South Africa

Farm support low in major emerging markets but protectionist pressure rising - OECD report

 

15/03/2007 - Government support to agriculture is far lower in the major emerging economies than on average in the developed countries of the OECD. But it is nevertheless rising as pressure mounts to protect farmers in an increasingly competitive global marketplace, says a new OECD report.

Agricultural policies in non-OECD countries looks at eight nations which between them produce nearly one third of the world’s agricultural output  - Brazil, China, India, South Africa, and the formerly planned economies of Russia, Bulgaria, Romania and Ukraine. In most of these countries the share of gross farm revenue made up of government support and subsidies is less than half the OECD average of 30%.

However this share is on the rise in most of the countries in the study and much of the support goes into propping up prices, the least efficient and most trade distorting form of government subsidy, according to the OECD.

Support to producers has risen over recent years in all the countries studied except Russia, where levels were already relatively high. A stronger economic environment is also contributing to the trend, says the report. Governments find they can afford to transfer more funds to the farm sector while consumers are often more able to tolerate higher food prices.

The report analyses how effectively governments are responding to common challenges such as alleviating poverty, promoting rural development, ensuring food security and helping farmers adapt to global competition.

The report criticises the relatively low level of government funding for general services to agriculture, such as research and development, training, marketing and infrastructure investment. And it adds that although all the countries surveyed have demonstrated that profound farm sector reform is possible and beneficial, inconsistent implementation of policies has undermined their effectiveness in many cases.

Central to the OECD’s recommendations is the need for a greater diversification of sources of income in rural communities, particularly in the subsistence farming sector. Improved education and health services, land rights and tax reform would encourage this diversification and reduce dependency on agriculture alone.

Some specific characteristics of agriculture in the eight countries reviewed are set out below:

  • In Brazil agricultural trade continues to expand, accounting for 37% of the country’s exports and 86% of its trade surplus. New biofuel programmes are providing business incentives for small farms.
  • The importance of agriculture to the Chinese economy is declining. The sector represents 13% of GDP, 4% of exports but 40% of employment, which indicates a large gap in labour productivity between agriculture and the rest of economy. In recent years China has become a net importer of food.
  • In India, a new five-year plan targets agriculture as a contributor to a more broad-based,  inclusive growth. Input subsidies that harm the environment and support inefficient industries should be reduced while government support should go to general services.
  • Russian government support to the farm sector is climbing back to the levels before the 1998 financial crisis. It is being aimed particularly at rebuilding the livestock industry. Increased attention is being paid to social conditions in the countryside and to sustainable land use.
  • Ukraine could become a major grain and oilseed producer through consistent and predictable economic and agricultural policies. Reallocation of budgetary support from input subsidies and output payments to general services could enhance the long-term competitiveness of Ukrainian agriculture.
  • South Africa’s agro-food sector is increasingly export oriented with Europe absorbing almost half of its exports. Black empowerment remains a government priority in rural areas but well targeted support programmes are required to ensure that people entering the commercial farming sector can create viable businesses servicing niche markets alongside the larger and longer-established businesses.
  • Having joined the EU in January 2007 Bulgaria and Romania have adopted the Common Agricultural Policy. Support to farmers is expected to continue to increase, in particular in Bulgaria where support levels were low compared to EU average. Within the Common framework, avoiding support that encourages production and choosing well-targeted payments would improve the efficiency of agricultural policies.

To obtain a copy of the highlights of Agricultural policies in non-OECD countries, journalists are invited to contact the OECD Media Division (tel: + 33 1 4524 9700).

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