High Commodity Prices Cut Farm Subsidies To New Low
Current high prices for agricultural commodities provide an opportunity for countries to further reduce trade-distorting measures, the OECD says in a new report on agricultural policies.
Total government support to farmers fell to 23% of receipts in 2007 from 26% in 2006, but this was largely due to the impact of higher prices, rather than to changes in policies. With higher world prices, lower levels of support and subsidies were needed to prop up domestic prices.
In a longer-term perspective, the currently observed level of producer support is the lowest since the estimates began in the mid-1980s: it came down from 37% of gross farm receipts in 1986-88 to 26% in 2005-07. In that period, the average amount by which domestic prices in OECD countries exceeded border prices more than halved – from 50% to 20%.
If higher agricultural market prices persist for some time, which may lead to higher incomes for farm households, policy makers have an opportunity to roll back the most distorting measures that still dominate agricultural policy, the OECD said. “Those measures have been less effective in tackling farm income problems, and have contributed to inequity in the distribution of support among farm households and the environmental performance problems of the sector.”
Not grasping the reform opportunities will prolong the life of policy measures that create market imbalances.
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