, but has not yet been put in place. The exclusion of middlemen may complicate the intervention purchases in the 2008/09 season. Grain commodity interventions were implemented between October 2007 and June 2008 to restrain domestic prices. Around 1.3 million tonnes were released in the grain market (almost 85% of total intervention stock), predominantly in large industrial centres and grain-importing regions. At the beginning of the 2008/09 season, the situation in the grain market changed radically. The largest grain crop since 1990 was harvested in 2008, reaching 108 million tonnes. Consequently, in mid-2008, grain prices began falling steeply. RUB 34 billion (USD 1.2 billion) were allocated in the federal budget for grain purchase interventions. As of early December 2008, 2.5 million tonnes were purchased, at a cost of around RUB 12.5 billion (USD 444 million). However, grain analysts estimate that the capacity of intervention system to withdraw grain will be limited to no more than 5.5 million tonnes, mainly due to storage and logistical constraints. This situation prompted the government to consider additional measures to enhance exports (see below).

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There are several types of per animal and hectare payments, but they have small

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payments per animal raised. Since the 1990s, federal per head payments have been

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provided to breeders of sheep and reindeer, and since 2008, horses raised extensively.

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Concessional credit and input subsidies

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maintenance and establishment of permanent plantations.

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lifestyles of some national minorities in Russia. Per hectare support is provided for

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c tu delivered in the form of subsidies to interest rates on bank loans. Allocations L for e interest Concessional credit is one of the main agricultural support measures. Support is

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rate subsidies were the main spending item under the 2006-07 National Priority Project and take up 45% of the aggregate five-year spending foreseen under the 2008-12 State Programme. Federal funds are transferred to regions for implementation, but for some types of loans this is done on the condition that regions top-up the federal subsidy. All categories of producers – agricultural organisations, small family-type farms and households – are eligible for interest rate concessions. The subsidy may also be provided on loans issued to producer co-operatives engaged in agro-processing and, in specified cases, to food processors. Loans of different terms are subsidised, including short-term loans (for up to one year) and investment loans (for up to two, five or eight years). The subsidy is transferred directly to borrowers; its rate is defined on the basis of the re-financing rate of the Central Bank of Russia (CBR) and varies by type of beneficiary. For agricultural organisations and food processors, the subsidy is set at two-thirds of the CBR rate (effective at the date of conclusion of the credit contract). When the loans are given for the construction of livestock complexes or purchase of agricultural machinery, there is a requirement that regional governments co-subsidise no less than the remaining one-third of CBR rate. For small farms and producer co-operatives, the interest rate subsidy is set at 95% of the CBR rate, and the regional authorities are required to top-up the federal part no less than the remaining 5% of CBR. The borrower is to cover the difference between the bank lending rate and the government-subsidised part of the interest. The launch of the National Priority Project in 2006 provided a strong boost to subsidised credit. A further increase in lending to agriculture is one of the key policies of the State Programme for 2008-12. The scale and scope of subsidised credit substantially broadened in recent years. The policy has been extended to long-term and medium-term lending, whereas before interest rate subsidies were only provided for short-term loans. The list of beneficiaries was broadened to include rural households and producer cooperatives, and the purpose of eligible borrowing diversified. For example, in 2007 and 2008, producer co-operatives and food processors could additionally receive subsidised loans for the purchase of domestically produced flour for bread making and supplementary raw materials, and for financing milk transportation services. Rural households are now eligible for interest rate subsidies on loans to develop non-agricultural business. Between the end of 2005 and mid-2008, the amount of subsidised credit had more than quadrupled in nominal terms, mostly due to a considerable increase in investment credit (Figure 6.9). The majority of subsidised loans provided to agricultural organisations were obtained for the construction, reconstruction and modernisation of livestock complexes. Work was AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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Figure 6.9. Russia: Concessional credit allocations in 2005-08

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Source: Ministry of Agriculture of the Russian Federation. statLink 2 http://dx.doi.org/10.1787/531225336721

completed in around 510 facilities in 2006-07, and is in progress in 3 000 others. Short-term and medium term borrowings were also much related to the livestock sector, and were used for purchasing machinery, equipment, pedigree livestock and variable inputs required for the functioning of the new and reconstructed livestock units. Subsidised loans for small family-type farms and households were provided to purchase all kinds of inputs and investments with the objective of increasing the marketed share of production in these units. The amount of subsidised loans provided to small borrowers increased from RUB 300 million (USD 11 million) in 2005 to RUB 49 billion (USD 1.9 billion) in 2007, and had reached almost the same level between January and May 2008. This borrowing, however, is undertaken by only 3% of the total number of small farms and rural households – those that are actively seeking additional finance to commercialise production. As can be seen from Figure 6.10, the federal and regional expenditures to subsidise interest rates have risen considerably since 2005. This largely reflects the broadening of concessional credit, as well as the fact that the subsidy is cumulative and in part covers loans issued in previous years. An additional spending element is the capitalisation of the leading agricultural bank – Rosselkhozbank (100% of stock of this bank is federal ownership). According to the Russian Ministry of Agriculture, it currently provides around 60% of the value of concessional credit to the agro-food sector. The allocation to Rosselkhozbank foreseen under the State Programme was originally to develop the banks’ capacity to service small borrowers. This includes extension of the network of local branches, recruitment and training of additional staff to service small borrowers. The operations with small borrowers are associated with increased costs and typically do not attract private banks. In 2006, RUB 10.1 billion (USD 0.37 billion) were invested by the federal government into Rosselkhozbank and RUB 6.9 billion (USD 0.27 billion) in 2007. It was originally planned to contribute only additional RUB 2 billion (USD 80 million) in 2008, but according to more recent information,

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Source: Ministry of Agriculture of the Russian Federation. statLink 2 http://dx.doi.org/10.1787/531244261822

RUB 31.5 billion (USD 1.31 billion) is to be transferred to the bank from the federal budget. This sum will be used largely to cover the bank’s deficit of liquidity to satisfy the applications for concessional credit. In addition to concessional credit, there is a range of direct subsidies for variable inputs and investment (this support is provided to agricultural organisations and small farms, and does not cover rural households). These include subsidies for purchasing mineral fertiliser, chemicals and elite (high quality) seeds, and for transporting seeds to areas with adverse climatic conditions for cultivation of feed crops. In 2006-07, due to a sharp rise in fuel prices, a subsidy for fuel used for sowing was paid. In late 2008, it was decided to provide again RUB 10 billion (around USD 424 million) for subsidising fuel costs. Livestock breeders can receive a subsidy for the purchase of young pedigree livestock and for artificial insemination. The farms specialised in raising pedigree cattle benefit from financial aid for acquiring breeding bulls. The input assistance also includes such programmes as state leasing of agricultural machinery and pedigree livestock. A state Rosagroleasing company is the implementing agency, which together with Rosselkhozbank receives considerable federal funds for capitalisation (Figure 6.8). There are also capital grants for the construction and reconstruction of farm buildings and improvement of irrigated lands. A major part of all activities above is implemented in the framework of the State Programme and co-financed from federal and regional budgets. Other specific local input support may also be provided in the regions, but the main policies are realised under the umbrella of the State Programme. Aggregate expenditures on all the programmes listed above (excluding interest rate subsidies) comprised, on average, 9% of total PSE in 2006-07, with roughly equal co-financing from the federal and regional budgets. AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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The most recent development in policies aimed at reducing the cost of agricultural

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government undertook to lift the export tax on fertilisers. This arrangement is to be in

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sector prompted the Ministry of Agriculture and major agribusiness stakeholders to consider special relief measures. Currently, a stabilisation package for Rosselkhozbank is being established. The Ministry of Agriculture is also proposing to oblige banks not to revise the interest rates under the current loans, as well as not to tighten credit guarantee requirements. Some representatives from agribusiness also made suggestions to relax reserve requirements for banks lending to the agro-food sector and extend the existing agricultural loans. The contraction of bank lending poses a substantial challenge for the implementation of the State Programme. Specifically, this concerns the Programme’s preferential credit component – interest rate subsidising foreseen under this component is fully coupled with bank lending. The provisions of the Programme are expected to undergo changes to reflect the latest financial developments. At the moment of writing no official actions were announced.

Tax policies A Single Agricultural Tax (SAT) was introduced for agricultural organisations in 2003, who could choose to adopt the SAT or maintain the previous tax regime. The SAT is set at 6% of the difference between the value of gross receipts and the value of costs of the agricultural organisation. Those adopting the SAT are exempt from income tax, property tax, Single Social Tax, and, except in specified cases, also from VAT. As of 2008, approximately 65% of the agricultural organisations have adopted this tax. Those agricultural organisations not adopting the SAT benefit from the preference on income tax applied to their earnings from primary agricultural and processed products. A zero income tax is currently applied in this case compared to a standard rate of 24%. The federal Ministry of Agriculture proposes to extend this preference until 2012. In addition to concessions associated with the SAT, there are other VAT preferences related to the agro-food items. A reduced VAT rate of 10% (compared to the standard 18% rate) is set for live cattle and poultry. The same preferential rate is applied to a range of key foodstuffs, such as meat, milk and milk products, vegetable oil and margarine, refined and raw sugar, eggs, and vegetables. A number of agricultural inputs, including feed grains, feed mixes, oilseed meals and cakes are also sold with a 10% VAT rate. The total amount of taxes and social payments collected from agricultural organisations at all levels of the budgetary system equalled RUB 82.7 billion (USD 3.2 billion) in 2007. VAT collections comprised the largest part of the total (35%), followed by Single Social Tax (24%), while the share of the Single Agricultural Tax was only 1.5%.

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increase in ethanol output to 2 million tonnes per year, as well as construction and reconstruction of 30 ethanol plants. There are some initiatives at the regional level. For example, a regional programme on development of biofuel production was prepared in Rostov oblast (in the South of Russia), which foresees the production of biodiesel for use in agriculture.

Land policies and farm structure Two basic federal acts regulate agricultural land issues, the Land Code of the Russian Federation (2001) and federal Law on Turnover of Agricultural Land (2002). The latter act has been under permanent development, undergoing numerous amendments since adoption. An important part of land issues, mainly related to the application of broader federal norms, is regulated by regional legislation. In recent years, some regions began adopting special measures to stimulate the return of agricultural land into cultivation. These include subsidising costs of physical delimitation and allotment of land to owners of land shares; subsidising costs of registration of land ownership rights; as well as simplifying legal procedures concerning transactions with agricultural land. Some regions buy idle land from rural population, a policy targeted in particular to aged persons. The initial privatisation in agriculture was largely completed in the 1990s and led to the emergence of multiple legal forms of private agricultural enterprise. In the current decade, the ownership arrangements diversified as did the farm structure (Figure 6.11). According to the 2006 Agricultural Census, there were 48 179 agricultural organisations, which in large part represented the successors of former collective and state farms. Around 80% of these units had the legal status of joint stock companies or production co-operatives, 5% were state or municipal enterprises and 15% had other legal forms. Agricultural organisations account for nearly 79% of total agricultural land, and are substantially differentiated by size. The 2006 Agricultural Census distinguished “large and medium” agricultural organisations, which had on average 3 834 hectares of agricultural land per unit, and “small” agricultural organisations, which had 1 164 hectares per unit. However, out of the total registered number of agricultural organisations (48 179), 32% reported that they had no agricultural operations in 2006 (Figure 6.12). This includes units which formally ceased agricultural production (27%) and units reporting that they stopped production temporarily (5%). Around 35% of all agricultural land occupied by agricultural organisations was not utilised in 2006 (Figure 6.13). It is important to note that the data on total land occupied by agricultural organisations and average size relate to the total AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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Figure 6.11. Russia: Distribution of agricultural land by type of farm, as of 1 July 2006

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Figure 6.12. Russia: Share of farms reporting agricultural operations in 2006 Units reporting no agricultural operations

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Source: FSSS, 2006 Russian Agricultural Census. statLink 2 http://dx.doi.org/10.1787/531286667376

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1. In per cent to total agricultural land in farms of different type. Source: FSSS, 2006 Agricultural Census. statLink 2 http://dx.doi.org/10.1787/531287516788

number of units, including those with no agricultural operations reported (this is also the case for other farm types below). Along with these large-scale farms, there existed 285 141 family-type farms. According to the legal status, they distinguish “peasant” and “individual producer” farms. The former have emerged since the early 1990s, as a result of policies to develop individual family-type farming in Russia. The legal status and the procedures for creating “peasant” farms are regulated by special laws. The “individual producer” farms are those typically created by the owners of household plots (see below) or other investors on the basis of general business legislation. Despite the differences in legal background, these units are similar, in that they all represent small family-type farming. Altogether they dispose of 15% of total agricultural land, with an average “peasant” farm operating on 85 hectares of agricultural land and an “individual producer” farm on 80 hectares. Only slightly more than one-half of “peasant” farms and twothirds of “individual producer” farms had agricultural operations in 2006, implying that others were either involved in non-agricultural business or remained non-functional. Around 80% of total agricultural land in this group of farm was not utilised in 2006. Agricultural organisations, “peasant” and “individual producer” farms are the commercially-oriented production units. There also exist 22.8 million households with tiny land plots (0.4 hectare of agricultural land on average). Around 89% of these households were producing agricultural products in 2006, but mostly for own consumption. Nearly 20% of agricultural land in households was not utilised. Agricultural organisations typically use land and other farm assets on the basis of lease contracts with individual shareholders, which emerged in the process of initial farm privatisation. A notable trend is the transfer of land ownership from physical persons – AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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Another feature of concentration in the sector of agricultural organisations is the emergence of so-called agro-holdings. They represent complex institutional arrangements, usually involving the take-over of assets of insolvent or bankrupt farms by outside investors. In 2006, there existed 318 private agro-holdings, in which 1 247 agricultural organisations participated (agro-holding is understood to be an entity consisting of agricultural organisations, processing, and service units which are independent legal entities, but whose controlling stock belongs to one common holder). Private holdings employed 218 000 people and had 7.8 million hectares of agricultural land. There were also 463 state holdings (83% of them were municipal entities), with participation of 2 444 agricultural organisations and 9.6 million hectares of agricultural land at their disposal (VIAPI 2008b).

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original holders of shares – to legal entities through purchase of shares or accepting shares as investment into the company’s charter capital. In 2006, for example, 25% of agricultural land was owned by legal entities in the Moscow region, 23% in the Kaliningrad region and 17% in the Republic of Tatarstan, compared to 3% for Russia as a whole.

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Agro-food trade policies Import measures Russia runs a significant agro-food trade deficit, which reached USD 18.5 billion in 2007. The largest (and expanding) import group concerns meat and meat products. Imports of red meat and poultry from outside the CIS area (Commonwealth of Independent States) are subjected to a tariff rate quota (Table 6.3). The quotas are allocated annually to countries based on historical imports. According to the Federal Customs Service, the quota fill rates were 71% for beef, 97% for pigmeat and 92% for

Table 6.3. Russia’s meat import quotas in 2005-09 2005

2006

2007

20092

2008

Beef fresh and chilled TRQ, thousand tonnes In-quota tariff Over-quota tariff1

27.5

27.8

28.3

28.9

29.5

15%, n.l. 0.2 EUR/kg

15%, n.l. 0.2 EUR/kg

15%, n.l. 0.2 EUR/kg

15%, n.l. 0.2 EUR/kg

15%, n.l. 0.2 EUR/kg

40%, n.l. 0.53 EUR/kg

55%, n.l. 0.7 EUR/kg

50%, n.l. 0.65 EUR/kg

45%, n.l. 0.6 EUR/kg

40%, n.l. 0.53 EUR/kg

430

435

440

445

450

15%, n.l. 0.15 EUR/kg

15%, n.l. 0.15 EUR/kg

15%, n.l. 0.15 EUR/kg

15%, n.l. 0.15 EUR/kg

15%, n.l. 0.15 EUR/kg

55%, n.l. 0.55 EUR/kg 52.5%, n.l. 0.53 EUR/kg

50%, n.l. 0.5 EUR/kg

40%, n.l. 0.4 EUR/kg

Beef frozen TRQ, thousand tonnes In-quota tariff Over-quota tariff1

40%, n.l. 0.4 EUR/kg

Pigmeat fresh, chilled or frozen TRQ, thousand tonnes

467.4

476.1

484.8

493.5

531.9

In-quota tariff

15%, n.l. 0.25 EUR/kg

15%, n.l. 0.25 EUR/kg

15%, n.l. 0.25 EUR/kg

15%, n.l. 0.25 EUR/kg

15%, n.l. 0.25 EUR/kg

Over-quota tariff1

80%, n.l. 1.06 EUR/kg

60%, n.l. 1.0 EUR/kg

60%, n.l. 1.0 EUR/kg

60%, n.l. 1.0 EUR/kg

75%, n.l. 1.5 EUR/kg

Poultry meat fresh, chilled or frozen TRQ, thousand tonnes In-quota tariff Over-quota tariff1

1 090.0

1 130.8

1 171.2

1 211.6

952

25%, n.l. 0.2 EUR/kg

25%, n.l. 0.2 EUR/kg

25%, n.l. 0.2 EUR/kg

25%, n.l. 0.2 EUR/kg

25%, n.l. 0.2 EUR/kg

No over-quota imports

60%, n.l. 0.48 EUR/kg

60%, n.l. 0.48 EUR/kg

60%, n.l. 0.48 EUR/kg

95%, n.l. 0.8 EUR/kg

n.l.: “but not less than”. 1. Over-quota tariff rates shown for 2005 are those in effect between June and December. 2. The over-quota tariff levels scheduled initially for 2009 were: 40% but not less than EUR 0.53 per kg for fresh, chilled or frozen pigmeat; and 40% but not less than EUR 0.32 per kg for fresh, chilled or frozen poultry. Source: GRF, 2005. statLink 2 http://dx.doi.org/10.1787/532301854545

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poultry meat in 2007. The under-fill of the beef quota is partly explained by the fact that the bulk of it is allocated to the European Union. EU deliveries were restrained by bans on beef imports from these countries on technical grounds and in connection with animal disease. Nevertheless, total imports of all types of meat exceed the quota levels due to over quota deliveries, largely from Brazil and Argentina. In 2006-07, over-quota imports accounted on average for nearly 40% of total imports of beef, 30% of pigmeat and 11% of poultry meat. In December 2008, the government announced changes in meat TRQ regime for 2009. The tariff quota volume for poultry was cut to 952 000 tonnes from the initially scheduled level of 1 252 000 tonnes. For pigmeat, in contrast, the quota was increased compared to the scheduled level – to 531 900 tonnes against 502 000 tonnes foreseen intially. Changes in the initially foreseen over-quota tariffs were also made, involving a substantial rise in over-quota rates for pigmeat and poultry.

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Another new regulation concerning meat imports was the introduction in 2006 of the minimum customs valuation for imports of beef and pigmeat. This measure was officially part of the fight against customs fraud, in particular under-reporting of value for customs duty. A special import regime is applied to sugar. White sugar imports from areas outside the CIS are levied a duty of USD 340 per tonne, while CIS imports are duty free (if sugar is processed from sugar beet). The duty free treatment, however, is not extended to trade between Russia and Ukraine – both countries mutually apply their MFN tariffs. The main developments with respect to white sugar concerned trade with Belarus, the largest CIS supplier to Russia. Problems emerged when it was found that sugar imported from Belarus was not locally produced (to be eligible for duty-free entry), but re-exported. In 2007, an agreement was signed between the governments of Russia and Belarus, introducing a strict regulation of white sugar trade between the two countries. The agreement establishes Russia’s annual import quantities (180 000 tonnes in 2007 and 100 000 in 2008) and import prices, which should be at the level of Russian wholesale prices for white sugar. A list of authorised companies which can make deliveries to Russian market was established, all belonging to the Belorussian State Concern. A different tariff regime is applied to imports of raw sugar. A variable import levy is set for these imports, which is pegged to the average monthly price at the New York Board of Trade (NYBOT) and may vary between USD 140 and 270 per tonne. A higher NYBOT price commands a lower tariff and vice versa. Some modification was introduced in this regime in 2007. A higher seasonal duty will now be applied for the period between 1 December and 31 May. The duty is established within the range of USD 220-270 per tonne. Thus, from 1 December 2007 to 31 May 2008 the seasonal duty was set at USD 220 per tonne, then it was brought down to USD 140 in June 2008, to the level applied throughout most of the 2007. This measure resulted in a sharp fall in raw sugar imports in the first half of 2008. The seasonal duty was again imposed for the 2008/09 season. In addition to raw sugar, a seasonal duty was imposed for rice and cereal products processed from rice (EUR 120 per tonne compared to a standard rate of EUR 70 per tonne). This duty was effective between 1 March and 31 May 2007, and 1 October and 31 December 2007. On the other hand, reduced seasonal duties (5% compared to standard 15%) were introduced for some vegetables (cabbage, carrots and red beets) and a duty-free import of tea and nuts was allowed between February and October 2007.


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Export measures

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The food price crisis prompted ad hoc import regulations meant to reduce pressure on food prices. Import duties on milk and milk products were cut from 15% to 5% between mid-October 2007 and mid-April 2008. For cheese types subjected to a differentiated specific duty of up to EUR 0.7 per kilo it was set at a minimum level of EUR 0.3 per kilo and for all other types of cheese at 5% ad valorem. Import duties on vegetable oils were brought down from 15% to 5% for six months starting from 1 December 2007.

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In addition to tariff protection, Russia applied import restrictions on phytosanitary, veterinary or technical grounds. In 2006-08 they concerned a number of countries in the CIS and the European Union, Brazil, India, Pakistan, Turkey, the United States, and Vietnam.

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Russia’s agro-food exports are small relative to imports, but they have nearly quadrupled in value terms over 2005-07. The key exported item is grains (mostly wheat), which accounted for 42% of total agro-food exports in 2006-07. Regulation of grain exports changed from stimulation in 2006, to restriction during the peak of food price inflation from the end-2007 to mid-2008, and subsequently back to duty-free exports since mid-2008. In mid-2006, railway tariffs for transporting grain for export from the Siberian district to the Far-Eastern ports of Russia were halved (this preference was later applied to all grain transportation from Siberian to the Far-Eastern district). However, from late-2007, when domestic food prices soared, export-restricting measures were imposed. On 12 November 2007, export duties were introduced for wheat and meslin (10% but not less than EUR 22 per tonne) and barley (30%, but not less than EUR 70 per tonne). This did not bring about a reduction in exports, as prices on world markets continued to climb. Consequently, on 1 February 2008, the export duty for wheat was raised to a prohibitive level (40% but not less than EUR 105 per tonne). In addition, in order to prevent outflows through the dutyfree zone of the Customs Union (between Belarus, Kazakhstan, Kyrgyzstan, and Russia), exports of wheat and meslin to Belarus and Kazakhstan were temporarily banned. Since 1 July 2008, export duties on wheat and barley have been abolished in view of exceptionally high grain harvest. Russia’s potential grain exports for the 2008/09 season are estimated at 17-23 million tonnes. Exports are limited, however, by the capacity of the existing infrastructure to direct product to external markets. By mid-November 2008, nearly 10 million tonnes were exported and contracts for shipments of another 4 million tonnes were made. According to grain analysts, another 10 million tonnes would need to be exported in order to stabilise domestic grain prices. In late 2008, the government announced plans to stimulate grain exports. Among possible measures are the shortening of standard terms for VAT refunds to grain exporters and reductions in railway tariffs and port terminal fees (until the beginning of the next crop year). There were also proposals for the introduction of export subsidies either as direct payments to exporters or as credits to importing countries. The export subsidies are actively solicited by grain exporters who argue that this places a smaller burden on the state budget than intervention purchases of grain. In January 2009, a 50% reduction in railway tariffs for grain transportation was announced. This only concerned long-distance transportation of grain to deficit regions inside Russia and transportation to export ports from several producing regions. Regarding other proposals, no official announcement has been made to date. The prospects for introduction of export subsidies become more uncertain as the government faces growing budgetary pressures in the current economic situation. Also, the Ministry of Economic

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Development and Trade has noted earlier that this may complicate Russia’s WTO accession negotiations (USDA, 2008).

