OECD review of agricultural reform

The OECD Joint Working Party on Agriculture and Trade issued a report on November 6th 2002 seeking to elaborate on a positive agenda for agricultural reform in the OECD countries which would reconcile commitments to market-based systems with the pursuit of domestic agricultural and rural development objectives. The 37 page paper includes: an assessment of the performance of domestic agricultural policy programmes in terms of their stated objectives; an elaboration of the links between domestic and international policies and the consequences which flow from these linkages; an examination of how domestic policy could be implemented whilst allowing the benefits of open markets to be reaped. With specific reference to the EU the report notes that some progress has been made in moving away from the most trade-distorting forms of support. A major conclusion of the report is that market-price support and other measures linked to output have a low income-transfer effect and are thus not well suited to supporting the EU farmers most in need. It points out that targeted income payments have a much higher income-transfer effect. The report notes that domestic support programmes often need associated trade policies to hold them in place and that they have 'the potential to distort trade even if explicit protection is not required'. Consequently current OECD agricultural policies tend to 'shift the burden of adjustment onto other countries . . . in principle, agricultural trade reform should bring down the estimated US$16 billion that OECD countries collect in tariff revenues from developing countries and provide an important springboard for export-led growth in these countries'. However, 'there is doubt whether these potential benefits will materialise'. The Uruguay Round of trade reform 'led to only a modest reduction in actual protection levels and hence did not improve market access for developing countries very significantly'. The report argues for further improvements in developing country market access and increased attention to addressing supply-side constraints on production and exports. It notes however that agricultural reform in OECD countries can erode the benefits derived from existing trade preferences by preferred partners such as the ACP. In noting developing country concerns over who wins and who loses from further reform the report highlights that 'the adjustments in policy required by WTO rules do not give sufficient consideration to the specific concerns of developing countries and that the process of negotiating and implementing a trade agreement has favoured high-income OECD countries with greater resources.' In reviewing the reform agenda which was left unaddressed during the Uruguay Round the report concludes that the removal of all forms of export subsidies would produce important benefits for developing countries. The report manifests a certain scepticism about the need to compensate farmers for the provision of public goods, which are not recompensed through the market and argues for addressing market failures at source. It notes the complexities involved in reconciling reform and more market-oriented agricultural policies with the pursuit of wider rural development objectives and emphasises that much depends on how specific measures are implemented in practice. Comment: In arguing for improved market access the report fails to take into account the impact of the process of reform on the attractiveness of the EU market. For the ACP the attractiveness of exporting to the EU market arises from the high prices obtained for such exports. As the reform process allows EU agricultural prices to fall, so the attractiveness of the EU market and the value of existing ACP preferences declines. For example, what is the value of improved access to the EU market for ACP rice exporters if EU prices have halved? This issue is particularly relevant in those sectors where the new forms of agricultural support programmes continue to distort prices on world markets. It should be noted that the low income-transfer benefits of price-support measures means that the benefits of such programmes are gained by other EU operators. The fact that the benefits of agricultural support are gained by those other than the ones intended (traders and processors rather than less efficient farmers) may lead to other unintended, external, consequences of EU agricultural-support programmes.The OECD Joint Working Party on Agriculture and..