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In mid-2008, the Russian Ministry of Agriculture announced plans to reorganise the

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Federal Agency for Regulation of Food Market (FARFM) and create in its place a Unified Grain Company. Around 28 companies, including grain elevators and grain millers within

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the FARFM system, and two sea export terminals are to be unified into the Corporation. It

company may potentially be able to control a large share of Russian grain exports.

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is intended to keep 25% plus one stock in the new company’s capital as federal ownership, with the remaining shares to be subsequently offered to private investors. The new

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Food price inflation prompted export-restricting regulation for other products. In mid-

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December 2007 a list of food items was published for which the government could introduce temporary export restraints. In addition to grains (wheat and meslin, rye, barley, and maize), this list included milk and cream, flour, oilseeds (rapeseed, soybeans and sunflower seed) and vegetable oils. Oilseeds have been subjected to export duties since 1992 to support domestic oil crushers. The duty is set at 20% but not less than EUR 30 per tonne for sunflower and 20% but not less than EUR 35 per tonne for rapeseed and soybeans. In March 2007, the duty for rapeseed was reduced to 15% but not less than EUR 30 per tonne.

WTO accession Russia has reached an advanced stage of accession negotiations. A broad harmonisation of the national legislation with WTO requirements was implemented. Numerous laws and regulations related to trade, currency, balance of payments, banking, insurance systems, intellectual property and other issues underwent scrutiny and were brought in compliance with the WTO criteria. New legislation was adopted, a few examples are the federal Law on Special Protection, Antidumping and Compensatory Measures Applied to Imports of Goods (8 December 2003), Law on Technical Regulation (1 July 2003), new Customs Code (1 January 2004), and amended Law on Customs Tariff (2006). Bilateral agreements on market access for goods and services were concluded with all interested parties. However, the issue of bilateral agreement with Georgia remains open. Georgia has earlier called off its signature under the document. The recent aggravation of political relations between the two countries has complicated the prospects for the agreement. Overall, the provisions reached to date on market access imply no significant lowering of tariff protection for agro-food items following the accession. According to the Russian Ministry of Economic Development (September 2006), Russia’s trade-weighted average import tariff for agro-food items of 21.5% is to be reduced to 18.9% over the implementation period (one to six years according to product) (MERT 2006). Tariff protection for the most sensitive import-competing items, such as meat and sugar, will remain relatively high. The current TRQ regime for meat is to be effective up to 2009; after this term it may be modified or abolished. There will be however a visible reduction in protection for some meat byproducts, fruits (oranges, grapes and bananas) and nuts, high-quality whey used in food processing, wines, cognacs and whiskies. As concerns multilateral issues, an outstanding one is the compliance of Russia’s technical regulation on meat with WTO recommendations (this is one of the items in the section on Technical Regulation of the Report of the Working Group on Russia’s accession). Another issue awaiting agreement is the amount of domestic support that Russia will be AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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able to provide to its agricultural sector after accession. The discussion continues to focus on the base period to define the starting level of domestic support and the amount of assistance as measured by the Aggregate Measurement of Support (AMS). Russia maintains 1993-95 as the base period, an AMS of USD 9 billion and an export subsidy of USD 156.9 million. However, several negotiating parties consider the base period too distant and the amount of support inflated with respect to the current conditions. Russia argues that a more recent period and the current amount of support do not reflect the agricultural conditions appropriately, given the depth of recession the sector has gone through in the 1990s. The inclusion of export subsidies in Russia’s proposal is also challenged by Russia’s counterparts in the negotiations.

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tu Meetings of the Working Group on Russia’s accession to the WTO took L place e incJune,

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July, September and November 2008. They concerned preparation of the consolidated Report of the Working Group. A separate consultation in June 2008 was held on outstanding multilateral agricultural issues.

Bibliography Agronews (Russia), www.agronews.ru/. Agra Europe East, various editions. EIU (2008), Country Report: Russia, Economic Intelligence Unit (EIU), London UK, August 2008. FSSS (2008a), Russia in Figures, On-line Statistical Database, Federal State Statistics Service of the Russian Federation (FSSS), www.gks.ru/. FSSS (2008b), Results of the 2006 Russian Agricultural Census, Vol. 1, Federal State Statistics Service of the Russian Federation (FSSS), www.gks.ru/. GRF (2005), Resolution N732 of 5 December 2005 “On Imports of Beef, Pigmeat and Domestic Poultry in 2006-2009”, with amendments of 27 November 2006, 20 December 2006, 17 January 2007, 5 May 2007, 19 January 2008 and 14 April 2008 and 8 December 2008, Government of the Russian Federation (GRF). GRF (2007), State Programme for Development of Agriculture and Regulation of Markets for Agricultural Food and Fibre Products and Foodstuffs for the Period 2008-12, Government of the Russian Federation (GRF), www.mcx.ru/index.html?he_id=1003. MERT (2006), “Russia’s Accession to the WTO”, Speech of Mr. Gref, the Minister of Economic Development and Trade (MERT) to the State Douma (the Parliament) of the Russian Federation, 16 September 2006, www.parlcom.ru/index.php?p=MC83&id=11036. OECD (2007), Agricultural Policies in Non-OECD Countries: Monitoring and Evaluation, OECD, Paris. Romashkin, R. (2008), “Overview of Sub-national (Regional) Agricultural Support Measures and Financing in Russia”, Report submitted to OECD. USDA (2008), Grain Report, No RS8090, 11 December 2008, USDA Foreign Agricultural Service, Washington DC, www.fas.usda.gov/gainfiles/200812/146306735.pdf. VIAPI (2008a), “Development of Agriculture and Current Agricultural Policy of Russia”, All-Russia Institute of Agrarian Issues and Informatics (VIAPI), Report submitted to OECD. VIAPI (2008b), Reitingi Krupnykh i Srednikh Selskokhozyaistvennykh Organisatsi v Rossii za 2004-2006 gg (Ratings of Large and Medium Agricultural Organisations in Russia in 2004-2006), All-Russia Institute of Agrarian Issues and Informatics (VIAPI), Moscow.

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South Africa

Evaluation of policy developments ● Current policies in South African agriculture are the result of substantial reforms implemented from the mid-1990s. Policy

changes that impacted on agriculture resulted in deregulation of the marketing of agricultural products, liberalisation of domestic markets, and reduced barriers to agricultural trade. The main developments in trade policy included the replacement of direct controls over imports by tariffs, removal of state controls over exports and elimination of export subsidies. These reforms reduced market price support and budgetary support to commercial farming. In contrast, increased budgetary spending went to finance the land reform process. ● The average level of producer support in South Africa, as measured by the %PSE, indicates a relatively low degree of policy

intervention. The overall trend shows a reduction in support from 1994 up to 2001 followed by an increase in 2002 and then a stabilisation around 7% in 2003-06. Around three-quarters of producer support in South Africa is delivered in the form of Market Price Support transfers, which causes fluctuations in the annual level of support. Budgetary transfers increased in the current decade due to the introduction of a fuel tax rebate and increasing budgetary spending on land reform and related programmes. ● The main agricultural policy development in South Africa, in the most recent years, is related to the implementation of land

reform. A significant share of agriculture-related public financial resources is devoted to the implementation of land reform and especially land redistribution. To support this policy, Land Redistribution and Agricultural Development (LRAD) grants are given to the black disadvantaged population to acquire land or engage in other forms of on-farm participation. These grants enable farmers who can provide personal contributions (financial and/or own labour) to acquire more land than otherwise would be the case. ● During 2006/07, new policies were implemented to enhance the pace of land redistribution on the one hand and ensure the

viability of the emerging farms on the other hand. These new policies include the Land and Agrarian Reform Project, the Pro-Active Land Acquisition Strategy, and a new focus on bringing strategic partners from private stakeholders to assist in the capacity building process. ● The black population in rural areas is the target of land reform policies, but it is clear that adequate supporting

infrastructure and human capital formation must also be in place if these new entrepreneurs are to survive economically. The new entrants into commercial agriculture are at a considerable disadvantage relative to more experienced operators, facing both production and marketing challenges. The government is striving to address these issues by implementing well targeted support programmes and services (including research and development) tailored to the needs of the emerging farms. In this regard, the involvement of private stakeholders in the land reform process may be an efficient way to engage resources, and address weaknesses in supporting programmes and services from public authorities.

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MPS and budgetary support, billion USD 1.6

10

0.8

8

0.6

6

0.4

4

0.2

2

0.0

0

●

The cost to consumers (%CSE) has reduced from an implicit tax of 14% in 1995-97 to 5% in 2005-07.

●

The value of support for general services provided to agriculture (GSSE) has increased, as well as its share in the Total Support Estimate (TSE), which has increased from 35% in 1995-97 to 54% in 2005-07. This is mainly due to an increase in general services linked with the implementation of land reform.

●

The total cost to the economy of agricultural support as a share of GDP declined from 1% in 1995-97 to 0.59% in 2005-07, which is much less than the OECD average (0.97%).


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19

19

19

However, the %SCT for individual commodities indicates some variation in price support. It is around 15% for sheep meat and sugar; between 5 to 10% for milk, wheat and maize; and negligible for other commodities. The share of SCT in the total PSE was 75%.

99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07

12

1.0

98

14

1.2

19

●

% PSE 16

1.4

96 97

The producer Nominal Protection Coefficient (NPC) indicates that prices received by domestic producers were on average 5% higher than world market prices in 2005-07. Prices received by producers were on average 13% higher in 1995-97.

r

Support based on commodity output (left scale) Budgetary transfers (left scale) % Producer Support Estimate (right scale)

95

●

The overwhelming share of producer support is delivered in the form of Market Price Support (MPS), although it declined from 96% of total PSE in 1995-97 to 76% in 2005-07.

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Figure 7.1. South Africa: PSE level and composition over time

19

●

Support to producers (%PSE) followed a downward trend from 1995 to 2001, when it reached its lowest level. In 2002, support increased and then stabilised around 7%. In 2005-07, support to producers was 6%, i.e. much lower than in 1995-97. This is less than a quarter of the OECD average of 26% in 2005-07.

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In recent years, the main agricultural policy development in South Africa (SA) is related to the implementation of land reform. To enhance land redistribution, three strategic interventions have been developed and implemented since 2006/07. The development of the Land and Agrarian Reform Programme (LARP) is designed to better exploit synergies between land redistribution, agricultural production and agri-business development, and align comprehensive support packages. The Pro-Active Land Acquisition Strategy (PLAS) is designed to accelerate land delivery. The association of strategic partners from the private sector with land reform projects is expected to strengthen the economic viability of farms and the projects delivered.

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Figure 7.2. South Africa: Producer SCT by commodity, 2005-07 MPS Payments based on output


Sheepmeat Sugar Milk Wheat Maize Poultry Beef and veal Sunflower Grapes Oranges Apples Groundnuts Eggs Pigmeat Other commodities SCT as % of PSE -10

0

10 20 30 40 50 60 70 80 % of commodity gross farm receipts



72 972

73 86 369 4 742 3 631 3 631 0 919 616 0 285 0 18 0 192 192 0 0 0 0 0 0 0 0 0 0 0 6 1.05 1.06 5 609 3 228 0 677 1 348 13 0 343 54.2 –3 727 –3 323 –470 0 66 –4 1.05 1.05 10 351 3 794 7 028 –470 0.59

70 69 998 4 829 3 321 3 321 0 978 695 0 266 0 17 0 530 530 0 0 0 0 0 0 0 0 0 0 0 6 1.05 1.07 5 302 3 059 0 664 1 300 12 0 267 52.3 –2 999 –2 590 –430 0 21 –4 1.05 1.04 10 131 3 020 7 541 –430 0.66

100

201

O

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187

81 771

98 276

73 85 204 6 163 5 345 5 345 0 772 563 0 197 0 12 0 45 45 0 0 0 0 0 0 0 0 0 0 0 7 1.07 1.08 5 784 3 312 0 684 1 443 14 0 331 48.4 –6 300 –5 523 –955 0 178 –7 1.08 1.08 11 948 6 478 6 425 –955 0.69

77 103 906 3 232 2 226 2 226 0 1 007 590 0 392 0 24 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 1.02 1.03 5 741 3 312 0 684 1 301 14 0 430 64.0 –1 882 –1 856 –26 0 0 –2 1.02 1.02 8 973 1 882 7 117 –26 0.46

se

84 340

74 34 402 3 991 3 833 3 833 0 62 30 0 30 3 1 0 97 87 10 0 0 0 0 0 0 0 0 0 0 11 1.13 1.13 2 170 1 797 0 146 141 3 0 82 35.2 –3 962 –3 692 –411 0 141 –12 1.14 1.13 6 161 4 103 2 470 –411 1.00

2007

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of which share of MPS commodities (%) Total value of consumption (at farm gate) Producer Support Estimate (PSE) Support based on commodity output Market Price Support Payments based on output Payments based on input use Based on variable input use with input constraints Based on fixed capital formation with input constraints Based on on-farm services with input constraints Payments based on current A/An/R/I1, production required Based on Receipts / Income Based on Area planted / Animal numbers with input constraints Payments based on non-current A/An/R/I, production required Payments based on non-current A/An/R/I, production not required With variable payment rates With fixed payment rates Payments based on non-commodity criteria Based on long-term resource retirement Based on a specific non-commodity output Based on other non-commodity criteria Miscellaneous payments Percentage PSE Producer NPC Producer NAC General Services Support Estimate (GSSE) Research and development Agricultural schools Inspection services Infrastructure Marketing and promotion Public stockholding Miscellaneous GSSE as a share of TSE (%) Consumer Support Estimate (CSE) Transfers to producers from consumers Other transfers from consumers Transfers to consumers from taxpayers Excess feed cost Percentage CSE Consumer NPC Consumer NAC Total Support Estimate (TSE) Transfers from consumers Transfers from taxpayers Budget revenues Percentage TSE (expressed as share of GDP)

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Table 7.1. South Africa: Estimates of support to agriculture

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NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient. 1. A (area planted) / An (animal numbers) / R (receipts) / I (income). For the definition of OECD indicators of support to agriculture, see Annex A.1. Market price support is net of producer levies and excess feed cost. MPS commodities for South Africa are: wheat, maize, sunflower, groundnuts, sugar, table grapes, oranges, apples, milk, beef and veal, pigmeat, sheepmeat, poultry, eggs. Source: OECD, PSE/CSE Database, 2008. statLink 2 http://dx.doi.org/10.1787/532322267635


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28.3

Services

66.4

66.0

65.5

Share in employment (%) Agriculture

7.5

8.5

8.8

Industry

18.0

17.6

17.9

Services

66.6

65.6

64.9

n.a.

n.a.

14.4

9.5

7.9

7.0

Average share of income spent on food (%) Basic agricultural indicators Agro-food exports (% of total exports)

07

3.2

28.6

20

2.8

28.4

06

2.7

Industry

05

Agriculture

20

Share in GDP (%)

04

48 39.7

20

47 40.2

20

47 40.7

03


Annual rate of growth, % 30 25 20 15 10 5 0 -5 -10 -15

02


1995=100 160 150 140 130 120 110 100 90 80 70

20

7.1

01

7.1

6.8

20

4.7

6.4

00

3.4


20

Inflation (annual average, %)

96

5.1 9 736

19

5.4 9 087

95

4.9 8 478


19

GDP growth (%)

r


99

278

20

255

19

GDP (USD billions)

98

242


19

2007

97

2006

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Figure 7.3. South Africa: Evolution and annual changes of agricultural output, 1995-2007

19

2005

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Table 7.2. South Africa: Basic economic and agricultural indicators, 2005-07

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Agriculture’s share in the GDP was around 3% in 2005-07. The officially reported employment in primary agriculture (mainly employment on commercial farms) represents around 8% of total employment. The increase in Gross Agricultural Output (GAO) was small in 2006 and negative in 2007. This was mainly due to the sharp reduction in grain production associated with adverse climatic conditions. The share of agro-food trade in total exports declined from 9.5% in 2005 to 7% in 2007, while its share in total imports increased from 4.9% to 5.7%. This development was also due to the relatively high economic growth over the period under review and increasing domestic consumption of agro-food products.


Figure 7.4. South Africa: Agro-food trade, 2000-07


4.9

4.7

5.7


1 773

964

–97

Agro-food export (including fish and fish products)

2.0

0.9

–0.6

Agro-food import (including fish and fish products)


14.2

9.5

9.6


2.0

2.1

2.1


Natural resources and farm structure Average farm size (ha)

n.a.

n.a.

n.a.

99.6

n.a.

n.a.


0.3

n.a.

n.a.


5.7

n.a.

n.a.

Agricultural land (million ha)

4 3 2 1

n.a.: not available. statLink 2 http://dx.doi.org/10.1787/532332024270 Source: FAO, FAOSTAT Database, 2008; IMF, International Financial Statistics, 2008; NDA Abstracts, 2008; SARB, 2008; UN, UN Comtrade Database, 2008; World Bank, World Development Indicators, 2008.

138

Agro-food balance (including fish and fish products) USD billion 5

0 -1 2000 2001 2002 2003 2004 2005 2006

2007



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During the 1990s, a wide range of policy reforms was directed at achieving a stronger market orientation in agriculture and agro-food. The new Marketing of Agricultural Products Act (1996) substantially reduced state intervention in agricultural marketing and product prices. The main objectives of the new Marketing Act were to provide free market access for all market participants; promote efficiency of the marketing of agricultural products; improve opportunities for export earnings; and enhance the viability of the agricultural sector. Under the Act, the National Agricultural Marketing Council (NAMC) is the main government body intervening in marketing of agricultural products. The main objective of the trade policy reform in agriculture was to promote the integration of the sector into the global economy in order to encourage competition and greater access to markets, technology and capital.

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The main objectives of land reform, which began in 1994, are to redress past injustices, foster reconciliation and stability, support economic growth, improve household welfare and alleviate poverty in the rural areas. Land restitution, land redistribution and land tenure reform are the main elements of the land reform. A broad based Black Economic Empowerment Framework for Agriculture (AgriBEE) was introduced in 2006. The objective of AgriBEE is to eliminate racial discrimination in the agro-food sector through implementing initiatives that mainstream participation of black South Africans at all levels of agricultural activity and along the entire value chain. The main implementation mechanism is the setting of codes of good practice and monitoring in the course of their implementation.

Domestic agricultural policies Price and income support policies The new Marketing Act applied from 1997 involved much less interference, regulation and state involvement in agricultural marketing and product prices than was previously the case. Currently all sectors of agro-food production are deregulated, and price and income support measures are not applied via domestic markets. To some extent sugar cane and the sugar market is an exception, although not due to direct state intervention. The Sugar Agreement of 2000 (between different agents in the sugar production chain) still permits raw sugar to be exported only through a single-channel industry arrangement, and allocates quotas to individual producers for sugar sold on the domestic market.

Input subsidies Under a diesel refund system, introduced in 2000, farmers receive a refund on the tax and road accident fund levies paid on diesel fuel. The refund is applied to 80% of the total eligible purchases used in primary production. A limited range of subsidies is also provided to assist the transportation of water to areas suffering from drought and assistance is provided to build water extraction facilities (boreholes).


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Box 7.1. Food price inflation in South Africa

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Food inflation – Food price inflation peaked in late 2002, and then slowed to a more modest pace before accelerating again in the first quarter of 2007. The 2002 peak was mainly associated with the significant depreciation of the South African Rand against major international currencies. More recently, food price inflation is associated with the global rise in prices for agricultural products. In 2008, inflation approached levels last experienced in 2002 (situation in April 2008). Most food product categories have experienced increasing inflation except sugar, fruit and nuts and meat products. For dairy and egg products, food price inflation was even above the peak of 2002 (Figure 7.5).

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High food price inflation in South Africa reflects global market developments, as the country has been closely integrated with global markets, domestic prices are to a large extend guided by those on international markets. For grains (wheat and maize) the price rise was further accelerated by the bad harvests in 2006 and 2007 due to adverse conditions.

Figure 7.5. South Africa: Consumer Price Indexes for food and selected food products Grain products Milk, cheese and eggs

%

Sugar Total food

Meat

30

25

20

15

10

5

0

03 Se pt .0 3 Ja n. 04 M ay 04 Se pt .0 4 Ja n. 05 M ay 05 Se pt .0 5 Ja n. 06 M ay 06 Se pt .0 6 Ja n. 07 M ay 07 Se pt .0 7 Ja n. 08

03

ay M

2

n.

Ja

2

.0 pt

ay 0

Se

M

1

02

.0

n.

Ja

01

pt Se

ay M

Ja

n.

01

-5

Source: Historical indicators: CPI, Statistics South Africa, 2008. statLink 2 http://dx.doi.org/10.1787/531383422841

Structure of spending – Household spending patterns for food have important implications for how the government responds to recent trends in food prices. The lowest income groups in South Africa spend between 30% and 35% of their income on food. Small increases in price therefore have a profound impact on how such households maintain food security. Figure 7.6 shows the percentage distribution of annual household consumption expenditure by main expenditure group and income deciles. When looking at the breakdown of spending patterns by the different income groups, it is clear that the lower 3 deciles (30%) spend more than 30% of their income on food and non-alcoholic beverages; the next 4 deciles spend more than 20%; and the top 3 deciles spend less than 20% on food and non-alcoholic beverages. There is also a difference in the structure of household spending in rural and urban areas. In 2005/06, households in rural areas spent on average 25% of their income on food and non-alcoholic beverages, whereas people living in urban areas spent only 12.5% of their household income on these items.

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Box 7.1. Food price inflation in South Africa (cont.)

Recreation and culture Communication

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Food and non-alcoholic beverages Miscellaneous goods and services

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Furnishings, household equipment and routine maintenance of the house Clothing and footwear

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Housing, water, electricity, gas and other fuels Transport

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%

EC

Figure 7.6. South Africa: Percentage distribution of annual household consumption expenditure by expenditure group and income deciles

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30

25

20

15

10

5

0 Lower

2

3

4

5

6 Income deciles

7

8

9

Upper

Total

Source: Income and Expenditure – 2005-06, Statistics South Africa, 2008. statLink 2 http://dx.doi.org/10.1787/531400030124

Distribution of poverty – There is also a wide regional difference in the distribution of poverty. Poverty rates in the nine South African provinces differ significantly, as do those of urban and rural areas. In 2005/ 06, poverty rates in the various provinces ranged from 24.9% in Gauteng (province including Johannesburg and Pretoria) and 28.8% in Western Cape (Cape Town area), to 57.6% in Eastern Cape and 64.6% in Limpopo (Armstrong et al., 2008). The three provinces with the highest poverty rates (KwaZulu-Natal, Eastern Cape and Limpopo) are also relatively populous and hence it should come as no surprise that 60% of the poor lived in these three provinces. The incidence of poverty is also much higher in the rural areas of South Africa. An income-expenditure survey conducted in 2005 (Armstrong et al., 2008) indicates that the poverty rates for households and individuals in rural areas were 54.2% and 67.7% respectively – more than double the corresponding rates for urban areas (21.9% and 32.7%). Policy response Although many proposals were made to intervene in the markets to address the issue of high food prices, the South African government has not introduced new specific policies and measures. Rather, South Africa is using current policy instruments to address the effects of high food prices. One trade measure affects maize, which is the main staple food for rural and poor populations. In cases where the world price for maize remains above USD 110 per tonne for more than two weeks, maize is then granted duty-free import treatment. Duty free imports of maize were actually granted for all of 2007. A second measure is a food package programme (donation of food) targeted to the poor population. This programme has already been in place for several years, but the government has reacted to the higher food prices by increasing budgetary spending in support of it.


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Land restitution and land redistribution attempts to rectify the racially skewed access to land and land ownership in South Africa. This process is supported by the Provision of Land and Assistance Act (No. 126 of 1993) as amended, which addresses land restitution, land tenure reform and land redistribution. By the end of the 2006/07 financial year, some 4.7 million hectares were transferred under the various land reform programmes (redistribution 2.61 million hectares; restitution 1.97 million hectares; tenure reform 0.1 million hectares; and transfer of state land 0.05 million hectares). The land restitution process is well advanced; 74 805 restitution claims were settled by the end of 2007. However the 4 891 outstanding restitution claims are the hardest to finalise.

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30% of white-owned agricultural land (around 25 million hectares) by 2014. This objective cannot be reached without substantially increased budgetary spending to finance land reform in the coming years (in order to buy the appropriate amount of land from whiteowned farmers under the willing buyer, willing seller scheme). In the previous years, several programmes were implemented to support the beneficiaries of land reform, in order to assist them to develop commercially viable businesses. Post-settlement support is provided to targeted beneficiaries of land reform and other black farmers who have acquired land through private means via the Comprehensive Agricultural Support Programme (CASP). The implementation of CASP started in 2004/05, focusing mainly on providing on and off-farm infrastructure. The implementation of this programme experienced several problems (DoA, 2007). These include a lack of capacity, such as a shortage of agricultural economists and engineers, a lack of timely and proper planning, long procurement procedures and a lack of alignment with other government programmes. Some of these problems were addressed by increasing the efficiency of service delivery by provincial departments of agriculture during the second half of 2005/06 and in 2006/07. CASP has reached 53 709 beneficiaries, including 19 518 participating in the land reform project (DoA, 2008b). The focus of CASP was expanded in 2006/07, with a decision that 70% of its expenditure should be on land reform projects, 10% on food security projects, 10% on training, 5% on animal health services, and 5% on marketing. Since 2004/05, ZAR 750 million has been spent through CASP supporting investment on emerging farms, e.g. boreholes, animal handling facilities, poultry houses, shearing sheds and irrigation equipment. Benefits from the programme have come, for example, in the form of improved control of animal diseases among emerging farmers through the provision of infrastructure, such as dipping tanks. Other improvements include better veld management and proper breeding practices as a result of subdividing animal camps. Micro-agricultural Financial Scheme of South Africa (MAFISA) is a microcredit scheme providing access to finance for farmers, especially beneficiaries of the land restitution, redistribution and land tenure reform programmes. The Land Bank administers MAFISA on behalf of the National Department of Agriculture. Provincial Departments of Agriculture also play a role by assisting potential clients to complete application forms and by disseminating information. Credit evaluation committees assess applications before submission to relevant development finance institutions. Challenges experienced in the implementation of the scheme have included a lack of accountability in the evaluation and administration processes, and shortfalls in the economic or financial experience among extension officers and credit evaluation committees at provincial level. Under the MAFISA programme, a total of 5 109 farmers

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A government review of its performance in implementing its policies in the land, agriculture and rural sector has revealed that while visible gains have been made in some areas, considerably more still needs to be done by the government with its sector partners to ensure a vibrant agricultural and rural sector. In terms of mechanisms for accelerating the pace of redistribution applied from 2006/07, three strategic interventions have been developed and are being implemented.

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have been awarded loans so far, and by the end of January 2007, ZAR 41 million had been spent to finance this scheme. However, the viability of this scheme has been compromised by problems being currently experienced at the Land Bank.

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The Land and Agrarian Reform Project (LARP), implemented in 2006/07, provides a new framework for delivery and collaboration on land reform and agricultural support. It intends to accelerate the rate and sustainability of transformation through aligned and joint action by all involved stakeholders. It creates a delivery paradigm for agricultural and other support services based upon the concept of “One-Stop Shop” service centres located

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close to farming and rural beneficiaries. The second strategic intervention, Pro-Active Land Acquisition Strategy (PLAS) is a new instrument designed to accelerate land delivery. In contrast to the previous application-driven approach, the Department of Agriculture now proactively identifies and purchases land, and distributes this land in terms of established needs. Prior to purchasing of any land, the land needs of a specific area are first identified based on an integrated Development Plan. The state then purchases the land, makes the land farmable, selects lessees (beneficiaries) and then disposes of the land after an agreed lease period. The third intervention focuses on sourcing strategic partners (key non-governmental stakeholders) with the intention to speed up land delivery, and more importantly, ensure stability of the farms and projects delivered. This involves the formation of partnership at local, provincial and national level, where stakeholders such as business, labour, commodity groups and organised agriculture will be given clear roles and responsibility. Memorandums of Agreement, Service Level Agreements and Agency Agreements will be signed with the targeted and identified agricultural businesses and organisations. These public-private partnerships contribute to increasing the pool of skills and expertise that is currently lacking in the public service. Contracts will be signed with targeted technical experts, companies and businesses. These three strategies are based on a number of key principles to fast-track land and agrarian reform while also strengthening the viability of emerging farms and businesses. These principles are: ●

The use of focus areas to concentrate service delivery in order to better exploit synergies between land redistribution, agricultural production and agri-business development.

●

An aligned comprehensive support package to cater for the inherently multisectoral requirements to make sustainable agricultural production and agri-business development a success (will also encompass social and other economic services).

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The application of co-operative government by establishing joint planning, budgeting, approval and implementation procedures between various government departments and programmes.

●

The full utilisation of partnerships in order to exploit the relative strengths and capacities of the key non-governmental stakeholders.

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Subsidiarity: the decentralisation of decision-making and implementation at the lowest practical level depending on the specific activity.


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Specific and ad valorem tariffs are the main policy measures applied in South Africa’s import protection for agricultural and food products. While the average level of tariff protection for agro-food products is low compared with the overall average for all products, tariff escalation is applied in the agro-food sector, whereby tariffs are in general lower for primary products than for processed products. As a member of South African Customs Union (SACU), South Africa applies the common external tariffs established for all members (other SACU members are Botswana, Lesotho, Namibia and Swaziland). For most agro-food products, ad valorem tariffs or specific duties (or a combination of both) are applied. For some products the rate of protection is linked to the development of world market prices. For maize specific import duties are applied in function of the development of world market prices. In 2007, there were no duties applied for maize imports. For sugar, an additional duty level adjustment (ZAR/tonne) is applied based on a trigger price system.

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Tariff quotas exist for a range of agricultural products under the minimum market access commitments established in the Uruguay Round Agreement on Agriculture, with in-quota tariffs set at 20% of the bound rates. For some products, e.g. oilseeds, preferential tariffs are granted to imports from the EU as per the Trade and Development Cooperation Agreement (TDCA), while imports from Southern Africa Development Community (SADC) countries outside the SACU are duty free as per the SADC FTA. The characteristics of the border measures applied to the main agro-food products are described in Table 7.3.

Table 7.3. South African Customs Union tariff schedule, August 2007 Tariff line

Product description

Bound rate %

IQTR (20% of Bound rate)

Preferential tariffs for EU products

MFN applied rate

0202

Bovine meat

69

13.8

40% or 240c/kg

0203

Pork meat

37

7.4

15% or 130c/kg

40% or 240c/kg 15% or 130c/kg

0204

Lamb

95

19

40% or 200c/kg

40% or 200c/kg

0204.50

Meat of goats

82

16.4

40% or 200c/kg

40% or 200c/kg

0207

Poultry meat

37

7.4

220c/kg

220c/kg

0401

UHT milk in containers holding 1 litre or less

96

19.2

free

free

0403

Yogurt

96

19.2

free

free

0405

Butter and dairy spreads

79

15.8

500c/kg with a max of 79%


0406

Cheese

95

19



1001.10

Durum wheat

21

4.2

free

free

1001.90

Wheat and meslin

72

14.4

2%

2%

1003.00

Barley

41

8.2

free

free

1004.00

Oats

33

6.6

free

free

1007.00

Grain sorghum

33

6.6

3%

free

1101.00

Wheat or meslin flour

99

19.8

2%

2%

1102.20

Maize (corn) flour

99

19.8

3.437c/kg

3.437c/kg

1201.00

Soya beans, whether or not broken

40

8

8%

free

1206.00

Sunflower seeds, whether or not broken

47

9.4

9.4%

free

1207.20

Cotton seeds

47

9.4%

free

5203.00

Cotton, carded or combed

60

15%

11.25%

IQTR: in quota tariff rate. Source: National Department of Agriculture. statLink 2 http://dx.doi.org/10.1787/532334642744

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Since July 1997, when the General Export Incentive Scheme (GEIS) was abolished, no export subsidies are applied for agro-food products. However, the price pooling regime for sugar applied by the South African Sugar Association (SASA) is effectively subsidising sugar exports, while the costs are born by local sugar consumers. Export permits: For those products that need to comply with certain EU or US quota arrangements, the South African government introduced an export permit system to use these quotas; the goal is to ensure that small and medium enterprises, as well as disadvantaged communities get a chance to export under certain quota windows.

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Box 7.2. Trade agreements involving South Africa South Africa is a founding member of the Southern African Customs Union (SACU). This is a full customs union, with a common external tariff. It is the oldest existing customs union in the world. The earlier versions of this agreement (1910 and 1969) provided for duty free and quota free movement of goods between member states while maintaining a common external tariff for non-member states. However, the agreements also provided for restrictions on imports and exports within the customs union, as well as the imposition of duties to protect infant industries. These exceptional measures are provided to enable member states, the BLNS in particular, to develop their domestic economies. These have been continued in the new agreement, which was signed in 2002 and has been in force since 2004. The new agreement set in place a new institutional framework for SACU, although not all the elements of this have been activated yet. A SACU Tariff Board and Tribunal are planned to be operational by 2009. Under Article 31 of the new agreement, dealing with trade relations with third parties, all SACU member states must approve of any new agreements. All bilateral agreements the SACU countries negotiated prior to the 2002 Agreement can remain in place, but consent must be sought and granted by all member states. In 1994, South Africa became a member of the Southern African Development Community (SADC).1 The SADC free trade agreement is being implemented between 2000 and 2012. A very important feature of the SADC was the Trade Protocol intended to stimulate trade between member countries through the reduction of tariffs, with a view to the launch of a Free Trade Area (FTA). SADC incorporated the principle of asymmetry: a phase-down of SACU tariffs in five years (by 2005); and those of other SADC countries in 12 years by 2012. By August 2008, all member states implementing the trade protocol are expected to have zero tariffs on 85% of their products. The remaining 15% have to be eliminated by 2012. SACU has completed its tariff phase-out commitments. The FTA was expected to front-load (2006) its phase-down commitments due to South Africa’s economic size. Other member states were provided with a longer grace period to back-load (2008) their phasedown commitments. The SADC Free Trade Area was launched in August 2008. The SADC – EC EPA negotiations – One of the aim of Economic Partnership Agreements (EPA) negotiations is essentially to replace the non-reciprocal trading preferences that African, Caribbean and Pacific (ACP) countries have been receiving from the EU (under the Lomé Agreement) with WTO compatible reciprocal free trade arrangements. The SADC EPA Group currently consists of 7 countries: all the members of SACU, plus Angola and Mozambique. For South Africa, the EPA negotiations effectively constitute the review of the Trade Chapter of the SA/EU Trade Development and Cooperation Agreement (TDCA).2 The implementation of EPAs between the EU together with the ACP countries was envisaged as from 1 January 2008; this however did not happen for the SADC and many other ACP countries. The EC and SADC EPA members subsequently agreed on a two-stage approach to the conclusion of EPAs; i.e. the first stage was to conclude an interim agreement, and thereafter the conclusion of a final agreement at a later stage. This was agreed to ensure that the SADC EPA members did not lose preferential access to the EU market after expiry of the Cotonou Agreement on 31 December 2007. The Interim SADC-EC Economic Partnership Agreement (IEPA) was initialled by Botswana,


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Box 7.2. Trade agreements involving South Africa (cont.)

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Lesotho, Swaziland, Namibia and Mozambique towards the end of 2007. South Africa and Angola have not yet initialled the agreement due to concerns with the Interim agreement text. Namibia has signed, but with an understanding that it would not commit to any free trade in services in a final agreement. In addition, SACU members have expressed their opposition to clauses dealing with export taxes,3 circulation of goods, Most Favoured Nation status4 and standstill provisions.5

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SACU-EFTA Free Trade Agreement: SACU and EFTA concluded a Free Trade Agreement in August 2005. As a member of SACU, South Africa is party to this agreement. To cover agriculture and ensure WTO compatibility, three bilateral agreements on basic agricultural products (within chapters 1 to 24, excluding processed agricultural products) were negotiated with each individual EFTA Member State (Switzerland also covers Liechtenstein). The agreements will be implemented over a period of ten years after entry into force. In terms of the main agreement, SACU will enjoy immediate duty-free access into EFTA for all products covered by this agreement, with the exception of processed agricultural products. In return, SACU will gradually eliminate import duties over a period not exceeding nine years, with different phase-down modalities for different products. SACU did negotiate the right to exclude certain sensitive products and to introduce a clause that would prevent processed agricultural products that qualify for export subsidies from benefiting from preferences under this agreement (these would have to trade under Most-Favoured-Nation [MFN] conditions). SACU-Mercosur Preferential Trade Agreement: A Preferential Trade Agreement (PTA) was signed between the Mercado Común del Sur (Mercosur)6 and SACU in December 2004, as a first step towards the creation of a free trade area. The negotiations took into account the principle of special and differential treatment for small and lesser-developed economies in Mercosur and SACU. The agreement covered only a narrow range of agricultural and industrial goods. The Africa Growth and Opportunity Act (AGOA) is a non-reciprocal programme implemented by the United States (US) that provides duty-free and quota-free market access to qualifying sub-Sahara African countries. Negotiations towards a comprehensive FTA with the USA started in 2003, but were suspended in 2006. The process is not likely to be achieved in the near future as both parties, while confirming their commitment to achieve a mutually beneficial FTA, recognised that a range of substantive issues have arisen in the negotiations that will require detailed examination over the longer term. Following these developments, the two parties agreed in November 2006 to pursue a Trade and Investment Cooperation Agreement (TICA) that could possibly lead to a FTA in the longer term. 1. The SADC member countries include: Angola, Botswana, Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. 2. The Trade, Development and Cooperation Agreement (TDCA) between South Africa and the European Union and its Member States was signed in October 1999 and implemented on 1 January 2000. Under this agreement, a free trade area between the two parties will be established by the end of the transition period in 2012. The area covers approximately 90% of total trade between the two parties (including an important segment of agro-food trade). 3. This provision states that no new export duties on EU goods shall be introduced, or existing export duties increased. Within SACU, Namibia has expressed concerns about the constraints this provision puts on its ability to use export taxes to promote domestic processing. The temporary introduction or increase of such duties is allowed in exceptional circumstances, e.g. for infant industry protection, however the EC needs to be consulted on a case-by-case basis. 4. This provision is not found in the TDCA or the EU’s FTAs with Mexico and Chile for example. It requires EPA signatories to extend to the EU any trade concession that they grant in future to a third party as long as such third party is a developed country or has a one per cent share of world merchandise exports (this would include China, India and Brazil), or is a grouping with a minimum 1.5% share of such exports.

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Box 7.2. Trade agreements involving South Africa (cont.)

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5. This provision freezes tariffs on all trade between the two parties. In the case of the SADC EPA it is limited to products that will be liberalised only. Thus, even if a product is on the ‘exclusion list’, the tariff cannot be raised after the EPA enters into force. In some other EPAs it applies to all products, whether or not products are subject to liberalisation. 6. Mercosur is a customs union comprising of Argentina, Brazil, Paraguay and Uruguay (with Bolivia, Chile, Colombia, Ecuador, Peru and Venezuela as associate members) that came into effect in December 1994.

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Armstrong, A., Lekezwa, B. and K. Siebrits (2008), “Poverty in South Africa: A Profile Based on Recent Household Surveys”, Stellenbosch Economic Working Papers No. 04/08, University of Stellenbosch, South Africa. DoA (2007), Annual Report, 2006/07, Department of Agriculture, Pretoria. DoA (2008a), Abstracts of Agricultural Statistics, Department of Agriculture, Pretoria. DoA (2008b), The Land and Agrarian Reform Project (LARP): The Concept Document, February 2008, Department of Agriculture, Pretoria. DLA (2008), Strategic Plan 2008–2011, Department of Land Affairs, Pretoria. EIU (2008), Country Report: South Africa, Economic Intelligence Unit, London. Letswalo, J. (2007), “SADC-EC EPA Negotiations” in International TradeProbe, No. 1, December, National Agricultural Marketing Council and Department of Agriculture, Pretoria. Letswalo, J. and L. Rantho (2008a), “SADC EPA Negotiations” in International TradeProbe, No. 4, March, National Agricultural Marketing Council and Department of Agriculture, Pretoria. Letswalo, J. and L. Rantho (2008b), “SACU and EFTA Free Trade Agreement” in International TradeProbe, No. 4, March, National Agricultural Marketing Council and Department of Agriculture, Pretoria, South Africa. Nyhodo, B. and A. Jooste (2008), “Southern African Customs Union (SACU) Statistics under AGOA” in International TradeProbe, No. 2, January, National Agricultural Marketing Council and Department of Agriculture, Pretoria. OECD (2008), OECD Economic Surveys: South Africa, Volume 2008, Issue 15, OECD, Paris. Rantho, L. (2008), “SADC-EC EPA Negotiations: Latest Developments” in International TradeProbe, No. 9, September, National Agricultural Marketing Council and Department of Agriculture, Pretoria. STATS SA (2008a), Historical Indicators: CPI, Statistics South Africa, Pretoria. STATS SA (2008b), Income and Expenditure – 2005/06, Statistics South Africa, Pretoria. Tswai, L. (2008), “SADC Regional Economic Integration: SADC-FTA Due in 2008” in International TradeProbe, No. 2, January, National Agricultural Marketing Council and Department of Agriculture, Pretoria. Tswai, L. and S. Legare (2008), “SADC on Course for the Free Trade Area (FTA) Launch” in International TradeProbe, No. 5, April, National Agricultural Marketing Council and Department of Agriculture, Pretoria.


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Ukraine Evaluation of policy developments ● The overall level of producer support is modest, but disguises taxation of export-oriented sectors and considerable protection of

import-competing sectors. Support has shown an upward trend in recent years. This tendency, although interrupted in 2007 due to the specific market situation, is an expected consequence of the economic recovery Ukraine saw in recent years. Robust growth in the domestic economy and external demand has lifted agricultural prices towards world market levels. Fiscal improvements resulted in more direct support provided to the sector. ● The composition of producer support is changeable. Market price support, mainly arising from tariff protection, increased in

2005-06, but in 2007 producers again received, on aggregate, prices below world market levels. Budgetary transfers increased in nominal terms, but their relative importance in total producer support shifted following changes in market price support. Most budgetary support is provided on the basis of commodities produced or variable inputs used, i.e. in ways shown to create substantial distortions to producer incentives, and also least efficient in increasing producer income. ● Transfers to support general services to agriculture, in particular research, education, and infrastructure increased in 2007, and

higher allocations were budgeted for 2008. A state programme for rural development is under preparation. This is commendable as investment in the sector’s longer-term productive capacity is critical for achieving sustained gains from the country’s abundant endowment of agricultural resources. ● Agriculture’s potential to contribute to the country’s economic development and become an important supplier in global food

markets is high. A sound macroeconomic environment is required for sustained agricultural development, and the sector has benefited from high economic growth in recent years. However continued political instability creates business uncertainty about future developments in the overall economy. This uncertainty has only increased in the context of the current economic and financial crisis in Ukraine. ● Progress has recently been made in formulating longer-term agricultural policy strategy, but policy actions often lack coherence,

as was the case during the recent food price crisis. Export restrictions resulted in substantial revenue foregone in the grain and oilseed sectors, while the impact of these measures on curbing food prices is uncertain. In broader terms, recent developments make it all the more imperative to build an efficient food aid system to avoid recourse to trade restrictions and reduce administrative involvement in the food chain. Social goals can be more efficiently addressed by targeted support than by broadbased interventions in business. ● The long-awaited accession to the WTO was a major development. The WTO commitments will largely determine the framework

for future agricultural policies and help to make policies more stable. In particular, less room is now left for interventions in trade activity, involving reconsideration of traditional approaches to resolving emerging problems of domestic market supplies. ● WTO commitments also mean more competition from imports in some of Ukraine’s key agricultural sectors. There is therefore a

need for stronger policy focus on enhancing the sector’s efficiency. Commitments on domestic support raise issues regarding the efficient use of public resources and provide an incentive to concentrate support on longer-term objectives of technological advancement, sustainable development of agriculture and rural revival.

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Support to producers (%PSE) was 10% in 2005-07, compared to an implicit taxation of 10% in 1995-97. The level of support is considerably below the OECD average of 26% in 2005-07. The average %PSE for 2005-07, disguises a fall in the level of support in 2007 (to 4% from 12% in 2006). The aggregate market price support became slightly negative in 2007, reflecting a complex trade off between changes in price support across commodities. The bulk of the total PSE consisted of budgetary transfers in 2007. Most distorting forms of support (based on commodity output and variable input use) represented 73% of total PSE in 2005-07. Prices received by farmers were on average 4% above those observed on the world markets in 2005-07 (producer NPC), while they were 11% below such levels in 1995-97. Farm receipts in 2005-07 were 11% higher than they would have been at world prices (producer NAC). In contrast, in 1995-97 receipts were 5% below the levels producers could realise at world market prices. Single Commodity Transfers (SCT) comprised 45% of the total PSE in 2005-07. The highest %SCTs were for poultry, sugar, pigmeat and beef, ranging from 52% to 23%. As shown by the %CSE, agricultural price support placed an implicit tax on consumers of 6% in 2005-07, whereas in 1995-97 consumers were implicitly subsidised with a positive %CSE of 18%. Support for general services to agriculture (GSSE) comprised nearly one quarter of the total support to the agricultural sector (TSE) in 2005-07. This share is very unstable, mostly due to variations in the PSE – a n o t h e r k ey c o m p o n e n t o f t o t a l s u p p o r t t o agriculture. Total support to agriculture as a percentage of GDP amounted to 2.5% in 2005-07, which is high compared to other emerging economies and compared to the OECD average.

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Ukraine became a new member of the WTO in 2008. In preparation for the accession, many modifications in Ukrainian legislation were implemented to comply with the WTO requirements. Border protection was substantially reduced for key agro-food products and the new tariff schedule based on Ukraine’s WTO commitments was adopted in December 2008. Other issues, particularly those related to the sugar import regime, food safety and quality standards, await final decisions. No major changes occurred in domestic policies. A moratorium on the sale of agricultural land remains in force pending the adoption of broader land laws. New direct area payments for crops were introduced. Since mid-2007, the policy focus was on mitigation of food price inflation with recourse to export restrictions, commodity interventions, and bread price controls. However, these concerns were later overridden by the financial and economic crisis. At the end of 2008, the IMF approved a USD 16.4 billion stand-by arrangement for Ukraine.

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Figure 8.1. Ukraine: PSE level and composition over time Support based on commodity output (left scale) Budgetary transfers (left scale) % Producer Support Estimate (right scale) MPS and budgetary support, billion USD % PSE 3 15 2 10 1 5 0 0 -1 -5 -2 -10 -3 -15 -4 -20 -25 -5 -30 -6 -35 -7 -40 -8 5 96 97 98 99 00 01 02 03 04 05 06 07 9 19 19 19 19 19 20 20 20 20 20 20 20 20 statLink 2 http://dx.doi.org/10.1787/531436706545

Figure 8.2. Ukraine: Producer SCT by commodity, 2005-07 MPS Payments based on output


Poultry Sugar Pigmeat Beef and veal Eggs Sunflower Maize Milk Other grains Wheat Other commodities SCT as % of PSE -30 -20 -10

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22 623

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of which share of MPS commodities (%) Total value of consumption (at farm gate) Producer Support Estimate (PSE) Support based on commodity output Market Price Support Payments based on output Payments based on input use Based on variable input use with input constraints Based on fixed capital formation with input constraints Based on on-farm services with input constraints Payments based on current A/An/R/I,1 production required

62 22 060 –1 647 –2 722 –2 739 16 551 391 0 139 0 21 0 525

60 97 917 10 698 5 260 2 566 2 694 3 179 2 588 0 591 0 0 0 2 259

63 84 115 12 482 8 305 6 091 2 214 2 685 2 115 0 570 0 0 0 1 491

Based on Receipts / Income Based on Area planted / Animal numbers with input constraints Payments based on non-current A/An/R/I, production required Payments based on non-current A/An/R/I, production not required With variable payment rates With fixed payment rates Payments based on non-commodity criteria Based on long-term resource retirement Based on a specific non-commodity output Based on other non-commodity criteria Miscellaneous payments Percentage PSE Producer NPC Producer NAC General Services Support Estimate (GSSE) Research and development Agricultural schools Inspection services Infrastructure Marketing and promotion Public stockholding Miscellaneous GSSE as a share of TSE (%) Consumer Support Estimate (CSE) Transfers to producers from consumers Other transfers from consumers Transfers to consumers from taxpayers Excess feed cost Percentage CSE Consumer NPC Consumer NAC Total Support Estimate (TSE) Transfers from consumers Transfers from taxpayers Budget revenues Percentage TSE (expressed as share of GDP)

525 0 0 0 0 0 0 0 0 0 0 0 –10 0.89 0.95 521 52 78 40 329 5 0 17 –46.3 3 062 3 291 117 0 –346 18 0.88 0.89 –1 126 –3 408 2 166 117 –1.47

1 681 578 0 0 0 0 0 0 0 0 0 0 10 1.04 1.11 3 287 236 801 705 995 7 434 108 23.5 –4 697 –1 843 –1 532 0 –1 322 –6 1.05 1.06 13 984 3 375 12 142 –1 532 2.47

1 425 66 0 0 0 0 0 0 0 0 0 0 13 1.09 1.15 3 202 195 851 786 867 7 431 65 20.4 –8 667 –6 396 –1 763 0 –508 –10 1.11 1.11 15 683 8 159 9 287 –1 763 3.55

1 938 982 0 0 0 0 0 0 0 0 0 0 12 1.07 1.14 2 937 205 667 587 956 8 405 110 17.7 –7 397 –5 513 –1 391 0 –492 –8 1.08 1.09 16 613 6 905 11 100 –1 391 3.05

1 682 685 0 0 0 0 0 0 0 0 0 0 4 0.96 1.05 3 721 308 886 741 1 163 8 465 150 38.5 1 973 6 382 –1 443 0 –2 966 2 0.96 0.98 9 657 –4 939 16 038 –1 443 1.35

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125 278

57 93 352 13 676 7 973 5 730 2 243 2 783 2 356 0 427 0 0 0 2 920

60 116 285 5 936 -499 –4 124 3 624 4 069 3 294 0 774 0 0 0 2 366

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83 2.6 5 583 13.5 5.1

107 7.4 6 224 9.1 5.1

141 7.9 6 916 12.8 5.1

Total GAO (left scale) Crops (left scale) Livestock (left scale)

47.1 32.3

46.8 32.1

46.4 31.9

10.4 31.2 58.4

8.6 32.2 59.2

19.4 24.2 56.4 58.0 13.1 7.7 1 704 0.1 38.0 1.6

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Annual rate of growth, % 21

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Figure 8.4. Ukraine: Agro-food trade, 1996-2007 Agro-food exports (including fish and fish products) Agro-food imports (including fish and fish products) Agro-food balance (including fish and fish products) USD billion 7

n.a n.a n.a 41.7 0.8

n.a n.a n.a 41.7 0.8

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26.0

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n.a.: not available. 1. The number of agricultural enterprises and individual farms used to estimate the average land per farm includes only units with agricultural land (around 90% of total number). statLink 2 http://dx.doi.org/10.1787/532350231707 Source: State Statistics Committee of Ukraine, 2008; IMF, International Financial Statistics, 2008; UN, UN Comtrade Database, 2008; World Bank, World Development Indicators, 2008.

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2007

Basic economic indicators GDP (USD billions) GDP growth (%) GDP per capita, PPP (USD) Inflation (annual average, %) Exchange rate (annual average, local currency per USD) Population (million) Population in rural areas (%) Share in GDP (%) Agriculture Industry and construction Services Share in employment (%) Agriculture Industry and construction Services Average share of income spent on food (%) Basic agricultural indicators Agro-food exports (% of total exports) Agro-food imports (% of total imports) Agro-food trade balance (USD million) GAO (% change from previous year) Total cereal production (million tonnes) Total meat production (million tonnes) Natural resources and farm structure Agricultural land per farm1 (ha): Agricultural enterprises Small family-type farms Household plots Agricultural land (million ha) Arable land per capita (ha)

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Figure 8.3. Ukraine: Evolution and annual changes of agricultural output, 1995-2007

Table 8.2. Ukraine: Basic economic and agricultural indicators, 2005-07 2005

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Ukraine is richly endowed with resources for agriculture. The sector contributed 7.6% to GDP and 16.7% to total employment in 2007. Agro-food items constitute the second largest group of Ukraine’s merchandise exports. High economic growth in recent years favoured the sector’s recovery. However, the performance of agriculture remains unstable, with large annual fluctuations in crop production. Commercial large-scale production provides around one-third of total agricultural output and the remaining output comes from small family-type farms and tiny household plots. Around one-third of the country’s population lives in rural areas, which are characterised by high poverty levels and a rapidly ageing population. Food accounted for 57% of households’ expenditures in 2007.

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The objectives of agricultural policy in Ukraine were most recently formulated in the 2005 Law on Basic Principles of the State Agrarian Policy up to 2015, which include: i) food security, ii) efficiency and international competitiveness of the agricultural sector, and iii) integrated development of rural areas and improvement of social conditions of rural people. The objective of food security is set out largely in the context of low incomes in Ukraine, with a large proportion of the population being economically vulnerable. The efficiency and competitiveness objective is closely linked with Ukraine's accession to the WTO. Based on the above mentioned law, a State Targeted Programme for Development of the Ukrainian Countryside up to 2015 was prepared in 2007. The Programme translates policy objectives into specific tasks and identifies financing needs and sources, which include government, private and international financing. While it does not have the status of an obligatory budget plan, the Programme is a first attempt at developing a coordinated approach to the formulation and implementation of agricultural policy objectives. A policy focus on rural development was strengthened recently with the preparation in 2008 of the advanced draft National Programme for Rural Development until 2015.

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Another key policy document is the Law on State Support to Agriculture (2004), which identifies the main agricultural support instruments and programmes. This is not a package law, however, and some support activities are stipulated in other legislative acts. Ukraine’s principal policy instruments are output payments (mainly for livestock products) and input subsidies. A large part of this support is implemented through allowing agricultural producers and, until recently, food processors, to retain their due VAT payments. Over recent years, Ukraine has began introducing area and headage payments, the latter aiming to improve the animal stock and increase animal numbers. Agricultural producers are granted credit and tax preferences. Ukraine uses a range of market price support instruments. These include tariff protection and non-tariff trade regulation, as well as various forms of domestic policy measures, including minimum purchase prices, direct state purchasing and loans against pledged grain.

Domestic agricultural policies Price and income support policy Ukraine implements a variety of domestic measures affecting prices in key agricultural markets. The 2004 Law on State Support to Agriculture stipulates that commodities such as grains, oilseeds and livestock products are the “objects of state price regulation”. The government sets official minimum prices for these commodities which may be applied in state market interventions, and in the case of livestock products, for defining the levels of per tonne subsidies. The minimum prices are also meant to serve as a floor-price reference for private market operators. The state agency Agrarian Fund, created in 2005, is responsible for the implementation of market interventions through direct spot purchases into the State Food Reserve, forward-contracting and lending against pledged commodities (grains). The grain sector traditionally remains in the government focus. Most important are measures affecting grain trade (discussed below), but there are also permanent domestic AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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Box 8.1. Food price inflation in Ukraine

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As elsewhere, food price inflation in Ukraine was driven by strong price rises on world food and energy markets. In addition, Ukraine suffered a poor grain harvest in the 2007-08 season, which had repercussions on the livestock sector and was another supply side factor fuelling inflation. These supply factors were combined with developments on the demand side that were largely specific to Ukraine. Robust economic growth supported an increase in private consumption. The latter was further boosted by an expansion of social spending. Minimum wages were increased several times over 2007 and 2008. The government increased pensions and other social transfers, and began compensating small savers for losses of the Soviet-period deposits in the Savings Bank of Ukraine. At the same time, the National Bank of Ukraine made monetary injections to prevent the appreciation of the hryvnia against the US dollar. Political instability, and a series of pre-term elections to the Verkhovna Rada (the Parliament) and local councils created inflationary expectations. These factors specific to Ukraine explain in part why the country saw the highest food inflation in the CIS (Commonwealth of Independent States) region.

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Inflation accelerated sharply in the second half of 2007, reaching the highest rates observed since 2000. Prices continued rising even more strongly in 2008 (Figure 8.5). Food prices registered the highest inflation among the major consumption items. At the end of 2007, they were 24% above the end-2006 level and in June 2008, 53% above that level (an increase of 23% between January and June 2008). Only in the second half of 2008 did inflation start to fall.

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Figure 8.5. Ukraine: Consumer price indices in 2007-08 December 2006 = 100 Total CPI

%

Food and non-alcoholic beverages

160

150

140

130

120

110

.0 7 Oc t. 07 No v. 07 De c. 07 Ja n. 08 Fe b. 08 M ar .0 8 Ap r. 08 M ay 08 Ju ne 08 Ju ly 08 Au g. 08 Se pt .0 8

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Box 8.1. Food price inflation in Ukraine (cont.)

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Export restrictions: grain export quotas were in place for most of 2007 and in the first half of 2008; for wheat produced in the 2007/08 season the quota virtually meant an export ban. Exports of oilseeds in 2008 were limited as well for some time (more detail in the section on export policy).

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With almost one quarter of the population living below the poverty line and food taking up 57% of households’ expenditures, the social and political cost of soaring food prices is very high in Ukraine. All through 2007 and 2008, the Ukrainian government implemented a series of actions to restrain price rises for basic foodstuffs, which included:

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Import incentives: state trading companies received preferences in importers of meat, sugar and sugar confectionery were granted deferral on the payment of import duties (the regulation, however, remained in force only for two weeks and was ruled out by a presidential Decree as being in contradiction of the Law of Ukraine On State Budget for 2008 prohibiting deferral of tax liabilities).

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Commodity interventions: between October and November 2007, the government released some low-cost flour milled from the previous harvest; in 2008, 2 000 tonnes of sugar were released on regional markets.

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Administrative controls on bread prices: the regulation concerned “socially important” types of bread and consisted of limiting processors’ mark-ups and wholesale prices for wheat and rye flour and selected bread products; bread price control was complemented by low-cost supplies of grains and flour from the State Reserve to main milling and bakery plants; inspections to control compliance with the price regime were intensified (during the first half of 2008, 8 900 inspections were carried out by price control bodies and irregularities were found in 57% of inspected entities).

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Supplies to processors from state stocks: in 2007 and 2008 the Agrarian Fund (see the main text) and the State Reserve were allowed to sell as much grain as was required to meet in-coming regional demands for flour-milling; both in 2007 and 2008, the two agencies also supplied meat from their stocks to meat processors.

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State supplies to retailers: the State Reserve made low-cost supplies of poultry to retail networks in order to undercut high retail prices for this product.

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Voluntary price restraints: in the spring of 2008, memoranda of understanding were signed between the government and food retailers across Ukraine; the latter undertook to limit retail mark-ups on a list of “socially important foodstuffs” (to 10% of the wholesale price), but in turn the existing system of discount cards for socially important foodstuffs was suspended in retail chains involved.

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Box 8.1. Food price inflation in Ukraine (cont.)

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Milk

Eggs

Butter

Vegetable oil

Potatoes

Sugar

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interventions. However, since the introduction of the current grain intervention system the scale of interventions in their various forms has been limited, not exceeding 2% of seasonal grain consumption and the official minimum prices for grain remained below market price levels. In 2006 and 2007, the Agrarian Fund made spot purchases of grain into the State Food Reserve and concluded forward contracts with grain producers. These purchases were made at average prices registered in the organised wholesale markets, such as Agrarian Exchange and accredited regional commodity exchanges. The Fund also implemented grain pledge operations in 2006. Their mechanism is similar to the US commodity loans, with the loan rate set at 80% of the official minimum price. The Agrarian Fund spent on aggregate UAH 290 million (USD 57 million) in 2006 and UAH 547 million (USD 108 million) in 2007 for grain interventions. In anticipation of an oversupply in the grain market in 2008/09, the government more than doubled the budget allocation for intervention operations to UAH 1.25 billion (USD 258 million). It is foreseen to withdraw 803 000 tonnes of grain from the market through pledge mechanism. Local analysts, however, estimate that in order to stabilise prices in 2008/09, at least 3 million tonnes needs to be withdrawn, mainly feed wheat and barley (in 2006/07 and 2007/08 the Agrarian Fund purchased primarily milling wheat). In 2006, the Fund bought 175 000 tonnes of grain for the State Food Reserve and issued pledge loans against 265 000 tonnes. In 2007, only purchases for the State Food Reserve were carried out amounting to 425 000 tonnes.

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under intergovernmental agreements, as well as for replenishment of quota A, while eliminated as quantitative restrictions on export.

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minimum prices obligatory for raw milk by imposing a requirement on processors to apply these prices to milk deliveries by agricultural enterprises. The minimum prices were set at levels double those processors paid for milk supplied by small farms and households. The requirement was finally disregarded by the industry, not least due to lack of an effective enforcement mechanism. In 2007 and 2008, the government continued announcing minimum prices for livestock products, but only as “recommended” to processors. Effectively, these prices are used as a basis for calculation of per tonne payments for livestock products. A large part of direct support is destined to the livestock sector with the stated objective of increasing animal production from its current historically low levels. Cattle, pigs and poultry breeders receive direct payments per tonne of animals delivered for processing. The total amount of these payments more than doubled in 2007 to reach UAH 1.17 billion (USD 232 million) compared to UAH 534 million (USD 106 million) in 2006. In addition, up until late 2008, Ukrainian milk and meat producers received price top-ups from processors. The latter were obliged to “re-direct” their VAT payments to agricultural suppliers instead of transferring them to the state budget. In this case the subsidy was provided not through actual budgetary outlays but at the cost of budgetary revenue foregone. Other specific per tonne payments are also provided to producers of sheep, wool, organic milk, honey, and silkworms. Payments based on area and animal numbers are relatively small in terms of their share in the budgetary transfers to producers. However, they are gaining prominence with the emergence of new payments. In 2003, payments were introduced per head of breeding cow and pedigree cow added to existing herds above an established minimum herd size. Payments per pedigree cow are also available to farms which have no cattle but which purchase enough pedigree animals to set up milk or meat operations. Similar types of payments are provided for breeding ewes and yearling sheep. The aggregate sum of per head payments for milk and meat cows almost doubled in 2007 (to UAH 94 million or USD 19 million), while payments for sheep remained at the previous year level (UAH 15 million or USD 3 million). In 2006, per hectare payments were introduced for grain, rapeseed, hop and flax producers. They amounted to UAH 965 million (USD 191 million) in 2006 and UAH 575 million (USD 114 million) in 2007, with the bulk of financing directed to wheat growers.

Credit concessions and input subsidies A concessional credit programme started in 2000 with the basic objective of enabling large farms, which suffered chronic debt, to purchase inputs for sowing and harvesting. Since then AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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the programme has been extended to include investment credit. Currently, more than 100 accredited commercial banks provide concessional loans at interest rates subsidised by the government. In 2006, 10 percentage points of the annual interest rate for short-term loans was subsidised (7 percentage points if loans were provided in foreign currency); for the long-term loans, from 12 to 14 percentage points of the annual interest rate was subsidised (from 8 to 9 percentage points for loans in foreign currency). Lower or higher rates of subsidy depend on the purpose of borrowing. In 2007, conditions for short-term credit were changed and the subsidy was set equal to a discount rate of the National Bank of Ukraine for loans in domestic currency (6 percentage points for loans in foreign currency).

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In 2006, around one-quarter of the loans received by agricultural enterprises were with subsidised interest; in 2007, this share reached 53% (Table 8.3). The government spent UAH 320 million (USD 63 million) for interest rate subsidies in 2006 and almost doubled this spending in 2007 to UAH 607 million (USD 120 million). Due to adverse weather conditions in 2007, around 2% of outstanding concessional loans were prolonged in order to ease financial difficulties in the sector. Some of the 11 500 agricultural enterprises registered as affected by drought were also granted a deferral on tax payments.

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Ukrainian producers receive direct budgetary subsidies for a variety of purchased inputs, such as electricity and fuel used for irrigation, domestically produced fertilisers, and seeds. Producers benefit from partial reimbursement on crop insurance premiums. The government also covers 30% of the purchase value of technologically advanced local machinery. The budgetary funding for this programme has been increasing steadily since its introduction in 2002 (except in 2006) to reach UAH 131 million (USD 26 million) in 2007. Financial support to seed production, development of pedigree breeding and biotechnologies is provided under special programmes targeted to improve the quality of agricultural plants and animal stock. In 2007, UAH 198 million (USD 39 million) was allocated for these programmes, and a substantial increase in financing, mostly for improvements in the livestock sector, was foreseen in 2008. Budgetary allocations are also directed to farms operating in unfavourable natural and climatic conditions (such as excessive dampness, short vegetation period, floods, soil washing, severe conditions of winter crops wintering, and drought). However, compared to all described budgetary payments, the most significant policy measure for reducing agricultural input costs is a special VAT regime accorded to agricultural enterprises.

Tax concessions Agricultural producers are enabled to retain (“accumulate”) VAT payments on agricultural goods they produce provided these accumulations are used to purchase inputs.

Table 8.3. Ukraine: Credit received by agricultural enterprises in 2006-07 2006

2007

2006

UAH billion Total credit received

2007 USD billion

12.7

14.6

2.5

2.9

3.2

7.8

0.6

1.5

of which: with subsidised interest rates of which: short-term loans

0.7

5.5

0.1

1.1

long-term loans

2.5

2.3

0.5

0.5

0.32

0.61

0.06

0.12

Total interest rate compensation Source: Ministry of Agrarian Policy of Ukraine.


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At the time of introduction in 1999, this measure was implemented as a way of compensating producers for arrears in payments, which occurred due to the budgetary deficit. The VAT accumulations have since become the most important form of input subsidy, accounting for over two-thirds of transfers through all programmes related to reduction of input costs. It should be noted that until November 2008 this regime did not apply to milk and livestock, as the VAT rate for these farm products was set at zero and therefore primary producers did not accumulate VAT. Instead, as discussed above, they received price top-ups from processors. The latter were required to accumulate the 20% VAT due on products processed from milk and meat, and pass this on to supplying producers.

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tu During the process of Ukraine’s WTO accession negotiations, the compliance L eofcthese

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VAT policies with Article III of GATT was questioned. This Article states that imported goods should be accorded tax treatment no less favourable than similar local goods. The negotiating parties finally agreed that the use of VAT accumulations for input purchase was not in violation of this principle. However, the VAT regime for domestically processed milk and meat products was recognised as violating the GATT, since the fact that domestic processors buy raw milk and meat with a zero VAT effectively results in preferential treatment of domestic compared to imported products. The regime of VAT accumulation for primary products (initially to be effective only until January 2009) has been recently prolonged. According to the Anti-crisis Law of October 31, 2008, this regime has been also extended to milk and meat and replaced the previous VAT regime for these products involving re-direction of tax from processors. Agricultural enterprises are eligible for a fixed agricultural tax, which is set as a proportion of the agricultural land value. The tax was introduced in 1998, and replaced a number of taxes to which agricultural enterprises were subjected as business entities, including income and land taxes. The agricultural tax was intended to reduce producer tax burden in order to resolve the situation of chronic tax arrears in agriculture. The tax was originally enacted for the period up to 31 December 2009, and currently several proposals are being discussed: i) extending the current regime for an indefinite period (provision currently included in the Draft Tax Code of Ukraine); ii) substituting the fixed agricultural tax with both land and income taxes (proposal by the Ministry of Agrarian Policy); and iii) establishing only a land tax with an income tax rate set at zero (proposal by a group of independent experts). No official decision about the future of the agricultural tax has been announced to date.

Policies supporting biofuel production and use In 2006, the government approved a programme of biodiesel production, which sets a goal of constructing at least 20 plants by 2010 with output between 5 000 and 100 000 tonnes per year and aggregate annual capacity of at least 623 000 tonnes of biodiesel. It is planned to allocate UAH 70 million (USD 14 million) for this programme by 2011, which is to be complemented by UAH 8.8 billion (USD 1.8 billion) of private funds from national and foreign investors. However, no budgetary spending to support activities related to biofuel production was made in 2006-08, including UAH 26 million (USD 5 million) earmarked for 2007 for reconstruction of biofuel distilleries. At the same time, the government has developed a list of agricultural enterprises that may be involved in production of raw materials for biofuel and determined the raw materials capacity required for 2008 and onwards. In addition, AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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draft legislation was prepared to encourage domestic biofuel use. A draft Law on Support

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biofuel for production of conventional fuels; preferential excise tax rates for blended

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Farm structure and land reform The current farm structure in Ukraine combines 14 926 large-scale agricultural enterprises with an average agricultural land area of 2 080 hectares; 42 932 small familytype farms operating on 92 hectares on average; and 5.4 million households, each disposing of approximately 1.2 hectares of agricultural land and producing primarily for own consumption. Commercial large-scale production experienced a significant contraction in 1990 and contributed only 39% to total agricultural output in 2006. The remaining 61% comes from small family-type farms and rural households. There is, nevertheless an active process of land consolidation, in particular, through the development of vertically integrated “agro-holdings”, first of all in the export-oriented grain and oilseeds sectors. A ban on the sale of agricultural land in Ukraine, originally imposed until 1 January 2008, was extended for an indefinite period in late 2007. A change from this status quo does not seem to be perceived as urgent by agribusiness, rural population or the general public. This may partly be explained by the existence of an active rental market for agricultural land. Further decisions on the sale of agricultural land are conditional on the adoption of several important land laws, including the Law on Land Market and Law on State Land Cadastre. The latter Law was adopted by the Verkhovna Rada on 20 March 2007, but was not ratified by the President on the grounds that it does not yet contain important provisions such as creation of a nation-wide automated state cadastre system and mandatory registration of land in this system; that the Law does not provide clear delineation of authority between the central and local levels; and some other issues. These key land documents therefore have not yet reached the final stage of enactment, and it is more likely that in the foreseeable future attention of the Ukrainian parliamentarians will be focussed on far more pressing economic and political issues. It is notable, however, that the Memorandum between the IMF and the Ukrainian Government on anti-crisis assistance to Ukraine (October 2008) highlighted “creation of the functioning land market” among the required structural measures. According to official information, the process of formal registration of ownership rights of agricultural land holders is close to completion. As of 1 January, 2008, 99% of the 6.9 million people who received the right to own agricultural land in the process of privatisation of former state and collective farms, obtained official certificates confirming their ownership rights. Ninety-one per cent of certificate holders also received land property acts with physical delimitation of the parcels owned. The fact that many of the

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new owners who emerged from the land reform had their plots physically delimited

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improvement of soils, which includes subsidies for the application of lime and gypsum to acidic and saline soils. Financial support is also provided to agricultural enterprises operating in unfavourable climate conditions, for example mountainous areas and marshy woodlands.

Agro-food trade policies The major development was Ukraine becoming the 152nd member of the WTO. After 15 years of negotiation, the WTO General Council approved Ukraine’s “entrance package” on 5 February 2008 and Verkhovna Rada ratified it on 10 April 2008. Intense legislative activity preceded the accession in order to bring Ukrainian laws in conformity with the WTO requirements. Between 2005 and 2008, 55 national laws were adopted, of which 21 concern agriculture. Several other laws need to be adopted to fulfill Ukraine’s obligations, all of them related to agro-food issues. This concerns sugar import regime; national food safety and quality standards; and veterinary medicine. As part of its WTO membership commitments, Ukraine will implement scheduled import tariff reductions, eliminate specific tariffs and maintain only ad valorem rates. It agreed to apply no other duties and charges beyond ordinary customs duties and the standard safeguard measures. No export subsidies will be used, the existing export duties will be lowered, and obligatory minimum export prices eliminated. Ukraine also accepted a limit of USD 0.6 billion on trade distorting support (Box 8.2).

Import measures Prior to 2005, Ukraine maintained high tariff protection for the majority of agricultural goods. However, as the WTO negotiations intensified, it implemented important cuts in import duties (Figure 8.7). Upon accession, Ukraine has to bring customs duties into compliance with its schedule on tariff commitments. These changes can only be implemented in Ukraine by means of law, a process that has proved to be complicated. The original draft law on changes to the Law of Ukraine ‘On Customs Tariff of Ukraine’ submitted by the government was rejected by the Verkhovna Rada. The subsequent version, prepared by the group of parliamentarians, was vetoed by the President on the grounds that tariff schedules set out for several goods did not comply with the WTO agreement. Pending the ratification of this Law, provisional import duties were applied from 16 May 2008, the official date of accession to the WTO, to December 2008 when the Verkhovna Rada finally adopted amendments to the Customs Tariff. AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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Tariff bindings: Ukraine will have its customs duties capped at rates ranging between 0% and 50% (bound rates). Some bindings involve reductions phased in over a period up to 2013. Ukraine’s average tariff bindings are 10.66% for agricultural products and 4.95% for industrial goods. The highest tariffs Ukraine may apply are on items such as sugar (50%) and sunflower seed oil (30%). Ukraine has agreed not to apply any “other duties and charges” – beyond its ordinary customs duties. Ukraine will completely apply ad valorem import duties after the accession to the WTO, with the exception of goods subject to excise tax (wine, liqueur and vodka and tobacco products). Tariff Rate Quota (TRQ): Ukraine will open a tariff quota for only one agricultural good - raw cane sugar (260 000 tonnes annually, and increasing to 267 000 tonnes by 2010, at 2% tariff). The over-quota tariff will be 50%. This quota will be administered on a first-come first-served basis within three years of accession. Special safeguard measures: Ukraine assumes the responsibility not to apply provisions of Article 5 in the Agreement on Agriculture of the WTO regarding special safeguard measures. Domestic support: Ukraine negotiated an Aggregate Measurement of Support (AMS) of UAH 3.04 billion (approximately USD 628 million) on the 2004-06 base period. As with all WTO members, Ukraine will have no spending limits on domestic support programmes that have no or minimal impact on trade, provided these programmes meet the criteria laid down in the Agreement on Agriculture. Ukraine did not negotiate Special and Differential Treatment measures. Export competition: Ukraine has agreed not to subsidise exports. Sanitary and phytosanitary (SPS) measures: Ukraine will comply with the SPS agreement upon accession and will streamline the responsibilities of its supervisory and control bodies in the SPS area. Ukraine will not block imports of meat and meat products treated with hormones. Technical Barriers to Trade (TBT): Ukraine will comply with the TBT agreement upon accession. Ukraine will give priority to international standards over regional and other national ones. All national and regional standards will be voluntary, except those referred to in technical regulations intended to protect national security interests, prevent deceptive practices, protect the life and health of people, animals or plants, as well as protect the environment. By 30 December 2011, all of Ukraine’s technical regulations will be based on the relevant international standards. Ukraine will reduce further the number of products subject to mandatory third party certification and will notify the revised list to the WTO by 31 January 2012. Internal taxes (VAT and excise tax): Domestic taxes will be applied in a non-discriminatory manner to imports from WTO members and to domestically produced goods. Pricing policies: Price controls will be applied in accordance with WTO principles and will take into account the interest of exporting WTO members. Upon accession, Ukraine will not apply mandatory minimum prices on imported products. Quantitative import restrictions, import licensing: Upon accession, Ukraine will eliminate and not introduce, re-introduce or apply quantitative restrictions on imports or other non-tariff measures that could not be justified under the WTO Agreement. Ukraine will implement its import licensing procedures in conformity with the WTO Agreement. Export restrictions: From the date of accession, such measures, including export licensing requirements, will be applied in conformity with WTO provisions. Ukraine will remove current export restrictions on grains, as from the date of accession. Export duties: Ukraine will reduce its export duties on oilseeds, live cattle and animal skins. From the date of accession Ukraine will not apply any obligatory minimum export prices. Trading rights (the right to import and export): Registration fees for pesticides and agricultural chemicals, as well as licensing fees for the import and export of alcoholic beverages and tobacco products, will be in compliance with WTO requirements and will be brought to the level of the cost of services provided. State-owned enterprises: Upon accession, Ukraine’s laws governing trading activities of state-owned enterprises will fully conform to the WTO provisions. All state-owned enterprises will operate on a commercial basis. Within one year of accession, Ukraine will notify and provide information on the activities of these companies to the WTO.

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Source: MEU, 2008.

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Source: Kobouta, 2008 based on Ukraine’s State Customs Service data. statLink 2 http://dx.doi.org/10.1787/531663101470

Transition to import tariffs agreed within the WTO framework involves a considerable reduction in protection for some of Ukraine’s key agricultural goods (Table 8.4). In particular, the pigmeat, poultry and sugar sectors will be exposed to stronger import competition. Other sectors are export-oriented and will likely see only small impacts from changes in import tariffs. Until 2004, Ukraine applied an import tariff rate quota (TRQ) for raw sugar. A substantial tightening of the quota regime in 2004 contributed to a sharp fall in raw sugar imports and a rise in domestic wholesale sugar prices. The situation was labelled by the local press as the “sugar crisis”. Since 2005, no TRQs for raw sugar have been applied. However, as part of its WTO accession commitment, Ukraine reserved the right to do so in the future. In October 2008, a draft law introducing a TRQ for raw sugar processed from sugar cane was submitted

Table 8.4. Ukraine’s import tariff rates on key agricultural products before and after WTO accession Applied import tariff in Ukraine before accession to WTO as of July 1, 2007 official statutory rate

ad valorem equivalent1

Bound tariff rate after Ukraine’s accession to the WTO as of May 16, 2008

Wheat (1001909930)

EUR 40 for 1 tonne

30%

10%

Barley (100300)

EUR 20 for 1 tonne

15%

5%

EUR 0.5 for 1 kg

66%

5%

50%, but not less than EUR 300 per ton

79%

50% 10%

Product and code

Fresh apricots (0809100000) White sugar (1701991000)

15%

15%

Beef, frozen (0202100000)

Sunflower seeds (1206009900)

10%, but not less than EUR 0.6 per 1 kg

29%

15%

Pork, fresh or frozen (0203000000)

10%, but not less than EUR 0.6 for 1 kg

42%

10-12%

Poultry (0207)

5-15%

10%, but not less than EUR 0.4 for 1 kg

31%

Yoghurts (0403109100)

EUR 0.5 for 1 kg

20%

10%

Butter (0405101100)

EUR 1.5 for 1 kg

28%

10%

1. Specific rates are converted into ad valorem equivalents using the customs value of goods in 2006. Source: Kobouta, 2008 based on Ukraine’s State Customs Service data. statLink 2 http://dx.doi.org/10.1787/532374736371


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to the Verkhovna Rada. According to this draft law, the quota is to be set at 263 000 tonnes for 2009 and 267 000 tonnes for 2010, with in-quota tariff rate of 2%.

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Imports (as well as exports) of certain goods into Ukraine are subjected to licensing, with the lists of eligible goods determined by the Government annually. In 2006, import licensing was required for live animals, meat and wheat. This list was extended in 2007 to include several food by-products, sugar and sugar syrup, and food products containing cocoa. In 2008, only the latter three groups were maintained in the list as the acute food price situation led the government to limit the licensing requirements.

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Export regulations in 2006/08 were largely driven by the objective of constraining domestic food price inflation. Export quotas for wheat, barley, maize and rye were imposed throughout most of the 2006/07 and 2007/08 marketing seasons. As a result, grain exports plunged from 13.2 million in 2005/06 to 9.6 million in 2006/07 and 3.7 million tonnes in 2007/08. A chronology of the wheat export quota is shown in Figure 8.8. The quota was in place for almost all the period between late 2006 and mid-2008. Between March and July 2008 it virtually turned into an export ban, as only 12 000 tonnes of exports were allowed. There was also an attempt to apply export restrictions to other products. In May 2008, the Government approved export quotas for sunflower seeds (1 000 tonnes) and sunflower oil (300 000 tonnes), which were supposed to be in effect until July 2008. This decision was, however, abrogated by the President two months later as being in contradiction of Ukraine’s WTO commitments.

Figure 8.8. Ukrainian wheat export quota and wholesale wheat prices in 2006-08 Milling wheat, 3rd class

Milling wheat, 4th class

Feed wheat

UAH/tonne

1 July 2008 export quota for wheat cancelled New export quotas introduced until 1 July 2008 (1 200 000 t) New export quota from 1 January 2008 to 31 March 2008 introduced (200 000 t) New export quota from 1 July 2007 to 31 December 2007 introduced (3 000 t)

1 600

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New export quota from 1 January 2007 to 30 June 2007 introduced (3 000 t)

1 200

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1 000

800

600

Ja

n. Fe 06 b. M 06 ar . Ap 06 r. M 06 ay Ju 06 ne Ju 06 ly Au 06 g. Se 06 pt Oc . 06 No t. 06 v De . 06 c. Ja 06 n. Fe 07 b M . 07 ar . Ap 07 r M . 07 ay Ju 07 ne Ju 07 l Au y 07 g. Se 07 pt . Oc 07 t No . 07 v. De 07 c. Ja 07 n. Fe 08 b M . 08 ar . Ap 08 r. M 08 ay Ju 08 ne Ju 08 Au ly 0 g 8 Se . 08 pt .0 8

400

Source: Kobouta, 2008; APK Inform Ukraine for wholesale price data. statLink 2 http://dx.doi.org/10.1787/531708043476

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At the time of WTO accession, the Ukrainian export regime included export duties on oilseeds, live animals, hides and skins. After the accession Ukraine will maintain duties, but has undertaken to cut them over a six-year period. Thus, export duties on flax seeds, sunflower and false flax were reduced from 17% to 16% of their customs value in 2007 and to 14% in 2008, and will be further cut by 1% annually to reach 10%. The first reduction in export duties for live cattle, hides and skins is foreseen on 1 January 2009.

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In 2006, the United States and the European Union (EU) accorded Ukraine status of a country with a market economy, while in 2007, Brazil recognised Ukraine as a country with a market economy in the light of anti-dumping legislation.

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Ukraine is actively involved in negotiations with the European Union on establishing a free trade area and a new Association Agreement to replace the previous Partnership and Cooperation Agreement. The negotiations to create a free trade area were officially launched on 18 February 2008. The parties emphasised that the format and composition of the future free trade area would be oriented to profound economic integration. In April, July and October 2008, three rounds of negotiations were held where the sides agreed on the scope and basic principles of the future free trade. A good progress on specific areas of the agreement was reached, including trade in goods and the parameters related to tariff offers. As for the new Association Agreement between Ukraine and the European Union, the tenth round of negotiations was held in November 2008. Ukraine also participated in negotiations between the members of the agreement on Common Economic Space (CES) between Belarus, Kazakhstan, Russia and Ukraine. One stated objective of this Agreement is the formation of a free trade zone between members, without exceptions or restrictions, such as anti-dumping measures, countervailing duties and special safeguards (OECD, 2007). While the CES agreement does not contain provision for the creation of a Customs Union, three members of the CES, Belarus, Kazakhstan and Russia, are effectively in the process of forming a Customs Union (foreseen under other regional agreement in which these three countries participate). In this respect, nonparticipation of Ukraine in such Customs Union was discussed. After Ukraine's accession to WTO, all trade integration agreements between Ukraine and CIS members, as well as other countries shall be implemented in view of WTO requirements.

Bibliography Agra Europe East, various editions. EC (2008), Second Joint Progress Report, Negotiations on the EU-Ukraine Association Agreement, European Commission, Brussels, www.ec.europa.eu/external_relations/ukraine/docs/index_en.htm#progress. EIU (2008), Country Report: Ukraine, Economic Intelligence Unit (EIU), London UK, June 2008. Kobouta, I. (2008a), “Ukraine: Agricultural Policy Developments in 2006-08”, Report submitted to OECD. MEU (2008), “Ukraine’s WTO Commitments Based on the Report on Ukraine’s Accession to the WTO (doc. WT/ACC/UKR/152)”, Ministry of Economy of Ukraine (MEU). OECD (2007), Agricultural Policies in Non-OECD Countries: Monitoring and Evaluation, OECD, Paris. World Bank (2008), Competitive Agriculture or State Control: Ukraine’s Response to the Global Food Crisis, World Bank, Washington, DC, May 2008. World Bank/OECD (2004), Achieving Ukraine’s Agricultural Potential: Stimulating Agricultural Growth and Improving Rural Life, World Bank, Washington, DC and OECD, Paris. AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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Measuring Agricultural Support

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1. Definitions of OECD indicators of agricultural support Nominal indicators used in this report* Producer Support Estimate (PSE): 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. It includes market price support, budgetary payments and budget revenue foregone, i.e. gross transfers from consumers and taxpayers to agricultural producers arising from policy measures based on: current output, input use, area planted/animal numbers/receipts/incomes (current, non-current), and non-commodity criteria. Market Price Support (MPS): the annual monetary value of gross transfers from consumers and taxpayers to agricultural producers arising from policy measures that create a gap between domestic market prices and border prices of a specific agricultural commodity, measured at the farm gate level. MPS is also available by commodity. Producer Single Commodity Transfers (producer SCT): the annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, measured at the farm gate level, arising from policies linked to the production of a single commodity such that the producer must produce the designated commodity in order to receive the payment. This includes broader policies where transfers are specified on a per-commodity basis. Producer SCT is also available by commodity. Consumer Single Commodity Transfers (consumer SCT): the annual monetary value of gross transfers from (to) consumers of agricultural commodities, measured at the farm gate level, arising from policies linked to the production of a single commodity. Consumer SCT is also available by commodity. Consumer Support Estimate (CSE): the annual monetary value of gross transfers from (to) consumers of agricultural commodities, measured at the farm gate level, arising from policy measures that support agriculture, regardless of their nature, objectives or impacts on consumption of farm products. If negative, the CSE measures the burden (implicit tax) * Only indicators actually used in this report are defined here. Additional indicators, mainly relating to commodity specificity, are defined in the “PSE Manual” (OECD’s Producer Support Estimate and Related Indicators of Agricultural Support: Concepts, Calculation, Interpretation and Use, available on the website www.oecd.org/tad/support/psecse).


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on consumers through market price support (higher prices), that more than offsets consumer subsidies that lower prices to consumers.

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General Services Support Estimate (GSSE): the annual monetary value of gross transfers to general services provided to agricultural producers collectively (such as research, development, training, inspection, marketing and promotion), arising from policy measures that support agriculture regardless of their nature, objectives and impacts on farm production, income, or consumption. The GSSE does not include any payments to individual producers.

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Total Support Estimate (TSE): the annual monetary value of all gross transfers from taxpayers and consumers arising from policy measures that support agriculture, net of the associated budgetary receipts, regardless of their objectives and impacts on farm production and income, or consumption of farm products.

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Ratio indicators and percentage indicators Percentage PSE (%PSE): PSE transfers as a share of gross farm receipts (including support in the denominator). Percentage SCT (%SCT): is the commodity SCT expressed as a share of gross farm receipts for the specific commodity (including support in the denominator). Share of SCT in total PSE (%): share of Single Commodity Transfers in the total PSE. This indicator is also calculated by commodity. Producer Nominal Protection Coefficient (producer NPC): the ratio between the average price received by producers (at farm gate), including payments per tonne of current output, and the border price (measured at farm gate). The Producer NPC is also available by commodity. Producer Nominal Assistance Coefficient (producer NAC): the ratio between the value of gross farm receipts including support and gross farm receipts (at farm gate) valued at border prices (measured at farm gate). Percentage CSE (%CSE): CSE transfers as a share of consumption expenditure on agricultural commodities (at farm gate prices), net of taxpayer transfers to consumers. The %CSE measures the implicit tax (or subsidy, if CSE is positive) placed on consumers by agricultural price policies. Consumer Nominal Protection Coefficient (consumer NPC): the ratio between the average price paid by consumers (at farm gate) and the border price (measured at farm gate). The Consumer NPC is also available by commodity. Consumer Nominal Assistance Coefficient (consumer NAC): the ratio between the value of consumption expenditure on agricultural commodities (at farm gate) and that valued at border prices. Percentage TSE (%TSE): TSE transfers as a percentage of GDP. Percentage GSSE (%GSSE): share of expenditures on general services in the Total Support Estimate (TSE).

2. The PSE classification Introduction Each year since the mid-1980s the OECD has measured the monetary transfers (support) associated with agricultural policies in OECD countries (and increasingly, in non-OECD

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Over the years, while the fundamental methodology to measure support has not changed, policy measures have evolved. This has been partially reflected in the component parts of the overall PSE, which are categorised to improve the evaluation of policy reform and for use in policy analysis. With the further evolution of policies, following a two-year period of discussion among experts, OECD countries decided to adopt significant changes in the classification of the generic policy categories in the PSE, to change the measure of support to commodities, and to improve the presentation of the relevant indicators. These changes reflect the evolution of agricultural policies in OECD countries and were incorporated for the first time into the 2007 report on Agricultural Policies in OECD Countries: Monitoring and Evaluation. This annex chapter explains the new PSE classification, and how the data and indicators can be used to monitor policy developments.

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countries), using a standard method. For this purpose the OECD has developed several indicators of transfers, the most important and central one being the Producer Support Estimate (PSE). The results, published annually by the OECD, are the only available source of internationally comparable and transparent information on support levels in agriculture. The support estimates have provided an important contribution to the international policy dialogue on agriculture and trade.

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Measuring agricultural support The Producer Support Estimate (PSE) estimates the annual monetary transfers to farmers from three broad categories of policy measures that: ●

Maintain domestic prices for farm goods at levels higher (and occasionally lower) than those at the country’s border (market price support [MPS] estimation).

●

Provide payments to farmers based on, for example, the quantity of a commodity produced, the amount of inputs used, the number of animals kept, the area farmed, an historical (fixed) reference period, or farmers’ revenue or income (budgetary payments).

●

Provide implicit budgetary support through tax or fee reductions that lower farm input costs, for example for investment credit, energy, and water (budgetary revenue foregone estimation).

A crucial point to emphasise is that support not only comprises budget payments that appear in government accounts (which is often the popular understanding of support), but also estimations of budgetary revenues foregone, and estimation of the gap between domestic and world market prices for farm goods – market price support. The PSE indicators are expressed in both absolute monetary terms (in national currencies, in US dollars and in euros) and in relative terms – in the case of the %PSE as a percentage of the value of gross farm receipts (including support payments) in each country for which the estimates are made. The %PSE shows the degree to which farmers are supported in a way that is not influenced by the sectoral structure and inflation rate of the country concerned, making this estimate the most widely acceptable and useful indicator for comparisons of support across countries and time. Additional indicators are derived from the PSE, such as the Producer Nominal Assistance Coefficient (producer NAC) and the Producer Nominal Protection Coefficient (producer NPC). The producer NAC is expressed as a ratio between the value of gross farm receipts (including all forms of measured support) and the gross farm receipts valued at border prices (without support). The producer NPC is defined as a ratio between the average price received by the AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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producers (including payments based on current output) and the border price. The complete set of OECD indicators of support is described in Annex A.1.

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The main purpose of the calculations is to show the estimates and composition of support each year, and to compare the trends across countries and through time, in order to monitor and evaluate the extent to which OECD countries are making progress in policy reform to which all OECD governments are committed. The PSE data (various indicators of support) are also used as inputs in models used by the OECD (PEM, GTAP, SAPIM) to analyse the effects of different policy instruments on production, trade, farm incomes and the environment.

tu L ethecOECD In its work on monitoring and evaluating agricultural policy developments,

r

has always not only estimated the overall level of support, but also shown how that support was composed of different categories of agricultural policy measures. The classification of support into the different categories under the PSE is based on how policies are actually implemented – and not on the objectives or impacts of those policies. Changes in the composition of support have over time become an increasingly important element in assessing progress towards reforming agricultural policies. Yet, as the nature of agricultural policies continues to evolve, the policy categories used for classifying support may have to adjust as well. This is why the nature of the policy categories shown under the PSE has now been revised, as described in the following. It should be noted that the number and definition of policy categories under the PSE, and hence the breakdown of support according to its composition, is the only change to the PSE methodology that has been made – the overall PSE level is not affected by that change.

Previous classification of PSE and related indicators The PSE classification that was used before 2007 (including the 2006 report on Agricultural Policies in OECD Countries: At a Glance and the previous report on Agricultural Policies in Non-OECD Countries: Monitoring and Evaluation, published in 2007 but prepared in 2006) is shown in Box A.1.

New classification of PSE and related indicators In recent years in the process of policy reform, policies in many OECD countries have been moving – to different degrees and at different speeds – towards providing support that is less dependent on producing specific commodities. Policies are also increasingly providing support based on farm area or on historical (fixed) criteria, which may be land, animal numbers, or income, for example. In some cases, production is required (but the actual commodities produced – currently or in the past – are not specified), in other cases no agricultural commodity production is required or support is provided for the production of non-commodity outputs. In many cases, there are other criteria that farmers must also meet in order to be entitled to support, such as implementing constraints on the use of inputs, or leaving land idle from commodity production but kept in “good agricultural or environmental condition”. The thrust of many of the changes in policies has been to move in the direction of decoupling support from specific commodity production, and to base support on other criteria. While there is increasingly more flexibility in what farmers can produce in order to be entitled to support, there is often less flexibility in how farmers manage their operations, with greater regulatory constraints or conditions. The consequence is that

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E. Payments based on input use F. Payments based on input constraints

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se

ea R

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D. Payments based on historical entitlements

O

C. Payments based on area planted/animal numbers

An

B. Payments based on output

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A. Market price support estimation of which MPS commodities

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Producer Support Estimate (PSE) (A-H)

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Box A.1. Classification of PSE and related support indicators applied until 2006

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G. Payments based on overall farm income H. Miscellaneous payments Percentage PSE (PSE as a % of gross farm receipts) Producer Nominal Protection Coefficient (NPC) Producer Nominal Assistance Coefficient (NAC) General Services Support Estimate (GSSE) Consumer Support Estimate (CSE) Transfers to producers from consumers Other transfers from consumers Transfers to consumers from taxpayers Excess feed costs Percentage CSE (CSE as a % of farm gate value of consumption) Consumer NPC Consumer NAC Total Support Estimate (TSE) Transfers from consumers Transfers from taxpayers Budget receipts Percentage TSE (as a share of GDP)

policies have become more varied and complex, and more difficult to group into the previous PSE classification in ways that would permit a more accurate monitoring and evaluation of policy reform and its use in quantitative policy analysis. In reflecting these policy developments, a new PSE classification has been devised and agreed, as outlined in Boxes A.2 and A.3. The key underlying criteria for the new classification is that the policy measures continue to be classified according to the way they are implemented. The proposed categories differ depending on: ●

The transfer basis for support: output (Category A), input (Category B), area/animal numbers/revenues/incomes (Categories C, D and E), non-commodity criteria (Category F).

●

Whether the support is based on current (Categories A, B, C, F) or historical (fixed) basis (Categories D and E, as well as F, depending on implementation conditions).

●

Whether production is required (Categories C and D) or not (Category E).


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B.2. Fixed capital formation with input constraints B.3. On-farm services with input constraints C. Payments based on current A/An/R/I, production required

O d

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B.1. Variable input use with input constraints

R

B. Payments based on input use

O

A.2. Payments based on output

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A.1. Market price support (MPS)

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A. Support based on commodity output

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Box A.2. Classification of PSE applied from 2007

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ANNEX A

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C.1. Based on current revenue/income C.2. Based on current area/animal numbers with input constraints D. Payments based on non-current A/An/R/I, production required E. Payments based on non-current A/An/R/I, production not required E.1. Variable rates E.2. Fixed rates F. Payments based on non-commodity criteria F.1. Long-term resource retirement F.2. Specific non-commodity output F.3 Other non-commodity criteria G. Miscellaneous payments Labels to be attached to programmes in the above categories of policy measures: ❖ With/without L (with or without current commodity production limits and/or payment limits). ❖ With V/F rates (with variable or fixed payment rates). ❖ With/without input constraints (C) (With Mandatory/With Voluntary/Without input constraints). ❖ With/without E (with or without any commodity exceptions). ❖ Based on A/An/R/I (based on area, animal numbers, receipts or income). ❖ Based on SC/GC/AC (based on a single commodity, group of commodities or all commodities). Note: A (area), An (animal numbers), R (receipts) or I (income).

In addition to categories, the new PSE classification includes labels that may be applied to individual policies to provide further specification on the way each measure is implemented: with or without production limits or input constraints, whether payments are at fixed or variable rates (Box A.3). The applied labels are provided in the PSE Database. Labels may be used alternatively as additional sub-categories of the classification as needed, either in the standard tables or for special purposes (e.g. production of “satellite” tables, use in further quantitative or empirical analysis). The definitions of the categories and labels in the new PSE classification are shown in Box A.3.

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Definitions of categories:

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Box A.3. Definitions of categories in the new PSE classification

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Market price support (MPS): transfers from consumers and taxpayers to agricultural producers from policy measures that create a gap between domestic market prices and border prices of a specific agricultural commodity, measured at the farm gate level.

Payments based on input use: transfers from taxpayers to agricultural producers arising from policy measures based on on-farm use of inputs:

e

R

O

Payments based on output: transfers from taxpayers to agricultural producers from policy measures based on current output of a specific agricultural commodity.

u Lect

An

●

Variable input use that reduces the on-farm cost of a specific variable input or a mix of variable inputs.

●

Fixed capital formation that reduce the on-farm investment cost of farm buildings, equipment, plantations, irrigation, drainage, and soil improvements.

●

On-farm services that reduce the cost of technical, accounting, commercial, sanitary and phyto-sanitary assistance and training provided to individual farmers.

r

Payments based on current A/An/R/I, production required: transfers from taxpayers to agricultural producers arising from policy measures based on current area, animal numbers, receipts, or income, and requiring production. Payments based on non-current A/An/R/I, production required: transfers from taxpayers to agricultural producers arising from policy measures based on non-current (i.e. historical or fixed) area, animal numbers, receipts, or income, with current production of any commodity required. Payments based on non-current A/An/R/I, production not required: transfers from taxpayers to agricultural producers arising from policy measures based on non-current (i.e. historical or fixed) area, animal numbers, receipts, or income, with current production of any commodity not required but optional. Payments based on non-commodity criteria: transfers from taxpayers to agricultural producers arising from policy measures based on: ●

Long-term resource retirement: transfers for the long-term retirement of factors of production from commodity production. The payments in this subcategory are distinguished from those requiring short-term resource retirement, which are based on commodity production criteria.

●

A specific non-commodity output: transfers for the use of farm resources to produce specific non-commodity outputs of goods and services, which are not required by regulations.

●

Other non-commodity criteria, transfers provided equally to all farmers, such as a flat rate or lump sum payment.

Miscellaneous payments: transfers from taxpayers to farmers for which there is a lack of information to allocate them among the appropriate categories. Definitions of labels With or without current commodity production limits and/or limit to payments: defines whether or not there is a specific limitation on current commodity production (output) associated with a policy providing transfers to agriculture and whether or not there are limits to payments in the form of limits to area or animal numbers eligible for those payments. Applied in Categories A-F.


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ANNEX A

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Box A.3. Definitions of categories in the new PSE classification (cont.)

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With or without input constraints: defines whether or not there are specific requirements concerning farming practices related to the programme in terms of the reduction, replacement, or withdrawal in the use of inputs or a restriction of farming practices allowed. Applied in Categories A-F. The payments with input constrains are further broken down to:

O

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O

With variable or fixed payment rates: Any payments is defined as subject to a variable rate where the formula determining the level of payment is triggered by a change in price, yield, net revenue or income or a change in production cost. Applied in Categories A-E.

An

tu ● Payments conditional on compliance with basic requirements that are mandatory (with Lec

r

mandatory);

●

Payments requiring specific practices going beyond basic requirements and voluntary (with voluntary).

With or without commodity exceptions: defines whether or not there are prohibitions upon the production of certain commodities as a condition of eligibility for payments based on non-current A/An/R/I of commodity(ies). Applied in Category E. Based on area, animal numbers, receipts or income: defines the specific attribute (i.e. area, animal numbers, receipts or income) on which the payment is based. Applied in Categories C-E. Based on a single commodity, a group of commodities or all commodities: defines whether the payment is granted for production of a single commodity, a group of commodities or all commodities. Applied in Categories A-D. Note: A (area), An (animal numbers), R (receipts) or I (income).

Changes in the commodity indicators related to the PSE and CSE Up until the 2005 report on Agricultural Policies in OECD Countries: Monitoring and Evaluation the data on PSEs and related indicators were also shown by commodity, in monetary values and in percentages (or ratios). These commodity data were calculated from adding the commodity specific levels of support (market price support and payments based on output of individual commodities) to the levels of support to commodities for all other policies estimated using various allocation keys (for example, on the basis of a given commodity’s share in the value of total production of all commodities, or of crops or livestock only depending on the commodity coverage of a particular policy measure). To reflect the way in which policies are evolving, with the gradual shift away from direct commodity-linked support, the total PSE will no longer be broken down into commodities. Instead the total PSE is broken down into four categories reflecting the flexibility given to farmers’ production decisions within the various policy measures. In the current report only one of these categories is reported, namely the SCT, which is defined as follows: ●

Single Commodity Transfers (SCT): the annual monetary value of gross transfers from policies linked to the production of a single commodity such that the producer must produce the designated commodity in order to receive the transfer. This includes broader policies where payments are specified on a per-commodity basis.

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Indicators related to total support

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Indicators used in policy analysis


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The new PSE classification does not change the total PSE. The only change is its

d

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breakdown into new categories based on well-established implementation criteria

se

ea

(Box A.3). The relative indicators linked to the total PSE (%PSE, producer NPC and producer

R

O

NAC) and CSE (%CSE, consumer NPC and consumer NAC) continue to be calculated as

Commodity specific indicators

An

to GDP. Annex A.1 provides definitions of these indicators.

e

previously. The GSSE is also still expressed as a share of total TSE and the %TSE in relation

u Lect

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The changes in the application of the methodology do not allow a breakdown of the total PSE by commodity. Therefore, the %PSE by commodity and the producer NAC by commodity are no longer calculated, but the producer and consumer NPCs remain. The Producer Single Commodity Transfer (Producer SCT) is by definition available for specific commodities, as well as the derived relative indicator the %SCT. As mentioned above, the SCT is the sum of transfers to producers through policies granted to a single commodity, the most important element of which is in most cases the market price support. The %SCT is the commodity SCT expressed as a share of gross farm receipts for the specific commodity. Compared to the previously used commodity %PSE (which included all PSE support), the %SCT includes only support provided through commodity specific policies. For the CSE, in the absence of transfers from taxpayers to consumers (i.e. the situation in most cases), the CSE is the mirror image of the MPS and hence by definition is commodity specific. By applying the same principle of not using allocation keys to distribute transfers from taxpayers to consumers to commodities the commodity %CSE and the consumer NAC by commodity is no longer calculated. However, in most cases the consumer NPC is equal to the consumer NAC by commodity and captures all the transfers to (from) consumers. Hence, the consumer NPC is the main tool used to analyse support to consumers by commodity.

Use of labels in the PSE Database The use of labels gives considerable flexibility to break down the total PSE into categories reflecting specific characteristics of policies in an ad hoc manner (i.e. whether the policy includes a constraint on input use or not, or whether it is applied with or without production limits – see the definition of labels in Box A.3). When desired, the labels in the database may be used alternatively as additional sub-categories in the main classification framework. Currently labels are used in this way as subcategories in Category E. The labels applied in the database can be used to produce specific aggregations of payments for the tables in the Monitoring and Evaluation Report to give emphasis to a specific implementation criteria used in the policies applied. The label information can be used also in quantitative analyse based on the PSE Database, e.g. PEM work or when linking policies with environmental issues (SAPIM).

The use of the new classification and related indicators in policy analysis The new classification of categories of policy measures, based, as ever, on how the policies are implemented, has the potential to show the degree of flexibility that farmers AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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ANNEX A

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have in their production choices and thus how different policies influence farmers’

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decisions to produce commodities and other goods and services using farm resources.

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Some policy measures deliver support directly related to the amount of a specific produced (market price support and payments based on commodity

u le

commodity

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EC

production) or variable inputs used. As shown by the results of the Policy Evaluation

se

Model (PEM) on decoupling, these policy measures are the ones that potentially (ex ante)

R

O

have the strongest influence on commodity production incentives although this effect is weakened in those countries that place constraints on output produced or inputs used.

e

Policy measures that are designed to deliver support based on current parameters, such as

u Lect

An

area or animal numbers and require commodity production, have a potentially somewhat

r

weaker influence on production incentives. Policy measures providing support based on

historical parameters, such as the overall farm area or income situation of the farmer, have potentially much less influence on production incentives, while those that provide support based on non-commodity criteria (such as the provision of trees, stone walls and hedges), have potentially the least influence on production. Clearly, the actual impacts (ex post) will depend on many factors that determine the aggregate degree of responsiveness of farmers to policy changes – including any constraints on production. Neither the total PSE nor its composition in terms of different categories of policies can, therefore, be interpreted as indicating the actual impact of policy on production and markets. Policy analysis based on support composition can only provide information on the potential of some of the individual policy categories (A, part of B) to influence producer decisions, while for other categories (C) this potential is less clear, as they group more heterogeneous policies. It is only through model-based analysis (such as provided in the OECD'S PEM) or empirical analysis and the use of labels that firmer conclusions can be drawn regarding production and market impacts of given policy measures. Against this background, the new classification of policy measures and the use of labels will be able to better reflect the evolution of the policy mix. It is thus possible to assess policy reform not only in terms of the trends in the overall level of support, but also in terms of whether there were shifts towards policies that have less potential to distort commodity production and trade. Identifying policy measures that provide support based on a mixture of current and past production variables and those that deliver support not based on farm commodity production provides a rich source of data to help to evaluate progress in policy reform. Moreover, the data base can be marshalled to illustrate developments on matters where specific policy interests within a country or across countries are important. Policies in the PSE are classified according to the basis on which support is delivered (implementation criteria) and not on policy objectives or impacts. The new PSE data base will provide a wealth of material to engage in model-based analysis of the effects of different policy instruments on variables such as production, trade and the environment. Increasingly, countries are interested in knowing the extent to which policy measures are targeted to achieve the range of policy objectives (effectiveness), assessing the costs and benefits of those efforts (efficiency), and understanding the implications for the distribution of income (equity). In addressing these issues, it is important to recognise that the PSE needs to be complemented with other data, as well as with information on the overall policy mix. Moreover, the use and interpretation of PSE and associated indicators in comparisons across countries and time needs to be undertaken with care.

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3. Measuring agricultural support in emerging economies: technical updates and improvements

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In addition to the changes in PSE methodology discussed in Annex A.2 and incorporated

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for the first time into this edition of the report on Agricultural Policies in Emerging Economies:

ea

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Monitoring and Evaluation, a significant effort has been made to update and improve the

se

support estimates for the six emerging economies for which calculations are made. Results

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O

of this work have been incorporated into the PSE Database for the countries concerned and

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are reflected in the evaluations contained in this report. These improvements are briefly summarised below. The Database of support indicators for emerging economies is available

An

on line: www.oecd.org/tad/support/psecse.

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Brazil Market price support Changes were introduced into the calculation of market price support for cotton using improved data on conversion rates, marketing margins, and producer and wholesale prices. The revisions resulted in somewhat higher than previous market price support estimates for cotton.

Budgetary payments A special focus was given to monitoring developments in farm debt. An overview of the most recent government decisions in 2008 concerning another large-scale restructuring of farm debt is contained in the Brazil country chapter. These concessions have not yet been implemented as the procedure obliges debtors to enrol in the announced restructuring schemes and undergo assessment of their liabilities. According to the Brazilian Ministry of Agriculture and Livestock, the enrolment has been marginal to date; the deadline for applications has been extended to midDecember 2008 and most likely will be postponed further. Therefore, the actual scale of the debt involved in new restructuring and the specific structure of concessions (which are highly differentiated according to types of loans and the condition of debtors) are currently unknown. However, as done previously, the Brazil support estimates were updated to incorporate the currently active debt concessions implemented in the mid-1990s and first half of the 2000s. This concerns the Programme of Financial Assets Rehabilitation (PESA), Rural Debt Securitisation, and also debt concessions related to credit programmes for small farmers (PRONAF, PROCERA and PROGER). The support transfers originating from these active debt rescheduling schemes are estimated at BRL 2.1 billion (USD 971 million) per year on average for 2005-07. The transfer corresponds to an estimated interest gain from reduced interest and “good payer” rebates on restructured loans; it is classified in PSE Category B2 “Payments Based on Fixed Capital Formation”.

Chile Like the other five countries, PSEs and related indicators of support have been estimated up to 2007 for Chile. However, as the PSE Database for Chile was only constructed in 2007/08, there was no need for major revisions to the methodology used for calculating transfers or the classification of support programmes for this edition of the report. AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009: MONITORING AND EVALUATION – ISBN 978-92-64-05927-6 – © OECD 2009

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Market price support calculations, including margins and quality adjustments, have been reviewed and cross-checked with a similar exercise undertaken recently within the World Bank study on distortions to agricultural incentives in China. The review found that no major changes in MPS calculations were needed with the exception of poultry. As China has become a consistent net importer of poultry since 2002, the previous price gap between domestic and international prices which was set at zero on the basis of China being a net exporter of poultry with no market price support policies identified, has been replaced by a price gap derived from the 2% tariff on poultry imports.

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China

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ANNEX A

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Budgetary payments To address concerns regarding the level of programme aggregation within budgetary transfers to agriculture, a two-step approach has been applied. First, a detailed overview of government expenditures to support rural areas, including a description of the various programmes, was prepared by a local expert to better differentiate between budgetary expenditures targeting agricultural producers, the agricultural sector as a whole and programmes supporting rural areas at large. Having distinguished programmes as targeting agricultural producers (PSE) and the agricultural sector as a whole (GSSE), more detailed information was sought to allow a greater disaggregation of budgetary payments, in particular for the period 2004-07. While the level of support for producers (%PSE) and for the sector as a whole (%GSSE) has changed only marginally due to this exercise, much better information has been gained on the structure of support, improving the classification of policies. In addition, a better understanding of the co-financing principles between central and local governments has been gained. To the extent possible, data on budgetary support to agriculture includes transfers from both central and sub-national governments.

Russia Market price support Estimates for beef, pigmeat and poultry have been revised for the period between 2000 and 2007 based on new definition of border prices. For all three types of meat, border prices were estimated as weighted averages of Russian unit values of imported i) frozen meat and ii) fresh and chilled meat, with weights being the shares of the two types of meat in total domestic meat processing. Border price used previously for beef and veal and poultry were for frozen (carcass) meat; while for pigmeat prices for fresh and chilled (carcass) meat were applied. The weighting procedure allows for better comparability of border and domestic price (in terms of composition of fresh and chilled meat). The change introduced resulted in lower MPS estimates for beef and poultry, since the weighting takes into account higherpriced import (fresh and chilled meat) and therefore yields higher average border price. For pigmeat, the change resulted in higher MPS, as the revised price takes into account lowerpriced import (frozen meat) and therefore results in lower average border price.

Budgetary payments Attention was given to reviewing sub-national expenditure. The Russian Federation consists of 83 sub-national territorial units that form and execute regional budgets. The support estimates for all years incorporate budgetary transfers from both the federal and

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regional levels. For the current report, an effort was made to account more accurately for

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the regional component and, possibly, improve the classification of regional financing

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within the various PSE and GSSE categories. Concerning the latter task, the Russian

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budgetary reporting system contains enough detailed information on co-financed (at

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federal and regional levels) programmes, with additional information on the composition

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of regional expenditure derived from reports detailing the implementation of nation-

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wide programmes relating to special issues such as the Soil Fertility Programme, Social Development of Rural Areas and others. However, a portion of regional expenditure

e

enters the official budgetary reporting system in a highly aggregated form (e.g. in

An

tu Although it is generally possible to distinguish groupings according to L whether e c they groupings such as “support for crop production” or “support for livestock production”).

r

benefit producers individually (PSE) or collectively (GSSE), it is not possible to classify the expenditure to specific categories within these two components. Consequently, a share of regional expenditure (12% in 2006 and 27% in 2007) continues to be classified in PSE Category G “Miscellaneous”. Further improvement does not seem feasible, given the existing state budget reporting system. It may prove useful to undertake case studies looking at agricultural budgets for a number of Russian regions with different policy profiles. This analysis, however, goes beyond the framework of OECD’s regular policy monitoring.

South Africa Market price support The reference prices for maize, wheat and sugar have been checked with local experts and additional information on policies creating the price gap was sought. Based on this information, the reference price series were adjusted for all three commodities. Consequently, the new price gap estimates reflect better the applied border measures, the only policy instruments creating a price gap. The margins (processing and transportation costs) for sheepmeat and sugar have also been verified and updated based on information received from local experts. Overall, the improvement in the price gap measurement and hence the MPS are now more consistent with the policy measures applied.

Budgetary payments In recent years the most important budgetary payments relate to the implementation of the land reform and related programmes assisting farmers emerging from the reform process. New policy information and budgetary data on expenditures linked with the land reform have been provided by the South African Department of Land Affairs. This new information helped to split budgetary payments financing the land reform into three broad groups: ●

Budgetary transfers to individual farms to be included in the PSE (i.e. land grants, investment grants).

●

Budgetary transfers financing general services to the sector included in the GSSE (i.e. education and training, dissemination of information, infrastructure improvements, land reclamation).

●

Budgetary transfers not included in the estimates of support to agriculture (neither the PSE nor the GSSE – i.e. administration expenditures, budgetary expenditure spent on restitutions).


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Budgetary payments

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A change was introduced in the reference price calculation for wheat for 2006-07. As Ukraine imposed export quotas on wheat for most of the period 2006 to mid-2008, Ukrainian export wheat prices, used previously for the reference price calculation, no longer represented an appropriate reference. A weighted average of the International Grains Council quotations for feed and milling wheat was used (f.o.b. Black Sea), with weights being the shares of feed and milling wheat in total Ukrainian domestic production.

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An estimated implicit transfer to producers arising from loans provided against pledged grain, not previously included in the estimates, was incorporated into the Ukrainian PSE and classified in Category A2 “Payments based on output”. This had a marginal impact on the PSE and related indicators as the programme is very small. The transfer values are estimated by the Ukrainian Ministry of Agrarian Policy. The mechanism of this programme is similar to the Commodity Loans programme in the United States.

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Statistical Annex

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ANNEX B

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181

ANNEX B

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_it E d it e io s

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

26.4

26.1

25.4

26.1

23.3

22.8

21.9

23.0

20.7

20.6

20.6

20.7

21.0

20.5

19.3

18.3

18.3

17.0

16.4

15.8

15.2

14.2

14.1

14.2

14.1

13.6

13.5

13.7

13.6

13.3

12.6

12.0

China1

60.1

59.7

58.5

56.4

54.3

52.2

50.5

49.9

49.8

50.1

50.0

50.0

50.0

49.1

46.9

44.8

42.6

40.8

India1

62.2

62.1

64.5

65.3

64.3

64.6

63.8

63.8

64.1

63.3

61.3

58.2

58.0

58.4

58.0

56.6

55.7

Russia2

12.9

13.1

14.0

14.3

15.0

14.7

14.0

13.3

13.7

13.3

14.2

13.3

12.7

12.0

11.4

11.3

10.8

12.6

10.6

9.1

7.5

8.5

25.2

20.4

19.7

19.4

17.6

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

10.9

14.5

19.1

20.1

20.4

20.6

22.2

21.4

21.8

21.5

22.8

23.5

24.9

10.5

n.a.: not available. 1. Includes agriculture, forestry and fishing. 2. Includes forestry and hunting. 3. The employment figures do not include subsistence farming.

e

n.a.

19.5

ea

R

n.a.

O

Ukraine1

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South Africa3

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25.9 18.8

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25.5 19.0

EC

Brazil Chile

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1992

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1991

O

1990

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Per cent

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Table B.1. Share of agriculture in total employment

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52.0

10.2

8.8

16.7

Source: OECD based on national data, 2008. statLink 2 http://dx.doi.org/10.1787/532384703610

Table B.2. Share of agriculture in GDP Per cent 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Brazil

8.1

7.8

7.7

7.6

9.9

5.8

5.5

5.4

5.5

5.5

5.6

6.0

6.6

7.4

6.9

5.7

5.2

5.5

Chile

8.0

7.5

7.5

7.2

7.2

6.8

4.2

4.0

4.1

4.1

4.2

4.3

4.4

3.6

3.7

3.8

3.9

3.8

China1

27.1

24.5

21.8

19.7

19.8

19.9

19.7

18.3

17.6

16.5

15.1

14.4

13.7

12.8

13.4

12.5

11.3

11.3

India1

29.3

29.6

29.0

28.9

28.5

26.5

27.4

26.1

26.0

25.0

23.4

23.2

20.9

21.0

19.2

18.8

18.3

17.8

Russia

16.5

14.2

7.3

8.1

6.3

7.6

7.3

7.2

6.5

7.4

6.4

6.6

6.3

6.2

5.6

5.4

5.0

4.6

4.6

4.6

3.8

4.2

4.6

3.9

4.2

4.0

3.8

3.5

3.3

3.5

4.2

3.6

3.1

2.7

2.8

3.2

25.4

22.2

20.8

21.5

15.3

14.6

13.1

13.7

13.7

13.5

16.2

16.3

14.6

12.1

11.9

10.4

8.6

7.6

South Africa Ukraine

1. Includes agriculture, forestry and fishing. Source: OECD based on national data, 2008; World Bank, World Development Indicators, 2008. statLink 2 http://dx.doi.org/10.1787/532422557611

Table B.3. Agricultural input price index Per cent change from previous year 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Brazil

2 645

465

1 087

2 463

919

35

11

5

3

20

6

12

31

13

13

2

2

5

Chile

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

China

6

3

4

14

22

27

8

–1

–6

–4

–1

–1

1

1

11

8

2

8

India

n.a.

20

5

12

10

10

4

7

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Russia

n.a.

90

1 520

970

320

232

64

19

9

61

49

18

12

19

25

16

11

12

12

12

6

9

7

9

13

10

2

5

10

14

20

6

3

2

5

13

n.a.

60

3 769

5 523

729

469

71

12

9

26

32

11

3

8

18

15

14

20


n.a.: not available. Source: OECD based on national data, 2008. statLink 2 http://dx.doi.org/10.1787/532428464001

182


1992

1993

1994

Brazil

2 933

454

1 324

2 843

1 150

–3

11

11

5

17

0

16

47

6

0

O

–6

5

Chile

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

China

–3

–3

3

13

40

20

4

–5

–8

–12

–4

3

4

13

1

1

India1

12

20

5

12

10

9

8

3

12

1

3

4

4

2

2

7

Russia

n.a.

60

845

712

225

235

44

9

11

100

37

7

8

19

1

11

14

6

7

4

0

6

n.a.

90

1 750

3 860

570

330

64

5

10

29

56

2001

25

14

5

n.a.: not available. 1. Agricultural wholesale prices from 1995.

2002

2003

2004

0

3

2005

2006

3

9

28

10

4

28

7

–6

–7

16

–13

21

6

9

2

2007 26

n.a.

19

e

2000

ea

1999

R

1998

O

1997

An

Ukraine

1996

d

1991

EC

1990

South Africa

1995

nl y

Per cent change from previous year

u le

D Br o

n

Table B.4. Agricultural output price index

u Lect

r

n.a.

se

w


30

27

38


Table B.5. Retail food price index Per cent change from previous year 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Brazil

1 413

472

1 152

2 468

1 024

8

2

1

2

8

3

10

Chile

n.a.

n.a.

12

9

7

9

4

9

1

1

0

2

19

7

4

2

1

11

4

–1

0

5

1

China

0

3

8

14

35

25

8

0

–3

–4

–3

1

15

0

3

10

3

3

12

India

n.a.

12

16

10

7

12

11

9

5

15

0

2

3

2

4

2

4

9

Russia1

n.a.

136

2 526

805

214

123

18

9

96

36

18

17

11

10

12

10

9

16

14

11

7

9

7

9

7

5

5

6

9

6

1

3

5

7

n.a. 12 080

370

150

17

14

22

26

28

8

–2

11

15

11

4

24

South Africa Ukraine1

14

16

n.a.

n.a.

n.a.: not available. 1. December to December. Source: OECD based on national data, 2008. statLink 2 http://dx.doi.org/10.1787/532467634305

Table B.6. Gross Agricultural Output growth, total Per cent change from previous year 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Brazil

–4.5

6.1

6.0

0.5

6.9

5.5

–1.4

3.7

1.2

7.7

3.1

5.6

6.2

7.5

5.0

–0.3

n.a.

n.a.

Chile

n.a.

1.3

12.8

0.1

3.8

4.8

–2.0

0.1

2.6

–3.0

3.2

9.5

3.2

–4.2

4.1

5.5

–1.4

–0.1

China

7.6

3.7

6.4

7.8

8.6

10.9

9.4

6.7

6.0

4.7

3.6

4.2

4.9

3.9

7.5

5.7

5.4

3.9

India

0.5

0.8

4.7

2.6

3.6

2.8

4.3

1.5

3.1

4.8

0.0

3.1

–7.0

9.8

0.6

6.2

4.2

4.8

–3.6

–5.0

–9.0

–4.0

–12.0

–8.0

–5.0

2.0

–13.2

4.1

7.7

7.5

1.5

1.3

3.0

2.3

3.6

3.3

Russia South Africa

–1.0

1.5

–15.5

14.3

6.2

–14.7

19.4

1.2

–6.5

6.4

10.0

–4.6

5.7

–0.4

1.8

2.0

0.9

–0.6

Ukraine

–3.7

–13.2

–8.3

1.5

–16.5

–3.6

–9.5

–1.8

–9.6

–6.9

9.8

10.2

1.2

–11.0

19.7

0.1

2.5

–6.5



183

1996

1997

1998

1999

2000

2001

–8.2

1.1

6.4

–1.3

7.9

2.6

–5.7

6.4

1.5

7.2

Chile

n.a.

0.4

15.9

–1.6

5.2

4.9

–3.8

–1.9

3.2

–4.7

China

8.0

0.9

4.2

5.2

3.2

7.9

7.8

4.5

4.9

India

–0.9

1.0

4.8

2.1

3.5

1.7

4.8

0.7

2.4

Russia

–7.5

0.4

–5.0

–3.0

–10.0

–5.0

0.3

7.3

–23.5

1.5

–27.1

31.4

12.2

–20.0

31.4

–1.2

–7.8

8.6

7.2

–17.1

1.4

11.5

–23.5

3.5

–8.8

7.1

–18.1

–10.5

23.2

12.6

South Africa1 –11.1 Ukraine

–6.6

2003

1.9

7.3

5.8

9.7

3.6

10.5

5.0

–5.7

4.3

1.4

3.6

3.9

4.9

–1.7

2.4

–10.5

9.1

13.6

10.8

0.0

3.1

EC

Brazil

2002

–8.2

n.a.: not available. 1. Without horticulture.

2004

2005

O

1995

2006

2007

3.8

–0.6

n.a.

n.a.

3.4

6.0

–3.1

–0.5

0.5

8.5

4.1

5.4

4.0

12.7

–1.0

6.9

4.2

7.4

4.1

2.0

d

1994

ea

1993

R

1992

O

1991

8.5

–4.0

2.7

10.1

–13.8

–2.0

–14.6

35.4

–3.0

1.7

An

1990

nl y

Per cent change from previous year

e

D Br o

n

Table B.7. Gross Agricultural Output growth, crops

u le

w

_it E d it e io s

u Lect

r

5.3

se

ANNEX B

2.0

–7.8

–9.5


Table B.8. Gross Agricultural Output growth, livestock Per cent change from previous year 1990

1991

Brazil

1.8

14.1

5.5

3.1

5.4

9.5

4.3

0.4

0.8

8.4

4.5

3.6

6.7

4.8

Chile

n.a.

3.5

4.9

4.9

0.0

4.5

3.1

5.3

1.2

1.2

2.2

7.2

–1.0

–0.4

China

7.0

8.8

8.8

10.8

16.7

14.8

11.4

10.1

7.4

4.6

6.3

6.3

6.0

7.3

India

4.5

0.5

4.3

4.3

3.9

6.0

2.7

3.6

4.8

4.6

4.2

4.6

2.7

–0.9

–7.0

–12.0

–5.0

–13.0

–10.0

–11.0

–5.3

–1.8

–0.7

0.8

3.5

3.2

Russia

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

6.5

0.0

n.a.

n.a.

5.9

4.3

2.6

0.9

7.2

7.8

5.0

2.3

2.6

4.7

4.3

4.1

3.5

–0.5

–2.4

0.3

5.4

4.8

South Africa

14.1

0.9

1.2

–1.6

–2.5

–5.0

0.1

5.2

–1.3

2.6

11.6

–0.1

2.5

4.5

0.6

1.9

10.4

3.0

Ukraine

–1.2

–9.9

–15.7

–7.9

–8.7

–10.3

–10.2

–11.5

1.6

–2.9

–3.6

7.0

5.3

–6.5

2.0

4.7

3.6

–2.3


Table B.9. Total grain production Million tonnes 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007 68.8

Brazil

32.5

36.7

44.1

43.1

45.8

49.6

45.0

44.9

40.7

47.4

45.9

57.1

50.9

67.5

64.0

55.4

59.1

Chile

3.0

2.9

2.9

2.6

2.6

2.8

2.6

2.9

3.1

2.2

2.6

3.1

3.4

3.7

4.0

3.9

3.5

3.0

China

404.4

395.7

401.7

405.2

393.9

416.1

451.3

443.5

456.2

453.0

405.2

396.5

398.0

374.3

411.6

427.8

451.0

456.3

India

193.9

193.1

201.5

208.6

211.9

210.0

218.8

223.2

226.9

236.2

234.9

243.0

206.6

236.6

229.8

240.0

242.9

252.1

Russia

116.7

89.1

106.9

99.1

81.3

63.4

69.3

88.6

47.9

54.7

65.5

85.2

86.6

67.2

78.1

78.2

78.6

81.8

South Africa

11.6

11.3

5.1

12.8

16.0

7.5

13.7

13.2

10.2

10.1

14.5

10.7

13.1

11.8

12.4

14.2

9.5

9.6

Ukraine

51.0

38.7

38.5

45.6

35.5

33.9

24.5

35.5

26.5

24.4

24.5

39.7

38.8

20.2

41.8

38.0

34.3

29.3

Source: OECD based on national data, 2008; FAO, FAOSTAT Database, 2008. statLink 2 http://dx.doi.org/10.1787/532530788667

184


1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

nl y

1992

2004

2005

2006

2007

2.8

2.2

2.1

1.5

3.3

2.5

2.3

2.5

1.7

3.4

3.1

6.2

5.8

4.7

2.5

4.0

1.6

1.6

1.3

1.3

1.4

1.2

1.6

1.7

1.2

1.5

1.8

1.8

1.8

1.9

1.9

1.4

1.1

China

98.2

96.0

101.6

106.4

99.3

102.2

110.6

123.3

109.7

113.9

99.6

93.9

90.3

86.5

92.0

97.4

108.5

109.3

India

49.8

55.1

55.7

57.2

59.8

65.8

62.1

69.4

66.3

71.3

76.4

69.7

72.8

65.8

72.2

68.6

69.4

74.9

Russia

49.6

38.9

46.2

43.5

32.1

30.1

34.9

44.3

27.0

31.0

34.5

47.0

50.6

34.1

45.4

47.7

45.0

1.7

2.1

1.3

2.0

1.8

2.0

2.7

2.4

1.9

1.7

2.4

2.4

1.5

1.7

1.9

2.1

30.4

21.2

19.5

21.8

13.9

16.3

13.5

18.4

14.9

13.6

10.2

20.6

3.6

17.5

18.7

13.9

13.9

Source: OECD based on national data, 2008; FAO, FAOSTAT Database, 2008.

ea

se

O 21.3

e

Ukraine

2.5

49.4 1.8

r u t Lec statLink 2 http://dx.doi.org/10.1787/532585805262

An

South Africa

u le

2.9

1.7

d

3.1

Chile

EC

Brazil

O

1991

R

1990

D Br o

Million tonnes

w

n

Table B.10. Wheat production


Table B.11. Coarse grain production Million tonnes 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007 53.8

Brazil

22.0

24.3

31.3

30.8

33.2

36.9

33.0

34.0

30.8

33.3

33.1

43.6

37.3

51.0

44.9

37.5

45.1

Chile

2.8

2.6

2.7

2.4

2.4

2.5

2.4

2.7

2.9

2.0

2.4

2.9

3.2

3.5

3.8

3.7

3.2

2.8

China

114.6

115.9

113.9

121.3

118.7

128.7

145.6

119.5

147.8

140.7

117.7

125.0

133.2

127.1

140.5

149.7

155.3

160.6

India

32.6

25.9

36.8

31.0

29.5

28.8

34.2

30.2

31.5

30.4

31.1

33.4

26.1

38.0

33.0

33.7

34.4

36.1

Russia

58.4

45.2

56.9

52.0

46.0

31.3

32.3

42.2

19.5

22.4

29.3

35.9

33.8

31.0

30.3

28.3

31.2

30.4

9.9

9.2

3.7

10.8

14.1

5.5

11.0

10.8

8.3

8.3

12.1

8.2

10.6

10.3

10.7

12.3

7.4

7.8

16.5

14.7

16.0

20.8

19.0

16.0

9.8

15.9

10.7

10.3

13.5

17.5

17.4

16.0

23.4

18.5

19.5

14.9



Table B.12. Total meat production Thousand tonnes, carcass weight 1990

1991

Brazil

7 709

9 465 10 112 10 685 11 489 12 808 12 752 12 960 13 283 14 588 15 434 15 974 17 308 18 388 19 919 20 899 19 963 20 082

Chile

520

China India

529

1992

572

1993

642

1994

730

1995

777

1996

814

1997

849

1998

902

1999

890

2000

954

2001

1 020

2002

1 022

2003

1 041

2004

1 134

2005

1 193

2006

1 339

2007

1 351

30 410 33 362 36 398 40 543 44 720 48 244 45 840 52 688 57 238 59 490 60 139 61 058 62 343 64 433 66 087 69 389 70 890 68 657 3 929

4 023

4 285

4 467

4 494

4 631

4 785

4 669

4 753

4 913

5 201

5 473

5 610

5 727

5 913

6 200

6 121

6 322

10 112

9 375

8 260

7 513

6 803

5 796

5 336

4 854

4 703

4 313

4 432

4 451

4 694

4 936

4 994

4 914

5 189

5 637

South Africa 1 679

1 587

1 578

1 512

1 453

1 558

1 626

1 639

1 662

1 840

1 711

1 777

1 891

1 991

2 083

2 033

2 198

2 111

Ukraine

4 029

3 401

2 815

2 677

2 294

2 113

1 875

1 706

1 695

1 663

1 517

1 648

1 725

1 600

1 597

1 723

1 912

Russia

4 358


Table B.13. Beef and veal production Thousand tonnes, carcass weight 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007 7 900

Brazil

4 132

4 357

4 563

4 654

4 970

5 529

6 045

4 973

5 066

6 413

6 579

6 824

7 139

7 230

7 774

8 592

7 800

Chile

242

229

199

224

239

257

259

262

256

226

226

217

199

191

208

215

238

242

China

1 144

1 397

1 654

2 139

2 535

3 296

3 557

4 409

4 799

5 054

5 131

5 086

5 219

5 425

5 604

5 681

5 767

6 134

India

1 325

1 228

1 279

1 356

1 361

1 365

1 370

1 378

1 401

1 421

1 442

1 452

1 351

1 335

1 337

1 334

1 289

1 282

Russia

4 329

3 989

3 632

3 359

3 240

2 734

2 630

2 366

2 246

1 868

1 895

1 872

1 957

1 990

1 951

1 793

1 705

1 727


665

704

694

611

508

507

502

496

512

625

525

574

610

632

672

770

837

805

1 543

1 457

1 284

1 072

1 108

939

850

758

645

645

615

527

569

591

505

459

464

446



185

ANNEX B

D Br o

w

n

Table B.14. Pigmeat production

_it E d it e io s

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Brazil

1 050

2 120

2 300

2 500

2 700

2 800

2 300

2 350

2 400

2 400

2 600

2 637

2 798

3 059

3 110

3 110

3 120

3 130

Chile

123

128

137

147

160

172

184

208

235

243

261

303

350

365

372

410

468

499

445

469

477

495

514

462

466

473

476

483

487

490

497

497

497

2 784

2 432

2 103

1 865

1 705

1 545

1 505

1 485

1 569

1 498

1 583

1 706

1 644

1 520

1 642

131

113

130

120

119

127

128

125

119

123

104

111

125

143

146

150

151

1 253

1 129

940

807

729

654

652

586

552

546

563

498

507

527

467

413

440


Lect

u

r

497

se

ea

434 3 190

e


417 3 480

R

Russia

O

India

24 016 25 824 27 647 29 836 32 613 33 401 31 580 35 963 38 837 40 056 39 660 40 517 41 231 42 386 43 410 45 553 46 505 42 878

An

China

u le

1992

d

1991

EC

1990

O

nl y

Thousand tonnes, carcass weight

1 821 150

531


Table B.15. Milk production Million tonnes 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Brazil

15.08

15.69

16.42

16.22

16.42

17.13

19.23

19.39

19.41

19.80

20.53

21.28

22.45

23.08

24.34

25.52

26.32

25.46

Chile

1.38

1.45

1.54

1.65

1.75

1.85

1.92

2.05

2.08

2.05

1.99

2.19

2.17

2.13

2.25

2.30

2.40

2.45

China

7.04

7.60

8.07

8.15

8.68

9.46

7.36

6.81

7.45

8.07

9.19

11.23

14.00

18.49

23.68

28.65

33.03

36.33

India

53.68

54.06

56.41

58.86

61.40

65.37

68.36

70.88

74.10

78.24

79.66

83.42

84.76

86.66

91.06

95.62 100.02 102.92

Russia

55.72

51.89

47.20

46.52

42.18

39.20

35.82

34.14

33.26

32.27

32.30

32.90

33.50

33.40

32.20

31.20

31.40

n.a.

n.a.

n.a.

1.88

1.89

2.01

2.15

1.97

2.11

2.20

1.96

1.93

2.00

1.93

2.22

2.32

2.43

2.47

24.51

22.41

19.11

18.38

18.14

17.27

15.82

13.77

13.75

13.36

12.66

13.44

14.14

13.66

13.71

13.71

13.29

12.26


32.20

n.a.: not available. Source: OECD based on national data, 2008; FAO, FAOSTAT Database, 2008. statLink 2 http://dx.doi.org/10.1787/532701845785

186


1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Brazil

21 348

23 624

30 506

30 056

32 488

36 267

32 185

32 948

29 602

32 038

31 879

41 955

35 933

48 327

41 788

35 113

42 662

Chile

823

835

911

899

937

942

931

783

943

624

652

778

924

1 189

1 320

1 507

1 382

1 382

China

96 820

98 770

95 380

102 700

99 280

111 990

127 470

104 310

132 950

128 090

106 000

114 090

121 310

115 830

130 290

139 370

151 600

152 300

India

8 962

8 064

9 992

9 601

8 884

9 534

10 769

10 816

11 148

11 510

12 043

13 160

11 150

14 984

14 172

14 710

n.a.

8 614

3 277

9 997

13 275

4 866

10 171

10 136

7 693

7 946

11 455

7 772

10 077

9 705

9 737

Brazil

7 421

9 488

10 006

10 107

10 541

11 226

8 644

8 352

7 716

11 710

11 090

10 184

10 457

10 320

13 277

Chile

136

117

133

130

133

145

152

107

104

61

135

143

141

140

119

China

189 330

183 810

186 220

177 510

175 930

185 230

195 100

200 730

198 710

198 490

187 910

177 580

174 540

160 660

India

111 517

112 042

109 001

120 400

122 640

115 440

122 500

123 700

129 055

134 496

127 400

139 900

107 730

132 789

Seed cotton

O

d

13 193

11 527

11 080

116

160

110

179 090

180 590

181 720

186 034

124 697

137 690

R

11 749

e

7 339

ea

16 780

6 974

O

Rice, paddy

51 590

14 979

EC

South Africa

An

Maize

2007

nl y

1991

D Br o

1990

u Lect 139 137

141 134

Brazil

1 921

2 080

1 885

1 135

1 368

1 451

954

822

1 173

1 414

2 010

2 646

2 170

2 202

3 801

3 668

2 899

3 854

China

13 523

17 025

13 524

11 217

13 023

14 304

12 609

13 809

13 503

11 487

13 251

15 971

14 748

14 579

18 971

17 142

20 238

22 872

India

5 020

4 955

5 816

5 480

6 064

6 560

7 260

5 535

6 281

5 880

4 923

5 104

4 399

7 002

8 378

9 435

11 568

9 480

149

116

53

32

68

64

113

72

104

136

76

104

47

41

72

60

39

29

Brazil

2 234

2 267

2 432

2 368

2 488

2 692

2 406

2 670

2 784

2 905

2 561

2 849

3 126

3 089

3 047

3 130

3 152

3 394

Chile

828

843

1 023

926

899

869

827

1 304

791

994

988

1 210

1 303

1 093

1 144

1 115

1 391

1 445

China

32 031

30 441

37 826

45 942

43 836

45 984

53 079

57 260

64 618

56 141

66 318

64 596

70 223

68 139

72 256

70 897

70 338

72 040

India

14 771

15 206

16 388

15 230

17 392

17 401

18 843

24 216

17 648

23 611

24 713

22 488

23 920

23 269

23 060

23 631

23 905

26 280

1 261

1 323

1 068

1 279

1 284

1 426

1 592

1 579

1 555

1 674

1 594

1 662

1 556

1 620

1 819

1 787

1 719

1 917

Brazil

262 674

260 888

271 475

244 531

292 102

303 699

317 106

331 613

345 255

333 848

327 705

345 942

364 391

396 012

415 206

422 957

457 246

514 080

China

63 451

72 695

78 869

68 997

66 430

70 279

71 260

83 012

87 204

78 108

69 299

77 966

92 203

91 931

90 978

87 513

100 435

106 316

India

225 569

241 046

254 000

228 030

229 670

275 540

281 100

277 560

262 090

295 730

299 230

295 956

297 200

287 383

233 862

237 088

281 172

355 520

18 083

20 078

12 955

11 244

15 683

16 714

20 951

22 155

22 930

21 223

23 876

21 157

23 013

20 419

19 095

21 052

20 278

20 693

South Africa

u le

w

_it E d it e io s

se

Thousand tonnes

n


Table B.16. Production of selected commodities in selected developing countries

r

Potatoes

South Africa Sugar Cane

South Africa

ANNEX B

187

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Brazil

19 898

14 938

19 215

22 591

24 932

25 683

23 155

26 391

31 307

30 987

32 735

39 058

42 769

51 919

49 550

51 182

52 465

58 197

China

11 008

9 721

10 313

15 323

16 011

13 511

13 234

14 737

15 153

14 245

15 411

15 407

16 505

15 393

17 404

16 350

15 500

15 600

India

2 602

2 492

3 390

4 745

3 932

5 096

5 400

6 463

7 143

7 081

5 276

5 963

4 655

7 819

6 876

8 274

8 857

9 433

n.a.

135

63

69

68

59

80

120

201

188

154

226

223

137

220

273

424

205

Brazil

29 824

31 592

33 065

32 531

31 582

33 884

33 852

37 315

34 747

37 593

37 011

34 021

36 531

35 448

36 884

37 725

36 818

Chile

2 638

2 765

2 869

3 114

3 339

3 536

3 852

3 719

3 785

3 930

3 883

4 209

4 243

4 649

4 681

5 167

5 196

5 309

China

20 952

24 088

26 543

32 502

37 270

44 423

48 778

53 326

56 687

64 826

64 491

68 941

72 003

78 152

84 841

88 512

90 100

94 418

India

27 359

28 040

30 458

33 885

36 140

35 311

37 547

40 604

43 708

44 649

41 903

42 463

45 956

41 017

41 240

42 462

48 045

51 142

3 740

3 797

3 889

3 756

3 801

3 837

4 244

4 456

4 398

5 072

5 109

5 097

5 409

5 833

5 704

5 714

Brazil

17 521

18 936

19 682

18 797

17 446

19 837

21 079

23 047

20 851

22 893

21 330

16 983

18 531

16 918

18 314

17 853

China

1 374

1 711

1 405

1 750

1 790

2 123

2 182

2 110

1 185

1 435

1 181

1 488

1 643

2 013

2 333

2 741

2 790

2 865

India

2 010

1 890

1 330

1 895

1 883

1 595

2 041

2 564

2 354

2 447

2 675

2 575

2 871

1 922

3 263

3 314

3 435

3 900

712

776

712

756

782

876

745

919

978

964

1 156

1 118

1 263

1 267

1 330

1 245

1 333

n.a.

Brazil

1 465

1 520

1 294

1 279

1 307

930

1 369

1 229

1 689

1 632

1 904

1 820

2 650

1 987

2 466

2 140

2 573

2 178

China

6

4

4

4

3

3

3

4

6

9

12

17

19

23

22

22

23

24

India

118

170

180

162

208

180

223

205

228

265

292

301

301

275

271

275

274

275

South Africa Oranges

South Africa

u le

e

O

d

ea 36 606

R

O

Fruits

EC


South Africa

An

Soybeans

2007

nl y

1991

D Br o

1990

n

w

_it E d it e io s

se

Thousand tonnes

ANNEX B

188

Table B.16. Production of selected commodities in selected developing countries (cont.)

u Lect 5 590

5 765

18 032

18 279

r

Coffee

Tobacco leaves Brazil

445

414

576

656

520

456

473

597

505

630

578

565

670

656

921

889

900

919

China

2 646

3 052

3 515

3 468

2 257

2 327

3 245

4 261

2 374

2 478

2 564

2 359

2 454

2 263

2 410

2 686

2 746

2 397

India

552

556

584

597

563

567

535

618

646

736

520

340

550

490

550

549

552

555

Tea China

562

563

580

621

613

609

617

637

688

697

704

722

766

789

855

954

1 049

1 187

India

688

720

754

704

753

754

756

780

810

874

826

847

854

838

857

831

893

949

n.a.: not available. Source: OECD based on national data, 2008; FAO, FAOSTAT Database, 2008. statLink 2 http://dx.doi.org/10.1787/532705317340

1994

1995

1996

1997

1998

1999

2000

2001

2002

Brazil

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Chile

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

27

n.a.

n.a.

n.a.

n.a.

n.a.

China1

59

58

58

58

59

59

56

55

53

53

49

48

46

46

China2

54

54

53

50

50

50

49

47

45

42

India

48

49

48

53

52

51

51

46

46

n.a.

47

46

47

52

50

46

53

54

49

n.a.

n.a.

n.a.

n.a.

n.a.

16

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Ukraine

n.a.

42

n.a.

n.a.

52

50

48

46

48

65

65

63

46

n.a.: not available. 1. Rural households. 2. Urban households. 3. Share of food in total expenditures of households on consumer goods.

2006

2007

17

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

22

47

46

43

43

ea 38

37

38

37

36

n.a.

n.a.

n.a.

n.a.

42

38

36

33

32

n.a.

n.a.

n.a.

n.a.

n.a.

61

58

e

38

South Africa

Russia3

2003

n.a.

R

36

O

38

n.a.

An

39

2005

se

1993

nl y

1992

d

1991

EC

1990

n.a.

2004

O

D Br o

Per cent

n

Table B.17. Average share of household income spent on food

u Lect 58

58

u le

w


r

54

36

50

28

14 57


Table B.18. Annual consumption of grain and grain products Kg per capita 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Brazil1

108.0

107.0

107.0

109.0

108.0

104.0

104.0

105.0

105.0

107.0

100.0

107.0

107.0

118.0

n.a.

n.a.

n.a.

n.a.

Chile

143.5

141.9

163.2

141.2

148.6

150.9

144.7

137.4

148.1

130.0

139.6

142.0

146.1

157.3

143.9

136.0

160.6

143.0

China1

211.0

207.1

207.7

205.6

199.1

196.6

200.0

197.6

194.0

190.5

183.6

177.2

167.6

160.4

n.a.

n.a.

n.a.

n.a.

India

157.5

171.0

158.6

156.2

158.4

167.0

161.5

170.1

151.2

156.7

154.3

141.0

167.4

149.1

155.8

142.7

n.a.

n.a.

Russia

119.0

120.0

125.0

124.0

124.0

121.0

117.0

118.0

118.0

119.0

118.0

120.0

121.0

120.0

119.0

121.0

121.0

n.a.

South Africa 216.5

187.2

177.4

189.5

184.5

182.4

180.5

178.2

183.0

180.9

186.7

185.6

187.6

177.2

133.0

153.3

122.3

94.0

Ukraine

142.5

142.5

144.5

134.8

128.4

123.5

127.0

126.4

122.4

124.9

129.6

131.2

124.5

125.6

123.5

119.5

115.9

141.0

n.a.: not available. 1. The figures are derived from the FAO commodity balances and reflect the gross availability of food products per capita and do not necessarily indicate the actual amount of food consumed by individuals. Source: OECD based on national data, 2008; FAO, FAOSTAT Database, 2008. statLink 2 http://dx.doi.org/10.1787/532742112776

Table B.19. Annual consumption of meat and meat products Kg per capita 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Brazil1

49.7

59.0

60.8

62.1

67.4

75.8

73.5

74.6

73.2

77.6

80.3

77.7

80.1

81.2

74.0

n.a.

n.a.

n.a.

Chile

39.0

39.6

44.4

49.9

54.3

58.0

60.8

63.0

64.5

64.6

67.8

70.5

70.3

70.9

73.9

75.5

79.3

81.3

China1

26.3

28.4

31.0

34.0

37.2

39.6

39.1

44.3

47.5

48.5

50.7

51.6

53.2

55.6

n.a.

n.a.

n.a.

n.a.

India1

4.5

4.5

4.7

4.8

4.8

4.8

4.8

4.6

4.7

4.8

4.9

5.1

5.1

5.2

n.a.

n.a.

n.a.

n.a.

Russia

75.0

69.0

60.0

53.0

45.5

55.0

51.0

50.0

48.0

45.0

41.0

47.0

50.0

52.0

53.0

55.0

58.0

n.a.

South Africa

55.0

43.8

42.7

40.0

37.6

39.5

40.1

39.8

39.4

42.7

39.2

63.4

41.6

42.9

44.7

45.2

n.a.

n.a.

Ukraine

68.2

65.5

53.4

46.4

43.5

38.9

37.1

34.7

33.4

33.1

32.8

31.1

32.6

34.5

38.5

39.1

42.0

45.7

n.a.: not available. 1. The figures are derived from the FAO commodity balances and reflect the gross availability of food products per capita and do not necessarily indicate the actual amount of food consumed by individuals. Source: OECD based on national data, 2008; FAO, FAOSTAT Database, 2008. statLink 2 http://dx.doi.org/10.1787/532745274357


189

ANNEX B

w

_it E d it e io s

1994

1995

1996

1997

1998

1999

2000

2001

2002

nl y

1993

2003

2004

2005

2006

2007

85.0

87.0

85.0

88.0

102.0

106.0

105.0

105.0

106.0

106.0

104.0

111.0

111.0

n.a.

n.a.

n.a.

n.a.

107.1

115.3

121.2

121.6

125.4

132.2

128.1

132.0

124.6

125.5

124.9

118.5

125.3

111.8

120.2

129.7

126.3

6.6

6.8

6.8

7.4

7.8

8.2

8.1

8.4

9.0

9.8

11.2

13.5

16.8

15.4

n.a.

n.a.

n.a.

58.0

57.2

58.7

60.0

61.3

63.8

63.8

66.4

68.2

70.5

71.0

72.7

73.4

75.7

68.3

n.a.

n.a.

Russia

386.0

347.0

281.0

294.0

278.0

253.0

232.0

229.0

221.0

215.0

216.0

219.0

227.0

233.0

235.0

239.0

38.5

40.4

48.8

46.9

47.3

48.2

47.6

42.3

45.1

284.5

264.2

256.2

243.5

230.2

210.4

213.6

210.9

199.1

45.5

205.2

n.a.: not available. 1. Whole fresh milk.

45.8

45.1

46.4

n.a.

n.a.

225.3

226.4

226.0

225.6

234.7

e

46.4 345.5

R

52.1 373.2

231.0

An


ea

6.1

India1

O

China1

se

u le

81.0 101.4

d

Chile

1992

EC

Brazil1

1991

O

1990

D Br o

Kg per capita

n

Table B.20. Annual consumption of milk and dairy products

u Lect

r

n.a.

n.a.

n.a.

224.6


Table B.21. Total area sown, crops Million hectares

Brazil

1

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007 61.5

51.4

51.5

51.6

47.6

52.2

51.7

46.6

48.5

47.6

49.9

50.7

51.2

54.1

58.6

62.9

63.4

61.7

Chile

2.8

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

2.7

China

148.4

149.6

149.0

147.7

148.2

149.9

152.4

154.0

155.7

156.4

156.3

155.7

154.6

152.4

153.6

155.5

152.1

153.5

India Russia South Africa Ukraine

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

190.6

193.0

189.4

185.7

189.8

175.7

190.4

190.9

n.a.

n.a.

117.7

115.5

114.6

111.8

105.3

102.5

99.6

96.6

91.7

88.3

85.4

84.8

84.6

79.6

78.8

77.5

77.1

76.4

7.6

7.2

6.8

7.2

7.4

6.6

7.0

7.1

6.0

6.4

6.2

6.0

6.2

6.0

5.7

5.7

n.a.

n.a.

32.4

32.0

31.5

31.3

31.0

31.0

30.1

30.3

28.8

28.3

27.2

27.9

27.5

25.1

26.8

26.0

25.9

26.1

n.a.: not available. 1. According to the Brazilian Agricultural and Livestock Census 2006, published in 2007, the cropped area was 76.7 million hectares in 2006. Source: OECD based on national data, 2008; FAO, FAOSTAT Database, 2008.


Table B.22. Grain sown areas Million hectares 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007 19.6

Brazil

18.5

19.8

20.6

18.3

20.1

19.8

17.5

17.8

15.8

17.4

17.3

18.1

17.9

19.9

20.4

19.2

18.4

Chile

0.8

0.7

0.7

0.6

0.6

0.6

0.6

0.6

0.6

0.5

0.6

0.6

0.7

0.7

0.7

0.7

0.6

0.5

China

93.6

94.1

92.5

88.9

87.5

89.3

92.2

92.0

92.1

91.6

85.3

82.6

81.5

76.8

79.4

81.9

84.9

85.8

India

102.5

100.2

99.5

100.1

100.2

99.5

100.3

100.2

100.9

102.1

102.4

100.3

93.9

98.3

95.9

99.5

100.3

n.a.

63.1

61.8

61.9

60.9

56.3

54.7

53.4

53.6

50.7

46.6

45.6

47.2

47.5

42.2

43.7

43.8

43.4

44.4

Russia South Africa Ukraine1

6.2

5.7

5.4

5.9

6.2

5.3

5.5

5.8

4.7

4.6

5.0

4.5

4.7

4.7

4.3

4.4

3.0

3.9

14.6

14.7

13.9

14.3

13.5

14.2

13.2

15.1

13.7

13.2

13.6

15.6

15.4

12.5

15.4

15.0

14.5

15.1

n.a.: not available. 1. Grain and pulses for 1990 and 1991. Source: OECD based on national data, 2008. statLink 2 http://dx.doi.org/10.1787/533002300432

190


1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Brazil

147 102

152 136

154 229

155 134

158 243

161 228

158 289

161 416

163 154

164 621

169 876

176 389

185 347

195 552

204 513

207 157

205 886

Chile

3 336

3 404

3 461

3 557

3 692

3 814

3 858

4 142

4 160

4 134

4 068

3 980

3 927

3 932

3 989

4 200

4 300

4 350

China

79 497

81 328

82 723

85 783

90 908

100 556

110 318

121 822

124 419

126 983

123 532

118 092

115 678

114 344

112 354

109 908

104 651

105 948

India

178 703

177 840

203 634

202 684

201 734

200 784

198 882

196 535

194 216

191 924

189 660

187 422

185 180

182 996

180 837

54 677

52 200

48 914

43 297

39 700

35 103

31 520

28 481

28 032

27 300

27 100

26 500

24 900

23 000

South Africa

13 500

13 500

13 100

12 500

12 600

13 000

13 400

13 700

13 800

13 600

13 500

13 500

13 600

13 500

13 500

n.a.

24 623

23 728

22 457

21 607

19 624

17 557

15 313

12 759

11 722

10 627

9 424

9 421

9 108

7 712

n.a.: not available.

207 170

21 500

13 500

13 900

13 500

6 903

6 514

6 175

ea

21 500

R

O

Ukraine

O

204 584

57 043

d

203 500

58 841

EC

202 500

Russia

2007

nl y

1991

D Br o

1990

u le

w

_it E d it e io s

se

Thousand heads, 1 January

n

e


An


Table B.23. All cattle inventories

r


u Lect

Table B.24. Pig inventories Thousand heads, 1 January 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Brazil

33 623

34 290

34 532

34 184

35 142

36 062

29 202

29 637

30 007

30 839

31 562

32 605

32 013

32 305

33 085

34 064

35 174

34 080

Chile

1 251

1 226

1 288

1 407

1 490

1 486

1 655

1 717

1 451

1 633

1 568

2 170

2 305

2 166

2 314

2 572

2 855

2 957

China

360 898

371 210

379 911

394 070

402 943

424 787

362 836

400 348

422 563

431 442

416 336

419 505

417 762

413 818

421 234

433 191

418 504

439 895

India

11 900

12 400

12 700

13 400

13 632

14 148

14 684

13 200

13 300

13 500

13 600

13 800

13 900

14 000

14 200

14 200

14 200

14 000

Russia

39 982

38 314

35 384

31 500

28 557

24 859

22 600

19 115

17 348

17 248

18 271

15 700

16 000

17 300

16 000

13 400

13 500

15 800

South Africa

1 665

1 654

1 653

1 570

1 585

1 707

1 699

1 736

1 780

1 647

1 678

1 710

1 663

1 663

1 651

1 622

1 651

1 650

n.a.

19 427

17 839

16 175

15 298

13 946

13 144

11 236

9 479

10 083

10 073

7 652

8 370

9 204

7 322

6 466

7 053

8 055

Ukraine n.a.: not available.


ANNEX B

191

nl y u le

O d

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OECD PUBLICATIONS, 2, rue André-Pascal, 75775 PARIS CEDEX 16 PRINTED IN FRANCE (51 2009 01 1 P) ISBN 978-92-64-05927-6 – No. 56621 2009

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2009

_it E d it e io s

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D Br o


n

Agricultural Policies in Emerging w Economies


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This report analyses policy developments during 2006-08 in seven economies: Brazil, Chile, China, India, Russia, South Africa and Ukraine. This period was marked by a significant increase in world prices for most, but not all, agricultural commodities. Policy responses to rising food prices included tariff reductions, export restrictions, increased minimum prices and price controls, input subsidies, sales of stocks and direct transfers to the most disadvantaged. Other major common policy developments included: expanded government-supported credit facilities and/or debt rescheduling, endeavours to improve the delivery and performance of agricultural policies, extended coverage r of insurance programmes and further efforts in land reform. A comprehensive statistical annex u t containing a wide range of contextual information for these economies is also included L e cin this report.

An

FURTHER READING OECD Rural Policy Reviews: China (2009) OECD Review of Agricultural Policies: Chile (2008) Agricultural Policies in OECD Countries: At a Glance (2008) OECD’s Producer Support Estimate and Related Indicators of Agricultural Support: Concepts, Calculations, Interpretation and Use (The PSE Manual) (2008), available at www.oecd.org/tad/support/psecse


Estimates of support to agriculture in six economies (India is not yet covered) from 1995 to 2007 are provided, in conformance with recent changes to the OECD measurement methodology. This allows a consistent comparison across emerging economies and with OECD countries in terms of changes in the level and composition of support to producers and the sector as a whole. Findings show that the level of producer support during 2006-08 was lower than the OECD average in all six economies, with significant differences between them. Nevertheless, the level of producer support has shown a general increase over time and is typically provided in ways that distort production and trade. The database of indicators for the six economies is available on line: www.oecd.org/tad/support/psecse.


The full text of this book is available on line via these links: www.sourceoecd.org/agriculture/9789264059276 www.sourceoecd.org/emergingeconomies/9789264059276 www.sourceoecd.org/transitioneconomies/9789264059276 Those with access to all OECD books on line should use this link: www.sourceoecd.org/9789264059276 SourceOECD is the OECD online library of books, periodicals and statistical databases. For more information about this award-winning service and free trials ask your librarian, or write to us at [email protected].

2009

isbn 978-92-64-05927-6 51 2009 01 1 P

www.oecd.org/publishing

-:HSTCQE=UZ^W\[:

2009

Agricultural Policies in Emerging Economies 2009: Monitoring and Evaluation

Agricultural Policies in Oecd Countries: Monitoring and Evaluation 2003

Agricultural Policy Monitoring and Evaluation 2011: OECD Countries and Emerging Economies

Agricultural and Rural Development Policies in the Baltic Countries (Emerging Economies Transition)

Monetary Policies and Inflation Targeting in Emerging Economies

Agricultural support policies in transition economies, Volumes 23-470

Media Piracy in Emerging Economies

Media Piracy in Emerging Economies

Rural Landscapes and Agricultural Policies in Europe

Growth and Development in Emerging Economies

Financial Policies in Emerging Markets

Competition Policies in Emerging Economies: Lessons and Challenges from Central America and Mexico

Coherence of Agricultural and Rural Development Policies

Agricultural Wastes (Agriculture Issues and Policies Series)

Watershed Health Monitoring: Emerging Technologies

Labour Market and Social Policies in the Baltic Countries (Emerging Economies Transition)

Cyber Law and Cyber Security in Developing and Emerging Economies

Energy and Environmental Policies in the Transition Economies

Intellectual Property, Innovation and Management in Emerging Economies

E-procurement in Emerging Economies: Theory and Cases

Income and Influence: Social Policy in Emerging Market Economies

Voices for Change: Participatory Monitoring and Evaluation in China

Oecd Review of Agricultural Policies: Brazil (OECD Reviews of Agricultural Policies)

Voices for Change: Participatory Monitoring and Evaluation in China

Structural Sensing, Health Monitoring, and Performance Evaluation (Series in Sensors)

OECD Review of Agricultural Policies China (OECD Reviews of Agricultural Policies)

Handbook of Agricultural Economics: Agricultural Development: Farm Policies and Regional Development (Handbooks in Economics)

Educational Evaluation in East Asia: Emerging Issues and Challenges

Agricultural Policies in Emerging Economies 2009: Monitoring and Evaluation

Agricultural Policies in Oecd Countries: Monitoring and Evaluation 2003

Agricultural Policy Monitoring and Evaluation 2011: OECD Countries and Emerging Economies

Agricultural and Rural Development Policies in the Baltic Countries (Emerging Economies Transition)

Monetary Policies and Inflation Targeting in Emerging Economies

Agricultural support policies in transition economies, Volumes 23-470

Media Piracy in Emerging Economies

Media Piracy in Emerging Economies

Rural Landscapes and Agricultural Policies in Europe

Growth and Development in Emerging Economies

Financial Policies in Emerging Markets

Competition Policies in Emerging Economies: Lessons and Challenges from Central America and Mexico

Coherence of Agricultural and Rural Development Policies

Agricultural Wastes (Agriculture Issues and Policies Series)

Watershed Health Monitoring: Emerging Technologies

Labour Market and Social Policies in the Baltic Countries (Emerging Economies Transition)

Cyber Law and Cyber Security in Developing and Emerging Economies

Energy and Environmental Policies in the Transition Economies

Intellectual Property, Innovation and Management in Emerging Economies

E-procurement in Emerging Economies: Theory and Cases

Income and Influence: Social Policy in Emerging Market Economies

Voices for Change: Participatory Monitoring and Evaluation in China

Oecd Review of Agricultural Policies: Brazil (OECD Reviews of Agricultural Policies)

Voices for Change: Participatory Monitoring and Evaluation in China

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OECD Review of Agricultural Policies China (OECD Reviews of Agricultural Policies)

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